Full Year 2023 UBS Group AG Earnings Call
Sergio Amati: We've solidified our position as a global leader, with a differentiated business model and unparalleled presence around the world. Our acquisition of Credit Suisse has accelerated our strategy, making us a more diversified and stronger pillar of the global and Swiss financial systems.
We solidified our position as a global leader with a differentiated business model and unparalleled presence around the world.
Acquisition of credit Suisse have acceleration strategy, making us a more diversified and stronger pillar the global financial system.
Sergio Amati: We've brought our teams together, rebuilt our stakeholders' trust, delivered seamless client service, and maintained operational stability, and we're on track to complete our integration by the end of 2026. The combination of our firms makes us the European global leader and the icon of Swiss banking expertise, and we're confident that our most profitable days are ahead. Today, UBS is the only truly global wealth manager and a top-tier financial institution, with commitment to our craft evident in all we do. Amid challenging circumstances, our priorities remain unchanged. An unwavering focus on our clients, investing in strategic growth, progressing our integration at pace, and maintaining capital strength and a balance sheet for all seasons. Today, UBS stands stronger than ever.
We brought our teams together rebuild how stakeholders.
Seamless client service and maintained operational stability.
We're on track to complete all integration by the end of 2020 things to.
The combination of our funds makes us the European Global leader and V icon of Swiss banking expertise.
Confident that our most profitable days alright.
UBS is the only truly global wealth manager and the top tier financial institution with commitment to a cross evidenced in all we do is amid challenging circumstances, our priorities remain unchanged.
Unwavering focus on our clients.
Investing in strategic growth.
Grafting, how integration at pace and maintaining capital strength and our balance sheet football season.
UBS stand stronger than ever.
Sergio Amati: We're unifying our brand, strengthening our culture and our client offering, and positioning for even greater heights as we look to 2027 and beyond. At UBS, we're already writing the next great chapter in our history. Good morning, and welcome everyone.
We're unifying our brand.
Strengthening our culture and our client offerings.
And positioning for even greater heights, and so as we look to 2027 and beyond.
Would you be asked we're already rushing the next great chapter in our history.
[music].
Speaker Change: Good morning, and welcome everyone before we start I would like to draw your attention to our cautionary statement flight at the back of today's results presentation.
Sarah: Before we start, I would like to draw your attention to our cautionary statement slide at the back of today's results presentation. Please also refer to the risk factors filed with our group results today, together with our additional disclosures in our SEC filings. On slide two, you can see our agenda for today. Now, Sarah, and good morning, everyone.
Speaker Change: Please also refer to the risk factors filed without group results today together with our additional disclosures.
Speaker Change: Our SEC filings.
Speaker Change: Okay.
Speaker Change: On slide two.
Speaker Change: You can see our agenda for today.
Surgery: It is now my pleasure to hand over to surgery or multi group C. A.
Surgery: Okay.
Speaker Change: Thank you Sarah.
Speaker Change: And good morning, everyone.
Sergio Amati: 2023 was a defining year for UBS, as we acquired Credit Suisse in one of the largest transactions in banking history, setting a new long-term trajectory for our franchise. It was also an intense year that required exceptional focus from all of our colleagues during periods of significant change and uncertainty. We stayed close to our clients, helping them manage a rapidly evolving geopolitical and macroeconomic backdrop, as well as the turmoil that occurred in the financial system last March. The strength and stability UBS provides is a direct result of our decade-long sustainable strategy, our unwavering commitment to maintaining a balance sheet for all seasons, and a focus on risk and capital efficiency. For these reasons, clients reward UBS with their extended trust and confidence during periods of volatility and market uncertainty, and it allowed UBS to credibly step in and stabilize the Swiss and wider financial system by taking over Credit Suisse. We have acquired an enterprise that has suffered from many years of unsustainable capital allocation and underinvestment in its businesses and control framework. This resulted in cost and capital inefficiencies, significant losses, and, ultimately, substantial franchise erosion.
C. A.: 2023 was a defining year for UBS as we acquire credit Suisse in one of the largest transactions in banking is three setting a new long term trajectory for our franchise.
C. A.: It was also on in terms of your dad the required exceptional focus from all of our colleagues during periods of significant change and uncertainty.
C. A.: We stayed close to our clients, helping them manage a rapidly evolving geopolitical and macroeconomic backdrop.
C. A.: As well as the turmoil that occurred in the financial system last March.
C. A.: The strength and stability of our UBS provides is a direct result of our decade long sustainable strategy on our unwavering commitment to maintaining our balance sheets for all seasons, and a focus on risk and capital efficiency.
C. A.: For these reasons clients reward UBS with their extend the trust and confidence.
During periods of volatility and market uncertainty.
C. A.: And it allowed UBS to credibly stepping and stabilize the suites and wider financial system.
C. A.: By taking over credit Suisse.
C. A.: We have acquired an entrepreneur that has suffered from the many years of unsustainable capital allocation and ongoing investment in its businesses and control framework.
C. A.: This resulted in cost and capital inefficiencies significant losses, and ultimately substantial franchise erosion.
Sergio Amati: However, the acquisition accelerates our strategic priorities by providing UBS with a complementary client base, a stronger regional presence, more products and services, as well as many talented people. This gives us great confidence in our ability to meet our ambitions and deliver long-term growth and consistently higher returns. We made great progress on our plans in 2023.
C. A.: However, the acquisition accelerates, our strategic priorities by providing UBS with a complementary client base stronger regional presence more products and services as well as many talented people.
C. A.: This gives us great confidence in our ability to meet our ambitions and deliver long term growth and consistently higher returns.
C. A.: We made great progress on our plans in 2023, we successfully won back retained and grew clients assets, while beginning the restructuring phase.
Sergio Amati: We successfully won back, retained, and grew clients' assets while beginning the restructuring phase. We have also substantially reduced funding costs and run down non-core books in our first full quarter as a combined firm. We stabilized Credit Suisse's client franchises and achieved underlying profitability. This permitted us to pay down the extraordinary liquidity support and voluntarily terminate the loss protection agreement guaranteed by the Swiss government.
C. A.: We have also substantially reduce funding costs and around down noncore books.
C. A.: In our first full quarter as a combined firm with stabilized credit suisse's client franchises and achieved underlying profitability.
C. A.: This permitted us to pay down the extra ordinary liquidity support and voluntarily terminate the loss protection agreement guaranteed by the Swiss government.
Sergio Amati: We also provided important clarity for all of our stakeholders as we finalized our target operating model. Notably, we established the perimeter for non-core and legacy and moved forward with fully integrating our Swiss domestic operations. Our progress continued in the fourth quarter.
C. A.: We also provided important clarity for all of our stakeholders as we finalize our target operating model.
C. A.: Notably, we established the perimeter for noncore and legacy and move forward with fully integrating our Swiss domestic operations.
C. A.: Our progress continued in the fourth quarter.
Sergio Amati: We maintained momentum with our clients with $22 billion in net new assets in GWM, bringing our total to $77 billion since the closing of the acquisition. In the quarter, we also cut another $1 billion in exit rate gross costs as we move forward on our restructuring plan. Nearly 80% of non-core and legacy $12 billion decline in risk-weighted assets in the second half was driven by our active wind-down.
C. A.: We maintained momentum with our clients with 22 billion in net new assets and GW am bringing our total to 77 billion since the closing of the acquisition.
C. A.: In the quarter, we also cut another $1 billion in exit rate gross costs as we move forward on our restructuring plans.
C. A.: Nearly 80% of non core and legacy 12 billion decline in risk weighted assets in the second half was driven by our active wind downs.
C. A.: Yeah.
Sergio Amati: We achieved all of this while maintaining our capital strength. Our CT1 capital ratio increased to 14.5%, helping us to build capacity for higher capital returns while, at the same time, preparing to absorb integration charges and tax inefficiencies. A great and often overlooked measure of the group's resilience and self-sufficiency is our total loss-absorbing capacity, which now stands at $200 billion. Given the ongoing debate following the events of last March, this is particularly relevant to me.
C. A.: We achieved all of this while maintaining our capital strength, our CET one capital ratio increased to 14, 5%, helping us to build capacity for higher capital returns while at the same time preparing to absorb integration charges and tax inefficiencies.
C. A.: A great and often overlooked measure of the group's resilience and self sufficiency is our total loss absorbing capacity, which now stands at 200 billion.
C. A.: Given the ongoing debate following the events of last March this is particularly relevant to me.
Sergio Amati: Lastly, let me highlight something I'm especially proud of and which I believe is the essential driver of what will make this successful journey a great story. Our people have embraced both our culture and the opportunity ahead while collaborating on the integration. This will allow us to continue to serve clients and fulfill our growth initiatives. Before I take you through our plans for the next phase and the acquisition, I will hand over to Todd to cover our four-quarter results. Thank you, Sergio. And good morning, everyone.
C. A.: Lastly, let me highlight some things I'm, especially proud of and which I believe is the essential driver of what we will make these successful journey a great story.
C. A.: Our people have embraced both our culture and the opportunity ahead, while collaborating on the integration.
C. A.: This will allow us to continue to serve clients and fulfill our growth initiatives.
C. A.: Before I take you through our plans for the next phase.
C. A.: And out of the acquisition I will hand over to Todd to cover our fourth quarter results.
Todd: Thank you Sergio.
Todd: And good morning, everyone.
Todd: You'll recall that with our third-quarter earnings, we introduced underlying performance metrics that strip out items that we don't consider to be representative of underlying performance, primarily pull-to-par effects from the purchase price allocation process and integration-related expenses. In this respect, when assessing the progress we are making in our underlying performance, it is important to remember that our underlying operating expense baseline is the combination of the cost stacks of two globally systemically important banks, such that our underlying costs, in absolute terms, remain elevated and will remain elevated for some time. This quarter, our underlying performance also excludes a material loss relating to our ownership interest in six groups. In my remarks, I will refer to these underlying numbers in U.S. dollars and compare them to our performance last quarter, unless stated otherwise, starting with the P&L on slide six. PBT in the fourth quarter was $592 million, a decrease of $322 million from the third quarter, mainly driven by lower client activity and billable invested assets, as well as the U.K. bank levy and a U.S. FDIC special assessment relating to last year's U.S. bank closures. Credit loss expenses were $136 million this quarter, mainly relating to PNC and the IB.
Todd: You'll recall that with our third quarter earnings we introduced underlying performance metrics that strip out items that we don't consider to be representative of underlying performance.
Todd: Primarily pull to par effects from the purchase price allocation process.
Todd: And integration related expenses.
Todd: In this respect when assessing the progress we are making in our underlying performance. It is important to remember that our underlying operating expense baseline is the combination of the cost tax of two globally systemically important banks such that our underlying costs in absolute terms remain elevated.
Todd: It will for some time.
Todd: This quarter, our underlying performance also excludes a material loss relating to our ownership interest in six group.
Todd: In my remarks, I will refer to these underlying numbers in U S dollars and compare them to our performance last quarter.
Todd: Less stated otherwise.
Todd: Starting with the P&L on slide six.
Todd: PBT in the fourth quarter was 592 million a decrease of $322 million from the third quarter, mainly driven by lower client activity and billable invested assets as well as the U K Bank Levy and the U S. FDIC special assessment relating to last year's U S Bank.
Todd: <unk>.
Todd: Credit loss expenses were 136 million this quarter, mainly relating to P&C and the I b.
Todd: On a reported basis, the fourth quarter net loss was $279 million, including a net tax benefit of $473 million, primarily resulting from a revaluation of our deferred tax assets as we completed our business planning process. As we continue to execute on our integration plans at pace and benefit from seasonally higher client activity, we expect substantial improvement in our first quarter reported net profit as compared to 4Q23. Moving to revenues on slide six, Group revenues decreased by 3% sequentially to $10.4 billion, driven by lower recurring net management fees on a reduced average invested asset base, lower fair value and exit gains in non-core and legacy, as well as decreased transaction-based revenues across the division.
Todd: On a reported basis the fourth quarter net loss was 279 million, including a net tax benefit of $473 million, primarily resulting from a revaluation of our deferred tax assets as we completed our business planning process.
Todd: As we continue to execute on our integral integration plans at pace and benefit from seasonally higher client activity, we expect substantial improvement in our first quarter reported net profit as compared to <unk> 23.
Todd: Moving to revenues on slide six group.
Todd: Group revenues decreased by 3% sequentially to 10.4 billion driven by lower recurring in net management fees on a reduced average invested asset base lower fair value and exit gains in non core and legacy as well as decreased transaction based revenues across the divisions.
Todd: Total reported revenues reached $10.9 billion, which included $944 million from pulled to par and related effects in our core businesses. As mentioned, we also marked down our investment in Sixx by $508 million to reflect the lower valuation of Sixx's stake in Worldline, as well as its goodwill impairment relating to its ownership of the Spanish Stock Exchange. Moving to slide seven.
Total reported revenues reached $10 9 billion, which included $944 million from pull to par and related effects in our core businesses.
Todd: As mentioned, we also marked down our investment in six by $508 million to reflect the lower valuation of sixes stake in worldwide as well as six as goodwill impairment relating to its ownership of the Spanish stock exchange.
Todd: Moving to slide seven.
Todd: Operating expenses for the group increased to $9.7 billion, up 1%. Our combined workforce was reduced by around 4,000 in the quarter, bringing year-to-date reductions to 17,000, or down 11% versus the workforce of both banks at the end of 2022. These reductions contributed to our achievement of around $4 billion in gross run rate cost savings exiting 2023 when compared to the 2022 baseline. Integration-related expenses were $1.8 billion, of which $794 million were personnel-related, including a pension benefit equalization charge of $245 million and $604 million from real estate and technology asset expenses. The pension charge did not affect CET1 capital as we recorded an offsetting gain in OCI.
Todd: Operating expenses for the group increased to $9 7 billion up 1%.
Todd: Our combined workforce was reduced by around 4000 in the quarter, bringing year to date reductions to 17000 were down 11% versus the workforce of both banks at the end of 2022.
Todd: These reductions contributed to our achievement of around $4 billion in gross run rate cost saves exiting 2023 when compared to the 2020 to baseline.
Todd: Integration related expenses were $1 8 billion of which 794 million were personnel related including a pension benefit equalization charge of $245 million and $604 million from real estate and technology asset expenses.
Todd: The pension charge did not affect CET, one capital as we recorded an offsetting gain in OCI.
Todd: On a reported basis, including integration related expenses Opex was $11 5 billion.
Todd: On a reported basis, including integration-related expenses, OPEX was $11.5 billion. Now, turning to the performance of our businesses, beginning with global wealth management on slide 8. As mentioned last quarter, to align with peers, we now report net new money plus dividends and interest under the label of net new assets. We will also continue to disclose net new fee-generating assets now for the combined franchise. We saw continued momentum and flows with $22 billion in net new assets, with particularly strong performance in APAC and the Americas. We also attracted $16 billion of net new deposits with net inflows across both the UBS and Credit Suisse platforms, including deposit inflows in the Americas for the first time since 2021.
Todd: Okay.
Todd: Okay.
Todd: Turning to the performance in our businesses beginning with global wealth management on slide eight.
Todd: As mentioned last quarter to align with peers. We now report net new money plus dividends and interest under the label of net new assets. We will also continue to disclose net new fee generating assets now for the combined franchise.
Todd: We saw continued momentum in flows with 22 billion in net new assets with particularly strong performance in APAC and the Americas.
Todd: We also attracted $16 billion of net new deposits with net inflows across both the UBS and credit Suisse platforms, and including deposit inflows in the Americas for the first time since 2021.
Todd: Despite the significant outflows of Credit Suisse in the first half of 2023, we generated around 54 billion of net new assets across the platforms for the full year as we stabilized Credit Suisse and grew our combined franchise. Moving on to GWM's P&L, profit before tax was $778 million, down 31% sequentially, driven by lower revenues and higher operating expenses.
Todd: Despite the significant outflows at credit Suisse in the first half of 2023, we generated around 54 billion of net new assets across the platforms for the full year as we stabilized credit Suisse and grew our combined franchise.
Todd: Okay.
Todd: Moving onto Gws P&L profit before tax was $778 million down 31% sequentially, driven by lower revenues and higher operating expenses.
Todd: Credit provisions were a $7 million release in the quarter. Revenues of $5.4 billion were 3% lower, with decreases in NII and recurring fees, and with transactional revenues overall impacted by lower client activity, but nonetheless strong on the UBS platform, up 10% year-over-year. Net interest income was down 2%, reflecting tapering deposit mix effects in the U.S. and ongoing deleveraging, partially offset by stronger deposit revenues on higher volumes.
Todd: Credit provisions were 7 million release in the quarter.
Todd: Revenues of 5.4 billion were 3% lower with decreases in NII and recurring fees and with transactional revenues overall impacted by lower client activity, but nonetheless strong on the UBS platform up 10% year over year.
Todd: Net interest income was down 2%, reflecting tapering deposit mix effects in the U S and ongoing deleveraging, partially offset by stronger deposit revenues on higher volumes.
Todd: Recurring fees were down 2%, reflecting a lower average billing base. However, operating expenses increased 5% to $4.6 billion, mainly due to the FDIC special assessment, litigation provisions, and higher marketing and branding costs. Important to note is that we continue to see progress in taking down costs across GWM where we are integrating Credit Suisse. Specifically, in the parts of our wealth business outside the U.S., underlying operating expenses ex-litigation and FX ticked down in the quarter and have dropped 8% compared to 2Q23 on an exit rate basis. In the U.S., where a year-over-year comparison is more relevant, costs were down 2% ex-financial advisor compensation, the FDIC assessment, and litigation. Turning to Personal and Corporate Banking on slide 9. In its first full quarter since the announcement of the Swiss decision at the end of August, PNC generated a pre-tax profit of 794 million Swiss francs, up 3%, with lower revenues more than offset by lower operating expenses and credit charges.
Todd: Recurring fees were down 2%, reflecting a lower average billing base.
Todd: Operating expenses increased 5% to 4.6 billion, mainly due to the FDIC special assessment litigation provisions and higher marketing and branding costs.
Todd: Important to note is that we continue to see progress in taking down costs across G. Wm, where we are integrating credit Suisse.
Todd: Specifically in the parts of our wealth business outside the U S underlying operating expenses ex litigation and FX ticked down in the quarter.
Todd: And have dropped 8% compared to <unk> 23 on an exit rate basis.
Todd: In the U S, where our year over year comparison is more relevant costs were down 2% ex financial adviser compensation, the FDIC assessment and litigation.
Todd: Yeah.
Todd: Turning to personal and corporate banking on slide nine.
Todd: In its first full quarter since the announcement of the Swiss decision at the end of August P&C generated a pretax profit of 794 million Swiss francs up 3% with lower revenues more than offset by lower operating expenses and credit charges.
Todd: As I highlighted last quarter in connection with September trends, the focus on win-back and coverage alignment across both Swiss platforms continues to contribute to strong financial performance for PNC, including over $7 billion of net new deposit inflows in the fourth quarter and revenue resiliency. Net interest income was down 1% as the benefits from deposit inflows and higher rates were slightly more than offset by the effects of lower loan volumes and clients shifting deposits into higher yielding products.
Todd: As I highlighted last quarter in connection with September trends, the focus on win back and coverage alignment across both Swiss platforms continues to contribute to strong financial performance for P&C, including over 7 billion of net new deposit inflows in the fourth quarter and.
Todd: Revenue resiliency.
Todd: Net interest income was down 1% as the benefits from deposit inflows and higher rates were slightly more than offset by the effects of lower loan volumes and clients shifting deposits into higher yielding products.
Todd: We expect NII for PNC and GWM combined, and in U.S. dollar terms, to be roughly flat sequentially in the first quarter, with higher rates broadly offsetting the residual effects of deposit mix shifts and the initial impact of financial resource optimization, which Sergio and I will cover in greater detail shortly. Non-NII revenues in P&C declined by 11%, mostly driven by transaction-based income, including lower client activity, particularly in corporate and institutional Credit loss expenses in the quarter were 72 million Swiss francs, mainly related to defaults across several names on the Credit Suisse platform and from aligning provisioning approaches pertaining to Credit Suisse's watchlist credit.
We expect NII for PNC and Gws combined <unk>.
Todd: And in U S dollar terms to be roughly flat sequentially in the first quarter with higher rates broadly offsetting the residual effects of deposit mix shifts and the initial impact of financial resource optimization, which Sergio and I will cover in greater detail shortly.
Todd: Non NII revenues in P&C declined by 11%, mostly driven by transaction based income, including lower client activity, particularly in corporate and institutional clients.
Todd: Credit loss expenses in the quarter were 72 million Swiss francs, mainly related to defaults across several names on the credit Suisse platform and from aligning provisioning approaches pertaining to credit Suisse's Watch list credits.
Todd: I would also note that PPA adjustments have reduced the level of CLE this quarter. However, while we have now substantially aligned provisions and methodologies across both books, we could see a continuation of the elevated levels of CLE in P&C for the foreseeable future, given Credit Suisse's higher historical credit risk profile and the current economic environment. OPEX dropped by 5% on lower personnel and real estate expenses.
Todd: I would also note that PPA adjustments have reduced the level of cle this quarter.
Todd: While we have now substantially aligned provisions and methodologies across both books, we could see a continuation of the elevated levels of C. L. E N P&C for the foreseeable future given credit suisse's higher historical credit risk profile and the current economic environment.
Todd: Opex dropped by 5% on lower personnel and real estate expenses.
Todd: Okay.
Todd: Moving to slide 10, underlying PBT in asset management increased 16% to $180 million on seasonally higher performance fees and from gains on disposals that closed in the quarter, notably our joint venture in South Korea. However, net management fees were down slightly on lower average invested assets in the quarter.
Todd: Moving to slide 10.
Underlying PBT in asset management increased 16% to $180 million on seasonally higher performance fees and from gains on disposals that closed in the quarter, notably our joint venture in South Korea.
Todd: Net management fees were down slightly on lower average invested assets in the quarter.
Todd: OPEX increased 4% to $625 million, mainly from higher personnel expenses and litigation charges. Net new money in the quarter was negative $12 billion, predominantly from two large outflows in indexed equities, while we continue to see client demand for SMA and private markets capabilities. Turning to the investment bank on slide 11, as we said last quarter, since the IB has taken on only select parts of Credit Suisse's investment bank, we continue to consider year-over-year comparisons to be instructive in describing the performance of the business, in particular regarding revenues. The operating loss of $280 million primarily reflects 34% higher costs, mainly personnel and technology-related, while revenues from onboarded Credit Suisse staff are only beginning to build. However, underlying revenues, not including $277 million of pull-to-par accretion and other effects, increased 11% year-over-year to $1.9 billion.
Todd: Opex increased 4% to 625 million, mainly from higher personnel expenses and litigation charges.
Todd: Net new money in the quarter was negative 12 billion predominantly from two large outflows in index equities, while we continue to see client demand for SMA and private markets capabilities.
Todd: Yeah.
Todd: Turning to the investment bank on slide 11.
Todd: Yeah.
Todd: As we said last quarter since the I B has taken on only select parts of credit Suisse's investment Bank, we continue to consider year over year comparisons to be instructive in describing the performance of the business in particular regarding revenues.
Todd: The operating loss of 280 million, primarily reflects 34% higher costs, mainly personnel and technology related while revenues from Onboarding credit Suisse staff are only beginning to build.
Todd: Underlying revenues, not including $277 million of pull to par accretion and other effects increased 11% year over year to $1 9 billion.
Todd: Global banking revenues increased 69%, with fee pool outperformance across key products and across all regions and particular strength in leveraged and debt capital markets, as well as strong performance in the Americas. Global markets revenues were down 4%, reflecting declines in rates and FX, more than offsetting growth in equity derivatives, cash equities, and financing, the latter of which topped off its best full year on record.
Todd: Global banking revenues increased 69% with fee pool outperformance across key products and across all regions and particular strength in leveraged and debt capital markets as well as strong performance in the Americas.
Todd: Global markets revenues were down, 4%, reflecting declines in rates and FX more than offsetting growth in equity derivatives cash equities and financing the latter of which topped off its best full year on record.
Todd: I should highlight that cash equities gained global market share over the course of 2023. During the fourth quarter, we completed the Credit Suisse banking team integration, which is already showing in our M&A pipeline. Similarly, for markets, we expect a substantially complete onboarding of the team and the majority of its trading positions to UBS infrastructure by the end of 1Q. With improving market activity, a growing banking pipeline, and advanced progress on integration, we expect the IB to return to profitability in the first quarter. Moving to the non-Corinne legacy on slide 12, the underlying PBT was negative 977 million.
Todd: I should highlight that cash equities gained global market share over the course of 2023.
Todd: During the fourth quarter, we completed the credit Suisse banking team integration, which is already showing in our M&A pipeline.
Todd: Similarly for markets, we expect to substantially complete on boarding of the team and the majority of its trading positions to UBS infrastructure by the end of <unk>.
Todd: With improving market activity, a growing banking pipeline and advanced progress on integration, we expect the I b to return to profitability in the first quarter.
Todd: Moving to non core legacy on slide 12.
Todd: Underlying PBT was negative $977 million.
Todd: In the quarter, we reduced RWA by $6 billion, with three-quarters of the decrease from active wind down. LRD dropped by 19 billion and is down one-third since 2Q23. Revenues were $162 million in the quarter. As in 3Q, on average, we exited positions at or above our mark. Credit loss expenses were negligible in the quarter now that the majority of the NCL book is accounted for at fair value. Notably, underlying OPEX was down 9% as we continue to reduce headcount. Integration-related expenses of $749 million consisted mainly of real estate impairment charges.
Todd: In the quarter, we reduced <unk> by 6 billion with three quarters of the decrease from active wind down.
Todd: <unk> dropped by $19 billion and is down one third since two to 'twenty three.
Todd: Revenues were $162 million in the quarter as and three Q on average, we exited positions at or above our marks.
Todd: Credit loss expenses were negligible in the quarter now that the majority of the NCL book is accounted for at fair value.
Todd: Notably underlying Opex was down 9% as we continue to reduce head count.
Todd: Integration related expenses of $749 million consisted mainly of real estate impairment charges.
Todd: Okay.
Todd: Yeah.
Todd: Moving to CE21 Capital and RWA on slide 13, our capital position remains strong, with capital ratios comfortably above our guidance and regulatory requirements. The CET1 capital ratio improved 10 basis points to 14.5% as the negative impacts from the reported loss and dividend accruals were more than offset by RWA reductions, XFX, and a net write-up of temporary difference DTAs. Both CET1 capital and RWAs were significantly impacted by currency translation, which broadly offset each other in the CET1 capital ratio. Currency translation effects also accounted for more of the $80 billion increase in LRD this quarter.
Todd: Moving to see tier one capital and <unk> on slide 13.
Todd: Our capital position remains strong with capital ratios comfortably above our guidance and regulatory requirements.
Todd: The CET one capital ratio improved 10 basis points to 14, 5% as the negative impacts from the reported loss and dividend accruals were more than offset by <unk> reductions ex FX and a net write up of temporary difference DTA is.
Todd: Both CET, one capital and our debut as were significantly impacted by currency translation, which broadly offset each other in the CET one capital ratio.
Todd: Currency translation effects also accounted for more of the $80 billion increase in <unk> this quarter.
Todd: We also retained higher HQLA to underpin increased deposit balances and to address the new Swiss liquidity requirements that just took effect. I will return shortly to comment on how we're thinking more broadly about capital, liquidity, and funding as we work towards delivering our financial ambitions by the end of 2026. Let me also briefly touch on a few reporting changes we are implementing from the first quarter of 2024. First, we are transferring the high net worth client segment from the Swiss Bank of Credit Suisse to Global Wealth Management to best meet our clients' needs and align to UBS's divisional structure. These clients represent an estimated $60 billion in invested assets and $550 million in annual revenues.
Todd: We also retained higher HQ L. A to underpin increased deposit balances and to address the new Swiss liquidity requirements that just took effect.
Speaker Change: I will return shortly to comment on how we're thinking more broadly about capital liquidity and funding as we work towards delivering our financial ambitions by the end of 2026.
Speaker Change: Let me also briefly touch on a few reporting changes we are implementing from the first quarter of 2024.
Speaker Change: First we are transferring the high net worth client segment from the Swiss Bank of credit Suisse to global wealth management to best meet our clients' needs and aligned to Ubs's divisional structure.
Speaker Change: These clients represent an estimated 60 billion in invested assets and $550 million in annual revenues.
Todd: Second, and as I highlighted last quarter, we are pushing out to our business divisions substantially all balance sheet, equity, and P&L items that were previously retained centrally. We will restate 2023 to ensure comparability and publish an updated time series ahead of 1Q results. With that, I'll hand over to Sergio for the investor update. Thank you, Todd.
Speaker Change: Second and as I highlighted last quarter, we are pushing out to our business divisions substantially all balance sheet equity and P&L items that were previously retained centrally.
Speaker Change: We will restate 2023 to ensure comparability and publish an updated time series ahead of <unk> results.
Speaker Change: With that I'll hand back to Sergio for the Investor update.
Sergio: Thank you Todd.
Sergio Amati: For more than a decade, UBS has stood out among its GC peers for its favorable mix of businesses and unique models. Our Global Asset Gathering Operation and Swiss Universal Bank are at the core of our strategy, and they are complemented by our Capital Light Investment Bank. Since 2012, our ambition to be the world's leading global wealth manager has served us well, allowing us to generate over $50 billion in capital for shareholders through the end of 2022 while also investing in sustainable long-term growth. The Kurdish-Swiss deal accelerates our strategy.
Sergio: For more than a decade UBS as a stood out among its a G SIB peers or its favorable mix of businesses and unique model.
Sergio: Our global asset gathering operation and Swiss Universal Bank are at the core of our strategy and they are complemented by our capital light investment Bank.
Sergio: Since 2012, our ambition to be the ward, leading global wealth manager are served the house, well, allowing us to generate over 50 billion in capital for shareholders through the end of 2022.
Sergio: While also investing in sustainable long term growth.
Sergio: The credit Suisse deal accelerates our strategy.
Sergio Amati: We are the only truly global wealth manager with nearly $4 trillion in invested assets across a client franchise that would be nearly impossible to replicate. Globally, GWM clients benefit from our unparalleled advice, products, and services. We are the number one wealth manager in Switzerland, EMEA, and AIPAC. In these regions, our invested assets have grown by at least 50% due to the acquisition, the equivalent of a decade of growth. In the Americas, we are a top player in the U.S. and are number one in Latin America.
Sergio: We are the only truly global wealth manager with nearly four trillion in invested assets across our client franchise that would be nearly impossible to replicate.
Sergio: Globally gws clients benefits from our unparalleled advised products and services.
Sergio: We are the number one wealth manager in Switzerland, EMEA and APAC.
Sergio: In key regions, our invested assets have grown by at least 50% due to the acquisition the equivalent of a decade of growth.
Sergio: In the Americas, we are a top player in the U S and are number one in Latin America. The acquisition is also reinforcing our position as the number one universal bank in Switzerland.
Sergio Amati: The acquisition is also reinforcing our position as the number one universal bank in Switzerland. This is not a function of our size or market share but the clear result of the value we bring to our clients through our one firm approach, expertise, and global reach, which is particularly important to our large corporate and small and medium enterprise clients. With 1.6 trillion in invested assets, asset management has improved our competitiveness globally and expanded our presence in growth markets. We have strengthened the value provided to clients through complementary products across key asset classes. In the investment bank, we are reinforcing our competitive position with our key clients. We will continue to build durable and profitable market share in the areas that differentiate UBS for our clients, while now deploying a smaller proportion of the Group's financial resources compared to pre-acquisition levels. We finish 2023 with strong momentum in terms of our integration timeline. While we have full confidence in our ability to fulfill our goals, we are not complacent about the magnitude and complexity of the task ahead.
Sergio: This is not a function of our size or market share, but the clear result of the value we bring to our clients through our one firm approach expertise and global reach that is particularly important to our large corporate and small and medium enterprise.
Sergio: <unk>.
Sergio: With one six trillion in invested assets asset management as improved our competitiveness globally and expanded our presence in growth markets.
Sergio: We have strengthened the value provided to clients through complementary products across key asset classes.
Sergio: In the investment bank, we are reinforcing our competitive position with our key clients.
We will continue to build durable and profitable market share in the areas that differentiate UBS for our clients why now deploying a smaller proportion of the group's financial resources compared to pre acquisition levels.
Sergio: Yeah.
We finished 2023 with strong momentum in terms of our integration timeline.
Sergio: While we have full confidence in our ability to fulfill our goals. We are not complacent about the magnitude and complexity of the task ahead.
Sergio Amati: Given the evident structural issues with Credit Suisse's business model and lack of profitability, there is a significant amount of restructuring and optimization that must take place over the next three years before we can harvest the full benefits of the combination. As we previously communicated, during 2024 and 2025, we will incur substantial integration-related expenses as we materially restructure and remove duplication across our operations. The non-core and legacy portfolio will continue to be a meaningful drag on our results as it is actively unwound.
Sergio: Given the evidence structural issues with credit Suisse. This business model and lack of profitability. There is a significant amount of restructuring and optimization that must take place over the next three years before we can harvest the full benefits of the combination.
Sergio: As we've previously communicated during 2024 and 2025, we will incur substantial integration related expenses as we materially restructure and remove duplication across our operations.
Sergio: The non core and legacy portfolio will continue to be a meaningful drag on our results as it is actively unwound.
Sergio Amati: In addition, over the next three years, Credit Suisse's core businesses will also continue to require balance sheet optimization, while we will sacrifice some reported profitability and growth in the short term. However, we are convinced this will improve the quality of our long-term growth trajectory and bring greater cost and capital efficiency. As a result, we are reiterating our targets to realize an underlying return on CT1 capital of around 15% and a cost-income ratio of less than 70% as we exit 2026. As I've said before, 2024 is a pivotal year for UBS. We are taking a staged approach in our execution plan to minimize the risk of disruption for clients and employees.
Sergio: In addition over the next three years.
Sergio: <unk> Suisse's core businesses. We also continued to require balance sheet optimization.
Sergio: While we will sacrifice some reported profitability and growth in the short term.
Sergio: We are convinced this will improve the quality of our long term growth trajectory and bring greater cost and capital efficiency.
As a result, we are reiterating our targets to realize an underlying return on CET, one capital of around 15% and cost income ratio of less than 70% as we exit 2026.
Sergio Amati: With over 6,000 deliverables over the next three years, the task is not as simple as the illustrative overview you see on slide 18. We expect to complete the merger of our parent banks and establish a single US IHC by the end of the first half of the year. The merger of our Swiss entities should occur before the end of the third quarter.
Sergio: Okay.
Sergio: As I've said before 2024 is a pivotal year for UBS.
Sergio: We are taking a staged approach in our execution plan to minimize the risk of disruption for our clients and employees.
Sergio Amati: Completing these key milestones will allow us to realize the associated cost, capital, and funding benefits. These significant legal entity mergers are a prerequisite for the first wave of client migrations and will allow us to begin streamlining and decommissioning legacy platforms in the second half of 2024. This process will continue into 2025 before we begin the transition towards our target state in 2026. Again, I'm sure we all appreciate the significant costs associated with running and combining 2G SIPs, including one that is still structurally unprofitable. This is why a pure integration cost journey is not enough.
Sergio: With over 6000 deliverables over the next three years. The task is not as simple as the Lucerne, Steve overview, you'll see on slide 18.
We expect to complete the merger of our parent banks and establish a single U S. IH see by the end of the FERC first half of the year.
The merger of our Swiss entities should occur before the end of the third quarter.
Sergio: Completing these key milestones will allow us to realize the associated cost capital and funding benefits.
Sergio: These significant legal entity mergers are a prerequisite for the first wave of client migrations and will allow us to.
Sergio Amati: We also need to deeply restructure to get to an appropriate cost base. Therefore, the realization of our integration plans and the rundown of the non-core and legacy portfolio is expected to result in around $13 billion in gross cost reductions by the end of 2022. In addition to supporting our cost-income ratio target, the decrease also provides us with the necessary capacity to enhance the resilience of our combined infrastructure. It will also allow us to continue to drive enduring growth by investing in talent, products, and services. We will focus on improving the client experience and lowering the cost to serve by leveraging our already leading technology proficiency. Another key driver of value creation will come from improved use of our financial resources.
Sergio: Begin streamlining and decommissioning legacy platforms in the second half of 2024.
Sergio: This process will continue into 2025 before we begin the transition towards our target state in 2026.
Sergio: Okay.
Sergio: Again I'm sure. We all appreciate the significant costs associated with Ronnie and combining two G sibs, including one that is still structurally unprofitable.
Sergio: This is why a pure integration cost journey is not enough.
Sergio: We also need to deeply restructure to get to an appropriate cost base.
Sergio Amati: Obviously, the most prominent example is the non-core and legacy portfolio, where we expect our wind-down efforts to result in a capital release of over $6 billion by the end of 2026. Of equal importance, we need to optimize the utilization of financial resources across the core businesses to improve returns on risk-weighted assets. As you can see on the slide, Credit Suisse's capital efficiency and profitability were compromised in recent years by capital-intensive exposures, underpriced resources and products, and order rates that were not aligned to underlying risks. While in the short term it will be difficult to produce the best-in-class returns that UBS had previously, our aim is to narrow the gap in a reasonable time frame. This will require repricing and or exiting low returning exposure.
Sergio: Therefore, the realization of our integration plans and the round down of the noncore and legacy portfolio is expected to result in around 13 billion in gross cost reductions by the end of 2026.
Sergio: In addition to supporting our cost income ratio target. The decrease also provides us with the necessary capacity to enhance the resilience of our combined infrastructure.
Sergio: It will also allow us to continue to drive enduring growth by investing in talent products and services.
Sergio: We will focus on improving the client experience and lowering the cost to serve by leveraging our already leading technology proficiencies.
Sergio: Okay.
Sergio: Another key driver of value creation will come from improved use of our financial resources.
Sergio Amati: We will also remain disciplined to ensure that pricing reflects the underlying risks and value of the advice, products, and services we provide. As we do this... We will expect to capture gross inflows in GWM and PNC as we prioritize relationships where we provide more holistic client coverage. As I say... We assume that our actions to improve capital efficiency will result in a lower growth trajectory through 2025, a necessary trade-off to create long-term value. Now, moving to our medium-term priorities and ambitions for our business divisions, starting with GWM. We have robust momentum across our entire platform, and our top objectives are to stay close to clients and improve advisor productivity. Switzerland, EMEA, and APEC; we expect PBT margins to eventually exceed 40% in each of these regions as we capture the benefits of our fortified leadership positions and integration-related synergies. While our U.S. wealth management business will profit from our strengthened investment bank and asset management franchises, it is not directly benefiting from increased scale related to the acquisition.
Sergio: Obviously, the most prominent example is the noncore and legacy portfolio, where we expect our wind down efforts to result in a capital release of over 6 billion by the end of 2026.
Sergio: Of equal importance, we need to optimize the utilization all financial resources across the core businesses to improve returns on risk weighted assets.
Sergio: As you can see on the slide previously as this capital efficiency and profitability were compromised in recent years by capital intensive exposures underpriced resources and products and are the rates that were not aligned to underlying risks.
Sergio: While in the short term it will be difficult to produce the best in class returns that UBS had previously our aim is to narrow the gap in a reasonable timeframe.
Sergio: This will require repricing and act or exiting low retarding exposures.
Sergio: We will also remain disciplined to ensure that pricing reflects the underlying risk and value of this advice products and services we provide.
Sergio: As we do this.
Sergio: We will expect to capture gross inflows in gws and P&C as we prioritize our relationships, where we provide more holistic client coverage.
Sergio Amati: Therefore, we need to keep working on improving our profitability. Over the next three years, we will organically invest to institutionalize our platform by building out our core banking infrastructure to provide clients with a more comprehensive loan and deposit offering and by rolling out more products and services to ultra-high net worth and family and institutional wealth clients. We will further leverage our advisory capabilities through our global CIO platform. In particular, we aim to provide our international clients who have an interest in the U.S. with more access to our American advisors and products.
Sergio: As I say.
Sergio: We assume that our actions to improve capital efficiency will result in a lower growth trajectory through 2025.
Sergio: Unnecessary tradeoff to create long term value.
Sergio: Now moving to our medium term priorities and ambitions for our business divisions, starting with GW.
Sergio: Yeah.
We have robust momentum across our entire platform and our top objectives are to stay close to clients and improve advisor productivity.
Sergio Amati: We will also continue to invest in our infrastructure to augment the user experience and improve productivity. We expect PBT margins in the U.S. to remain in the low double digits in the near term, but we are confident that the actions we take will help produce mid-teens profit margins by the end of 2020. This will put us in a position to explore opportunities to further narrow the gap with our peers. Our actions will allow GWM to attract around $100 billion in net new assets per annum through 2025, as we expect, to continue growth in our platform, to partially be offset by the outflows related to the capital efficiency initiatives I described a moment ago. From 2026, our aim is to build to around 200 billion in net new assets annually by 2028.
Sergio: In Switzerland, EMEA and APAC, we expect PBT margins to eventually exceed 40% in each of these regions as we capture the benefits of our fortified leadership positions and integration related synergies.
Sergio: While our U S wealth management business will profit from our strengthened investment bank and asset management franchises.
Sergio: Is not directly benefit benefiting from increased scale related to the acquisition.
Sergio: Therefore, we need to keep working on improving our profitability.
Sergio: Over the next three years, we will organically invest to institutionalize our platform by building out our core banking infrastructure to provide clients with a more comprehensive loan and deposit offering and by rolling out more products and services to ultra high net worth.
Sergio Amati: Overall, this level of organic growth over three years would nearly add up to the Credit Suisse franchise we just acquired and will power our ambition to surpass $5 trillion in invested assets. Greater scale alongside our cost and capital efficiency measures will support GWM's ability to achieve improved profitability with an unexpected underlying cost-income ratio of less than 70%. In Switzerland, we are the leading bank for multinationals and S&Es, and we also serve more than one in three households.
Sergio: Family and institutional wealth clients.
Sergio: We will further leverage our advisory capabilities through our global CIO platform in.
Sergio: In particular, we aim to provide our international clients, who have interest in the U S with more access to our American advisers and products.
Sergio: We will also continue to invest in our infrastructure to augment the user experience and improve productivity.
Sergio Amati: To reiterate, our uniqueness is not driven by size, but by our ability to provide these clients with access to innovative products, solutions, digital applications, and a global footprint. In recent years, PNC's consistent investments to improve the client experience and boost efficiency have supported steady growth and higher returns. We will replicate this playbook for our combined client franchise. Meanwhile, we will lower our cost to serve by streamlining our operations, decommissioning legacy technology platforms, and removing branch duplication.
Sergio: We expect EBIT margins in the U S to remain in the low double digit in the near term, but we are confident that the actions. We take will help produce mid teens profit margins by the end of 2026.
This will put us in a position to explore opportunities to further narrow the gap to our peers.
Our actions will allow GW N to attract around 100 billion in net new assets per annum through 2025 as we expect.
Sergio Amati: Our ambition is for PNCs to report a cost income ratio below 50% as we exit 2020. In asset management, we are building on our differentiated offering in sustainable investing and SMAs with an expanded alternatives platform, which includes new capabilities in credit. Our aim is to keep growing our higher-margin products and capture the benefits of our increased scale in customized indexing and a deeper regional footprint. We will do this while building on our strong partnership with global wealth management to drive growth. While our improved strategic positioning and product offering will help us meet the evolving needs of our clients, we are not immune to structural issues facing the asset management industry. This makes the realization of cost synergies a critical component of our plan to get to a cost-income ratio below 70% by the end of 2026, while self-funding investments for growth and efficiency will be delivered. The acquisition has added capability that was already of strategic importance for our investment bank. Therefore, in terms of strategy... Client's Priorities and Risk Discipline. Nothing changes.
Sergio: To continue growth in our platform to partially be offset by the outflows related to the capital efficiency initiatives I described a moment ago.
Sergio: From 2026, our aim is to build to around 200 billion in net new assets annually by 2028.
Sergio: Overall this level of organic growth over three years booth nearly add up to the credit Suisse franchise, we just acquired.
Sergio: And will power our ambition to surpass five trillion in invested assets.
Sergio: Greater scale, alongside our cost and capital efficiency measures will support GW Ams ability to achieve improved profitability with unexpected underlying cost income ratio of less than 70%.
Sergio: In Switzerland, we are the leading bank for multinationals N S N ease and we also serve more than one in three households.
To reiterate our uniqueness is not driven by size, but by our ability to provide these clients with access to innovative products solutions digital applications and global footprint.
Sergio Amati: In global banking, we have significantly strengthened our coverage and product teams in growth markets that are aligned to GWM, notably the Americas and APEC. We have reinforced our leading position in Switzerland. And globally, we expect our broader and deeper solutions across M&A, equity capital markets, and leverage and capital markets to drive profitable market share. We are already seeing the benefits with notable mandate successes across the globe. In global markets, we are strengthening core products and services that are most relevant to our clients, including electronic trading, financing, and equity derivatives. Our award-winning equities and FX franchises will now serve an even larger and broader client base, also supported by our strengthened global research coverage of the most relevant and fastest-growing sectors. By deploying its products and services across a more diversified institutional, corporate, and financial sponsor client base, in addition to the improved connectivity with our clients in GWM and PNC, the investment bank is poised to achieve around 15% return on attributed equity over the cycle. And it will do this while consuming no more than 25% of the group's risk-weighted assets.
Sergio: In recent years Pnc's consistent investments to improve the client experience and boost efficiency are supported steady growth and higher returns.
Sergio: We will replicate this playbook for our combined client franchises.
Sergio: Meanwhile, we will lower our cost to serve by streamlining our operations decommissioning legacy technology platforms, and removing branch duplications.
Sergio: Our ambition is for PS and CS to report a cost income ratio below 50% as we exit 2026.
Sergio: In asset management, we are building on our differentiated offering in sustainable investing NSM as Wade and expanded alternatives platform, which includes new capabilities in credit.
Sergio: Our aim is to keep growing our higher margin products and capture the benefits of our increased scale in customized indexing and a deeper regional footprint.
Sergio: We will do this while building on our strong partnership with global wealth management to drive growth.
Sergio: While our improved strategic positioning and product offering will help us meet the evolving needs of our clients, we are not immune to structural issues facing the asset management industry.
Sergio Amati: As I mentioned before, the active rundown of the non-core and legacy portfolio releases capital, removes tail risks and complexity, and reduces our cost base, allowing us to improve our return. We have made good progress today. We have closed over 2,000 NCL books, including the full exit of several macro books, and are largely closed.
Sergio: This makes the realization of cost synergies a critical component of our plan to get to a cost income ratio below 70% by the end of 2026, while self funding investments.
Sergio: For growth and efficiency will be delivered.
Sergio: The acquisition as added capability that we're already of strategic importance for our investment bank.
Sergio Amati: We have largely closed our non-core cash equities, convertible, and prime services exposure. To date, we have decommissioned around 150 NCL systems and retired nearly 20% of its models. As we further wind down this portfolio, we will focus on economic profitability, including funding, operating, and capital costs. We will also remain focused on balancing our priorities with the needs of our clients and counterparties. Our ambition is for NCL's underlying loss to move to around $1 billion, with the residual portfolio of total risk-weighted assets accounting for around 5% of the group by the end of 2026. By the end of 2024, we expect combined credit and market risk-related assets to be substantially below $40 billion.
Sergio: Therefore in terms of strategy.
Sergio: <unk> priorities and risk discipline nothing changes.
Sergio: And global banking, we have significantly strengthened our coverage and product teams in growth markets that are aligned to GW am notably the Americas and APAC.
Sergio: We have reinforced our leading position in Switzerland.
Sergio: And globally, we expect our broader and deeper solutions across M&A equity capital markets and leverage our.
Capital markets to drive profitable market share.
Sergio: Okay.
Sergio: We are already seeing the benefits with notable mandate successes across the globe.
Sergio: In global markets, we are bolstering core products and services that are most relevant to our clients, including electronic trading financing and equity derivatives.
Sergio Amati: Capital strength has been a key pillar of our strategy, and we remain committed to maintaining a balance sheet for all seasons. We expect to operate with a CT1 capital ratio of around 14%. This will provide us with a substantial capital buffer relative to our minimum regulatory requirements during the integration but also as our capital requirements increase over time. Furthermore, as we fund growth with part of our retained profits, we will also seek to calibrate the proportion of cash dividends versus buybacks. For the 2023 financial year, we intend to propose an ordinary dividend of $0.70, an increase of 27% year-on-year.
Sergio: Our award winning equities and FX franchises, we now serve an even larger and broader client base also supported by our strengthen global research coverage of the most relevant and fastest growing sectors.
Sergio: By deploying its products and services across a more diversified institutional corporate and financial sponsor client base. In addition to the improved connectivity with our clients and GW N N P&C the investment bank is poised to achieve around 15% return.
Sergio Amati: With respect to our progressive dividend policy, we are accounting for a mid-teen percentage increase in 2024. We also plan to continue to distribute excess capital to shareholders via repurchase. However, in the short term, it is prudent to hold off until the parent-bank merger is complete in the first half of this year.
Sergio: Turn on attributed equity over the cycle.
Sergio: And it will do this while consuming no more than 25% of the group's risk weighted assets.
Sergio: Yeah.
Sergio: As I mentioned before the active rundown of the noncore and legacy portfolio releases capital removes tail risks and complexity and reduces our cost base, allowing us to improve our returns.
Sergio Amati: Then, we expect to resume buying back stocks with a target of up to $1 billion in 2024. Our ambition in 2026 is for total capital returns to exceed pre-acquisition levels, with share for purchases most likely being the biggest component. As you can see from this slide, in terms of returns on capital, we expect to build towards our 15% return on CT1 target as we exit 2026, with 2024 still reflecting the significant restructuring and optimization work taking place as we integrate Credit Suisse. Our plan is not relying on overly optimistic market assumptions, and, if necessary, we have the flexibility to adjust our plans as needed to respond to changes in the underlying assumptions. When our cost and capital efficiency measures are behind us, we expect our increased scale and enhanced client franchises will position us to attain sustainably higher returns, starting with a reported return on CT1 capital of around 18% in 2028. With that, I hand over to Todd for more details on our plan. Thanks again, Sergio.
Sergio: We have made good progress to date.
Sergio: We have closed over 2000, and seals books, including full exit of several macro books and are largely closed we.
Sergio: We have largely closed our noncore cash equities convertible in prime services exposures.
Sergio: To date, we have decommission around 150, NCL systems and retired nearly 20% of its models.
Sergio: As these further wind down this portfolio, we will focus on economic profitability, including funding.
Sergio: Operating and capital costs.
Sergio: We will also remain focused on balancing our priorities with the needs of our clients and counterparties.
Sergio: Our ambition is for Ncl's underlying loss to move to around 1 billion with the residual portfolio of total risk weighted assets accounting for around 5% of the groups by the end of 2026.
Sergio: By the end of 2024, we expect combined risk.
Sergio: Our credit and market risk risk weighted assets to be substantially below 40 billion.
Sergio: Okay.
Sergio: Capital strength as being a key pillar of our strategy and we remain committed to maintaining our balance sheet for all seasons.
Todd: The strategic and detailed planning we've undertaken over the last several months now informs a clear path toward our objectives of generating an underlying return on CET1 capital of around 15% and an underlying cost-income ratio of less than 70% by the time we complete the integration of Credit Suisse at the end of 2026. In the next few minutes, I'll describe the ways in which we expect to achieve these objectives, offer details on the trajectories, and comment on how we'll measure progress. I want to emphasize that our plans are based on the complex work required to restructure a cost base that at present supports the infrastructure of two GSIBs and to enhance the returns on financial resources deployed in our core businesses, which have been diluted by the acquisition. These significant efficiency undertakings come at a cost, whether through integration-related expenses or somewhat slower net-new-asset growth while we optimize the balance sheet over the next few quarters.
Sergio: We expect to operate with a CET one capital ratio of around 14%.
Sergio: This will provide us with a substantial capital buffer relative to our minimum regulatory requirements during the integration, but also as our capital requirements increase overtime.
Sergio: As we found growth with part of our retained profit. We will also seek to calibrate the proportion of cash dividend versus buybacks.
Sergio: For the 2023 financial year, we intend to propose an ordinary dividend of <unk> 70 cents, an increase of 27% year on year.
Sergio: With respect to our progressive dividend policy, we are accounting for a mid teen percentage increase in 2024.
Sergio: We also plan to continue to distribute excess capital to shareholders via repurchases.
Todd: Ultimately, the key to delivering our long-term financial ambitions is the discipline we're applying now in driving cost and financial resource efficiency. Moving to slide 30, which provides an overview of the main drivers of the expected return on capital uplift between now and the end of 2026, our financial ambitions are mainly dependent on controllable factors and market assumptions that are in line with consensus, rather than unrealistic scenarios.
Sergio: In the short term it is prudent to hold off until the parent bank merger is complete in the first half of this year.
Sergio: Then we expect to resume buying back stocks with a target of up to $1 billion in 2024.
Sergio: Our ambition in 2026 is for total capital returns to exceed pre acquisition levels with share purchases, most likely being the biggest component.
Sergio: As you can see from slide in terms of returns on capital, we expect to build towards our 15% return on CET one target as we exit 2026 with 2020 for steel, reflecting the significant restructuring and optimization work.
Todd: Our focus is on building high-quality and sustainable revenue streams to support healthy and attractive returns over the long term. In this respect, we'll drive most of the improvement over the integration timeline by right-sizing our cost base, optimizing financial resources, and normalizing the tax rate. Importantly, by building our plans primarily around cost and resource optimization, we retain flexibility and optionality in execution.
Sergio: Taking place as we integrate credit Suisse.
Sergio: Our plan is not relying on overly optimistic market assumptions and if necessary, we have the flexibility to adjust our plans as needed to respond to changes in the underlying assumptions.
Todd: For example, while we expect to continue investing for growth in our core businesses, we have discretion to pace this spend in case markets are less constructive. Finally, as we progress with the simplification of our legal entity structure, we'll see additional support to our capital returns from the normalization of the effective tax rate, dropping to around 23% by 2026. Moving to details of our revenue expectations on slide 31, first, we believe GWM's income outside of NII will be one of the main drivers of our growth.
Sergio: When our cost and capital efficiency measures are behind US we expect to increase we expect our increased scale and enhance client franchises will position us to attain sustainably higher returns starting with a reported return on CET, one capital of around 18%.
Sergio: In 2028.
Sergio: With that I and back to Todd for more details on our plans.
Todd: Thanks again Sergio.
Todd: The strategic and detailed planning we've undertaken over the last several months now informs a clear path towards our objectives of generating an underlying return on CET, one capital of around 15% and an underlying cost income ratio of less than 70% by the time, we complete the integration.
Todd: As we expand our GWM invested asset base and enhance our solution offerings and capabilities, we expect to increase both recurring fee and transaction-based income with stronger net margins by staying close to our clients, continuing to win back assets, and offering differentiated products and services to help navigate challenging market conditions. We expect to attract around $200 billion in net new assets over the next two years, while optimizing returns on financial resources, beyond 2025, with the optimization work largely behind us. We expect annual net new asset growth to build to $200 billion by 2028 and to surpass $5 trillion in assets under management at that time.
Todd: <unk> of credit Suisse at the end of 2026.
Todd: In the next few minutes I'll describe the ways in which we expect to achieve these objectives offer details on trajectories and comment on how we will measure progress.
Todd: I want to emphasize that our plans are based on the complex work required to restructure our cost base that had presence supports the infrastructure of two G sibs and to enhance the returns on financial resources deployed in our core businesses that had been diluted by the acquisition.
Todd: These significant efficiency undertakings come at a cost.
Todd: Whether through integration related expenses were somewhat slower net new asset growth, while we optimize the balance sheet over the next few quarters.
Todd: Ultimately the key to delivering our long term financial ambitions is the discipline, we're applying now in driving cost and financial resource efficiency.
Todd: In addition to growing our asset base, we believe we're in a strong position to offset some of the structural fee margin pressure visible in the industry by leveraging a unified shelf of CIO-led products and solutions, as well as increasing discretionary mandate penetration across our expanded client base. Further positive contribution to our GWM top line is expected from transaction-based fees. This growth is expected to be driven by the continued expansion of distribution channels and product capabilities, including growing and leveraging our successful GWM-IB joint coverage initiatives as well as broadening our scalable transaction-based advisory offerings for high and ultra-high net worth clients and clients with professional markets expertise. On top of revenue improvement, we also believe we can enhance GWM's net margins and drive greater returns overall by leveraging the benefits of increased scale, realizing cost synergies from the Credit Suisse integration, and emphasizing data and AI capabilities to improve advisor productivity.
Okay.
Todd: Moving to slide 30, which provides an overview of the main drivers of the expected return on capital uplift between now and the end of 2026.
Todd: Our financial ambitions are mainly dependent on controllable factors and market assumptions that are in line with consensus rather than blue Sky scenarios.
Todd: Our focus is on building high quality and sustainable revenue streams to support healthy and attractive returns over the long term.
Todd: In this respect will drive most of the improvement over the integration timeline by right sizing our cost base optimizing financial resources and normalizing the tax rate.
Todd: Importantly by building, our plans primarily around cost and resource optimization, we retain flexibility and optionality in execution.
Todd: For example, while we expect to continue investing for growth in our core businesses, we have discretion to pace the spend in case markets are less constructive.
Todd: Finally, as we progress with simplification of our legal entity structure, we will see additional support to our capital returns from the normalization of the effective tax rate dropping to around 23% by 2026.
Todd: Second, in our investment bank, we're well-positioned to achieve revenue accretion relatively quickly, especially as we're selectively adding key Credit Suisse IB resources directly to the UBS platform. As a result, we accelerate our IB strategy by doubling our banking presence in the U.S. and building on our market-leading strengths in Switzerland, EMEA, and AIPAC, as the newly onboarded bankers return to full productivity over We expect banking to generate almost twice its baseline revenues by 2026, assuming supportive markets.
Yeah.
Todd: Moving to details of our revenue expectations on slide 31.
Todd: First we believe gws income outside of NII will be one of the main drivers of our growth.
Todd: As we expand our gws invested asset base and enhance our solution offerings and capabilities, we expect to increase both recurring fee and transaction based income with stronger net margins.
Todd: By staying close to our clients continuing to win back assets and offering differentiated products and services to help navigate challenging market conditions.
Todd: We also aim to drive incremental client flow across derivatives and solutions, execution services, and financing, with support from around 400 Credit Suisse colleagues joining our markets business. Additionally, we expect continued revenue growth in the IB from the technology and resource investments we've made in capabilities such as Research, FX, Prime Brokerage, and Equity Derivatives, and from increased connectivity between the IB and GWM. We also price in a return to more normalized markets versus 2023, such as moving to net interest income in GWM and PNC. As I mentioned earlier, we expect NII in U.S. dollar terms to remain roughly stable in the first quarter of 2024 versus 4Q23. However, as we look out beyond the first quarter, full year 2024 NII is expected to decline by mid-single digits from annualized 4Q23 levels, mainly on lower rates and as our financial resource optimization measures impact loan volumes.
Todd: We expect to attract around 200 billion in net new assets over the next two years, while optimizing returns on financial resources.
Beyond 2025, with the optimization work largely behind us.
Todd: We expect annual net new asset growth to build to 200 billion by 2028 and to surpass five trillion in assets under management at that time.
Todd: In addition to growing our asset base, we believe we're in a strong position to offset some of the structural fee margin pressure visible in the industry by leveraging our unified shelf of CIO led products and solutions as well as increasing discretionary mandate penetration across our expanded client base.
Todd: Further positive contribution to our gws topline is expected from transaction based fees.
Todd: This growth is expected to be driven by the continued expansion of distribution channels and product capabilities, including growing and leveraging our successful gws I b joint coverage initiatives as well as broadening our scalable transaction based advisory offerings for high and Ultra high net worth clients.
Todd: Over the second half of the plan horizon, we expect NII to recover, resulting from funding cost efficiencies, stable implied forward rates, and improved loan revenues. I'll cover the steps we're taking to drive funding efficiencies in a few moments. Rounding out the revenue picture across core businesses, we expect stable revenues in P&C outside of NII and in asset management as we take actions to offset market headwinds and potential dissynergies from the Credit Suisse acquisition while focusing these franchises on driving cost synergies realization and improvements in operating efficiency. In particular, PNC will continue its focus on winning back flows, improving asset efficiency, and defending market share in Switzerland, while asset management integrates new investment capabilities acquired from Credit Suisse and continues its key role in providing advisory support to our global wealth management clients.
Todd: And clients with professional markets expertise.
Todd: Okay.
Todd: On top of revenue improvement. We also believe we can enhance gws net margins and drive greater returns overall by leveraging the benefits of increased scale and realizing cost synergies from the credit Suisse integration and emphasizing data and AI capabilities to improve adviser productivity.
Todd: Second in our investment bank, we are well positioned to achieve revenue accretion relatively quickly, especially as we're selectively adding key credit Suisse IV resources directly to the UBS platform.
Todd: As a result, we accelerate our IV strategy by doubling our banking presence in the U S and building on our market, leading strains in Switzerland, EMEA and APAC.
Todd: Yeah.
Todd: As the newly on boarded bankers returned to full productivity over the next 12 to 18 months, we expect banking to generate almost twice its baseline revenues by 2026, assuming supportive markets.
Todd: Finally, in NCL, we're not pricing in revenue growth as we look forward, as the now largely fair value book reflects our expectation of exit prices. The roughly 3.1 billion of PPA adjustments we made to the NCL accrual book before we tagged most of the positions as held for sale are now subsumed in the mark. Hence, we expect NCL revenues in any given quarter from here to be around zero, with position P&L from sales, unwinds, and marks, net of hedging and funding costs, all to be broadly offsetting.
Todd: We also aim to drive incremental client flow across derivatives and solutions execution services and financing with support from around 400 credit Suisse colleagues, joining our markets business.
Todd: Additionally, we expect continued revenue growth in the IV from technology and resource investments, we've made in capabilities such as research FX Prime brokerage and equity derivatives and from increased connectivity between the I B and G Wm.
We also price in a return to more normalized markets versus 2023.
Todd: Moving to net interest income and GW AUM in P&C.
Todd: As I mentioned earlier, we expect NII in U S. Dollar terms to remain roughly stable in the first quarter of 2024 versus <unk> 23.
Todd: Of course, as our first priority in NCL remains taking out costs and releasing suboptimally deployed capital, will it sacrifice P&L on position exits in pursuit of these aims? Turning to costs on slide 32. Of the around $13 billion in gross cost saves we expect to deliver by the end of 2026, around $4 billion, or one-third, are already reflected in our 2023 exit rate. By the end of 2024, we expect to generate more than $2 billion in gross exit rate saves, with more towards the latter half of the year after completion of the largest legal entity mergers. As indicated on the slide, we expect to drive further gross cost savings of around $4 billion by the end of 2025, with the balance coming out as we exit 2026.
Todd: As we look out beyond the first quarter full year 2020 for NII is expected to decline by mid single digits from annualized for Q 'twenty three levels, mainly on lower rates and as our financial resource optimization measures impact loan volumes.
Todd: Over the second half of the plan horizon, we expect NII to recover resulting from funding cost efficiencies stable implied forward rates and improved loan revenues.
Todd: I'll cover the steps, we're taking to drive funding efficiencies in a few moments.
Todd: Rounding out the revenue picture across core businesses, we expect stable revenues in P&C outside of NII and in asset management as we take actions to offset market headwinds and potential dis synergies from the credit Suisse acquisition, while focusing these franchises on driving cost synergy.
Todd: The non-linear trajectory of cost saves between 2023 and 2026 reflects the intensity of our integration work, with the legal entity mergers, migration of over a million clients, and decommissioning of platforms requiring significant levels of workforce to execute against our timelines, especially over the next 12 to 18 months. As we progress on, and ultimately complete, these complex aspects of the integration, our resource requirements for these various programs of work will diminish, leading to considerable cost reductions by the end of 2025, when we expect to have delivered a substantial portion of our integration milestone. The back-end portion of our cost-save plan relates mainly to completing hardware and software decommissioning, in particular switching off redundant legacy applications and infrastructure.
Todd: <unk> and improvements in operating efficiency.
Todd: In particular P&C will continue its focus on winning back flows improving asset efficiency and defending market share in Switzerland, while asset management Embeds, new invasive investment capabilities acquired from credit Suisse and continues its key role in providing advisory support to our global wealth.
Todd: You've been clients.
Todd: Finally in NCL, we're not pricing and revenue growth as we look forward as the now largely fair value book reflects our expectation of exit prices.
Todd: So roughly $3 1 billion of PPA adjustments, we made to the NCL accrual book before we tag most of the positions as held for sale are now subsumed in the marks.
Todd: Hence, we expect NCL revenues in any given quarter from here to be around zero with position P&L from sales unwind and marks net of hedging and funding costs all to be broadly offsetting.
Todd: This includes the applications in the various support and control functions, like risk and finance, where the work is naturally sequenced to follow the completion of client-facing technology decommissioning. As Sergio mentioned, we'll reinvest part of the growth savings generated from the integration into enhancing the resilience of our technology estate and funding organic business growth in our core division. In terms of the nature of the gross cost saves, we expect that roughly half will be personnel-related costs as we streamline our front office operations across businesses and deliver synergies in our support and control functions. The remaining balance of sales will be derived predominantly from hardware and software decommissioning, real estate rationalization, and reduced service requirements from external providers and contractors.
Todd: Of course, as our first priority in NCL remains taking out costs and releasing sub optimally deployed capital.
Lead times sacrifice P&L on position exits in pursuit of these aims.
Todd: Okay.
Todd: Turning to costs on slide 32.
Todd: Oddly around 13 billion in gross cost saves, we expect to deliver by the end of 2026 around 4 billion or one third are already reflected in our 2023 exit rate.
Todd: By the end of 'twenty 'twenty, four we expect to generate more than 2 billion in gross exit rate saves with more towards the latter half of the year after completion of the largest legal entity mergers.
Todd: As indicated on this slide we expect to drive further gross cost saves of around $4 billion by the end of 2025 with the balance coming out as we exit 2026.
Todd: Moving to integration-related expenses, which we expect to total around $13 billion by the end of 2026, including the $4.5 billion incurred to date. Our objective is to front load these expenses where possible, as they typically pave the way for run rate savings. For example, in real estate, we've taken restructuring and impairment charges on select properties, reducing the current run rate cost of our footprint by $400 million per year, down 15% from 2022 levels. This savings comes as a result of taking $1 billion in integration-related real estate charges through the end of 2023, with a payback of two and a half years. This said, the timing of integration-related expenses and the resulting savings vary depending on the cost category. For example, some charges can be provisioned up front, as in the real estate example.
Todd: The non linear trajectory of cost saves between 2023, and 2026 reflects the intensity of our integration work with the legal entity mergers migration of over a million clients and decommissioning of platforms, requiring significant levels of workforce to execute against our time.
Todd: Lines, especially over the next 12 to 18 months.
Todd: As we progress on and ultimately complete these complex aspects of the integration our resource requirements for these various programs of work will diminish leading to considerable cost reductions by the end of 2025, when we expect to have delivered a substantial portion of our integration milestones.
Todd: The back end portion of our cost save plan relates mainly to completing hardware and software decommissioning in particular switching off redundant legacy applications and infrastructure.
Todd: This includes the applications and the various support and control functions like risk and finance, where the work is naturally sequence to follow the completion of client facing technology decommissioning.
Todd: While other provisions are recorded later, like severance costs for personnel whose services are required until an integration milestone is completed, such as the legal entity mergers or client platform migration. While we remain focused on accelerating these costs to achieve future savings wherever possible, we nevertheless expect to recognize integration-related expenses over the entire three-year planning horizon, albeit with as much as 80 to 90 percent incurred by the end of 2025. Although the timing will differ, we still expect total integration-related costs to be broadly offset in our pre-tax P&L by the recognition of PPA-related pull-to-par revenue effects, including the portion now in the NCL marks, as described earlier.
Todd: As Sergio mentioned, we will reinvest part of the gross saves generated from the integration into enhancing the resilience of our technology estate and funding organic business growth in our core divisions.
Todd: In terms of the nature of the gross cost saves, we expect that roughly half will be personnel related costs as we streamline our front office operations across businesses and deliver synergies in our support and control functions.
Todd: The remaining balance of saves will be derived predominantly from hardware and software of decommissioning real estate rationalization and reduced service requirements from external providers and contractors.
Todd: Moving to integration related expenses, which we expect the total to around $13 billion by the end of 2026, including the $4 5 billion incurred to date.
Todd: Turning to NCL costs on slide 33, we expect around half of the group's planned $13 billion in gross saves and a considerable majority of net savings to be achieved as a function of running down NCL's book, as well as eliminating its broader cost stack related to Credit Suisse's complex legal entity structure and its historical G-SIB status. This includes expenses associated with governing, operating, and maintaining Credit Suisse's many regulated legal entities and branches.
Todd: Our objective is to Frontload these expenses where possible as they typically pave the way for run rate savings for example in real estate, we've taken restructuring and impairment charges on select properties, reducing the current run rate cost about footprint by $400 million per year down 15% from 2022 levels.
Todd: This saved comes as a result of taking $1 billion and integration related real estate charges through the end of 2023 with a payback of two and a half years.
Todd: This said the timing of integration related expenses, and the resulting saves vary depending on the cost category. Some charges can be provision upfront is in the real estate example.
Todd: As I have highlighted, the mergers of our largest group entities later this year are expected to enable further workforce consolidation and management delay rates. For reference, our target legal entity structure is presented in the appendix. Additionally, with the complete exit of larger books of business in NCL, we expect to drive cost savings by reducing staff aligned to the unit and eliminating expensive-to-maintain technology applications and infrastructure. In this respect, we expect the trajectory of cost savings in NCL to accelerate in the second half of this year and to haveten further over the course of the following two years, depending on the timing of larger-scale exits of position books. Ultimately, our objective is to limit the cost drag from NCL to a level substantially below $1 billion as we exit 2026, a drop of over 85% when compared to its 2022 cost base.
Todd: While other provisions are recorded later like severance costs for personnel, who services are required until it integration milestone is completed such as the legal entity mergers or client platform migration.
Todd: While we remain focused on accelerating these cost to achieve future savings wherever possible. We nevertheless expect to recognize integration related expenses over the entire three year planning horizon, albeit with as much as 80% to 90% incurred by the end of 2025.
Todd: Although the timing will differ we still expect total integration related cost to be broadly offset in our pre tax P&L by the recognition of PPA related pull to par revenue effects, including the portion now in the NCL marks as described earlier.
Todd: Yeah.
Todd: Okay.
Todd: Turning to NCL costs on slide 33.
Todd: We expect around half of the group's planned 13 billion in gross saves and a considerable majority of net saves to be achieved as a function of running down Ncl's book as well as eliminating its broader cost stack related to credit suisse's complex legal entity structure and its historical G SIB status.
Todd: Since the formation of NCL after the Credit Suisse acquisition, we've also taken steps to reduce the risk that any remaining costs are left stranded once we stop reporting NCL as a separate segment, expected in 2027. We completed most of this work ahead of NCL's formation when we reviewed the way in which Credit Suisse's corporate center costs were allocated among the divisions.
Todd: This includes expenses associated with governing operating and maintaining credit suisse's, many regulated legal entities in branches.
Todd: As I have highlighted the mergers of our largest group entities. Later this year are expected to enable further workforce consolidation and management delayering.
Todd: As part of our planning process, we identified an additional $300 million of such costs that we'll reallocate to the core business divisions where they are more appropriately managed. This change will form part of the plan restatements that I described earlier. For 2024, we expect NCL to incur underlying operating expenses of around $4 billion, generating a pre-tax loss of also around $4 billion in light of the zero revenue guidance I offered earlier.
Todd: For reference our target legal entity structure is presented in the appendix.
Todd: Additionally, with complete exits of larger books of business in NCL, we expect to drive cost savings by reducing staff aligned to the unit and eliminating expensive to maintain technology applications and infrastructure. In this respect we expect the trajectory of cost saves in NCL to accelerate in the second half.
Todd: Of this year and to hasten further over the course of the following two years, depending on the timing of larger scale exits of physician books.
Todd: Moving to our balance sheet on slide 34. Maintaining a balance sheet for all seasons is key to everything we do. It gives us the ability to withstand financial shocks and the flexibility to support our clients in all climates. It's especially critical during this complex integration process.
Todd: Ultimately our objective is to limit the cost drag from NCL to a level substantially below 1 billion as we exit 2026, a drop of over 85% when compared to its 2022 cost base.
Todd: As highlighted earlier during the fourth quarter review, we're maintaining appropriately prudent capital and liquidity levels while executing the restructuring of Credit Suisse and preparing for new regulatory requirements. This is also the case for our key operating subsidiaries. With these considerations in mind, I'll now cover how we think about capital, liquidity, and funding across the group as we look out over the planning horizon. First Capital
Todd: Since the formation of NCL. After the credit Suisse acquisition. We've also taken steps to reduce the risk that any remaining costs are left stranded once we stopped reporting NCL as a separate segment expected in 2027.
Todd: We completed most of this work ahead of NCL formation, when we reviewed the way in which credit Suisse's corporate center costs were allocated among the divisions.
Todd: At the end of 4Q, the group maintained a going concern capital ratio of 17%, over 200 basis points above the current Swiss requirements, comprised of 14.5% in CET1 capital and 2.5% in additional Tier 1 capital. Between 2026 and 2030, our going concern capital requirement is expected to increase by around 180 basis points to 16.7% as the effects of the currently larger balance sheet and greater market share from the Credit Suisse acquisition are phased in. To improve the efficiency of our capital stack, we intend to fund this increase by cost-effectively building out the permissible AT1 bucket over time, bringing the going concern capital ratio to around 18% while broadly maintaining our CET1 capital ratio at around 14%. In this respect, following last year's successful raise, we expect to issue up to $2 billion in AT1 in 2024.
Todd: As part of our planning process, we identified an additional $300 million of such costs that we'll reallocate to the core business divisions, where they are more appropriately managed.
Todd: This change will form part of the plan restatements that I described earlier.
Todd: For 'twenty 'twenty four we expect NCL to incur underlying operating expenses of around 4 billion generating a pretax loss of also around $4 billion in light of the zero revenue guidance I offered earlier.
Todd: Yeah.
Todd: Yeah.
Todd: Okay.
Todd: Moving to our balance sheet on slide 34.
Maintaining our balance sheet for all seasons is key to everything we do it gives us the ability to withstand financial shocks and the flexibility to support our clients in all climates.
Todd: It is especially critical during this complex integration process.
As highlighted earlier during the fourth quarter review, we're maintaining appropriately prudent capital and liquidity levels, while executing the restructuring of credit Suisse and preparing for new regulatory requirements.
Todd: This is also the case for our key operating subsidiaries.
Todd: A word on going concern capital at our parent bank, UBS AG, on a pro forma post-merger basis. The main takeaway here is that we expect a healthy buffer over regulatory requirements on a fully applied basis and even without the substantial regulatory concession historically applied to Credit Suisse AG's investments and subsidiaries. Any increases in UBS AG's going concern capital requirements from greater market share and a larger balance sheet will be funded in much the same way I described for the Group and by being disciplined in right-sizing UBS AG and its subsidiaries. In terms of going concern capital, I would highlight that, for now, UBS AG's standalone requirement serves as the binding constraint for the Group. As such, we consider the Group's current substantial TLAC buffers to be appropriate, and accordingly, we intend to replace maturing TLAC at similar tenors.
Todd: With these considerations in mind I'll now cover how we think about capital liquidity and funding across the group as we look out over the planning horizon.
Todd: Yeah.
Todd: First capital at the end of <unk>. The group maintained a going concern capital ratio of 17% over 200 basis points above the current Swiss requirements comprised of 14, 5% in CET, one capital and two 5% in additional tier one capital.
Todd: Between 2026, and 2030 or going concern capital requirement is expected to increase by around 180 basis points to 16, 7% as the effects of the currently larger balance sheet and greater market share from the credit Suisse acquisition are phased in.
Todd: To improve efficiency of our capital stack, we intend to fund this increase by cost effectively building out the permissible 81 bucket over time, bringing the going concern capital ratio to around 18%, while broadly maintaining our CET one capital ratio at around 40.
Todd: Over time, as we reduce the leverage in our businesses, we expect to see the level of Holco start to tick down, with some potential to tighten average spreads in the back book. Now, on to liquidity and funding. Beyond our approach to TLAC and AT1, our strategic objective in the context of liquidity and funding is to balance efficiency with resiliency and safety. In this respect, we maintain liquidity levels among the highest in the industry, satisfying the more stringent Swiss liquidity requirements that took effect last month.
Todd: Percent.
Todd: In this respect following last year's successful raises we expect to issue up to $2 billion in 81 in 2024.
Todd: A word on going concern capital at our parent bank UBS a G on a pro forma post merger basis.
Todd: The main takeaway here is that we expect a healthy buffer over regulatory requirements on a fully applied basis, and even without the substantial regulatory concession historically applied to credit Suisse, a gs investments in subsidiaries.
Todd: At the same time, we've begun executing on a funding plan that drives significant funding cost deficiencies over the next three years, principally from reducing the size of our balance sheet. Specifically, we expect to reduce LRD by over $100 billion at Constant FX via the wind-down of NCL and from resource optimization across our core business divisions, driving down funding needs. We also aim to narrow the structural funding gap of the Swiss entity inherited from Credit Swiss, increasing the self-sufficiency of the post-merger Swiss banking subsidiary. In this respect, deposits remain a key source of funding.
Todd: Any increases in UBS, a gs going concern capital requirements from greater market share in a larger balance sheet will be funded in much. The same way I described for the group and by being disciplined and right sizing UBS AG and its subsidiaries.
Todd: In terms of gone concern capital I would highlight that for now UBS AG Standalone requirement serves as the binding constraint for the group.
Todd: We'll continue to focus on winning them back with emphasis on stability reflected in tenors, products, and counterparty selection. In addition to applying discipline on deposit pricing, we expect to take actions to optimize our funding mix and drive down costs, including reducing our levels of OPCO by making further use of Swiss covered bonds and tapping an expanded variety of funding markets. Overall, as a result of lower funding needs, diversified and more stable funding sources, tighter issuance spreads relative to 2023 levels, and disciplined deposit pricing, we believe we can realize funding cost savings of up to $1 billion by 2026 on top of the savings achieved last year. This is reflected in our long-term NII guidance that I described earlier. Let me now walk you through our RWA expectations over the next three years.
Todd: As such we considered the group's current substantial T lack buffers to be appropriate and accordingly, we intend to replace maturing T lack at similar tenors.
Todd: Over time as we reduce the leverage in our businesses, we expect to see the level of Holdco start to tick down with some potential to tighten average spreads in the back book.
Todd: Yeah.
Onto liquidity and funding beyond our approach to T. Lack in 81, our strategic objective in the context of liquidity and funding is to balance efficiency with resiliency and safety.
Todd: In this respect we maintain liquidity levels among the highest in the industry satisfying the more stringent Swiss liquidity requirements that took effect last month.
Todd: At the same time, we've begun executing on our funding plan that drives significant funding cost efficiencies over the next three years, principally from reducing the size of our balance sheet.
Todd: In NCL, we expect the runoff of its book to drive a decrease in risk-weighted assets of $45 billion by the end of 2026, bringing us to around 5% of the group's total RWAs before any further post-integration de-risking. In our core businesses, we expect Basel III to increase RWA by around $15 billion beginning in 2025, primarily from FRTB, credit risk, and CVA changes The core businesses are also expected to absorb around $10 billion of additional RWA, a net of $14 billion from converting Credit Suisse's risk models to the appropriate UBS standard.
Todd: Specifically, we expect to reduce <unk> by over 100 billion at constant FX via the wind down of NCL and from resource optimization across our core business divisions driving down funding needs.
Todd: We also aim to narrow the structural funding gap of the Swiss entity inherited from credit Suisse, increasing the self sufficiency of the post merger Swiss banking subsidiary.
Todd: In this respect deposits remain a key source of funding will continue to focus on winning them back with emphasis on stability reflected in tenors products and counter party selection.
Todd: In addition to applying discipline on deposit pricing, we expect to take actions to optimize our funding mix and drive down costs, including reducing our levels of opco by making further use of Swiss covered bonds and tapping an expanded variety of funding markets.
Todd: I would also highlight that we expect the resource optimization work we're undertaking to result in an RWA reduction of around $15 billion in the core business. However, this impact can vary depending on the availability of revenue growth opportunities driving accretive returns. All told, over the next three years, Group RWA is expected to drop from its current levels by $35 billion at constant FX, freeing up around $5 billion in C2-1 capital. Turning to tax on slide 37, as mentioned, we expect to operate with a relatively high effective tax rate in 2024 mainly due to losses generated by various Credit Suisse entities, primarily in Switzerland, the U.S., and the U.K., that cannot at present offset The legal entity mergers planned for later this year will resolve a considerable level of this inefficiency, driving down our effective tax rate to around 40% by the end of 2024.
Todd: Overall as a result of lower funding needs diversified and more stable funding sources tighter issuance spreads relative to 2023 levels and disciplined deposit pricing. We believe we can realize funding cost saves of up to 1 billion by 2026 on top of the saves achieved last year.
Todd: This is reflected in our long term NII guidance that I described earlier.
Todd: Okay.
Todd: Yeah.
Speaker Change: Let me now walk you through our Wi expectations over the next three years and.
Speaker Change: In NCL, we expect the run off of its book to drive a decrease in risk weighted assets of 45 billion by the end of 2026, bringing us to around 5% of the group's total RW as before any further post integration derisking.
Speaker Change: In our core businesses, we expect Basel three to increase our <unk> by around 15 billion beginning in 2025, primarily from F. R. T B credit risk and CVA changes in the final standard.
Todd: Further optimization of our legal entity structure combined with improved profitability and opportunities for tax planning is expected to drive the effective tax rate to below 30% by the end of 2025 and finally to our normal levels of around 23% in 2026. In terms of deferred tax assets, our year-end 2023 balance sheet reflects recognition of around $3 billion in net tax-loss DTAs, mainly relating to the U.S. Of those, we expect to amortize around $0.5 billion against profits and convert around $2 billion into temporary difference DTAs by the end of 2025, seeking to maintain a balance equal to the eligible cap of 10% of our C2-1 capital. The remaining level of recognized net tax loss DTAs of $0.5 billion is expected to remain relatively stable over the near term.
Speaker Change: The core businesses are also expected to absorb around 10 billion of additional RW, a net of 14 billion from converting credit suisse's risk models to the appropriate UBS standard.
Speaker Change: I would also highlight that we expect the resource optimization work, we're undertaking to result in our W. A reduction of around 15 billion in the core businesses. Importantly, this impact can vary depending on the availability of revenue growth opportunities driving accretive returns.
Speaker Change: All told over the next three years group our W. A is expected to drop from its current levels by 35 billion at constant FX freeing up around $5 billion in CET one capital.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Turning to tax on slide 37.
Speaker Change: As mentioned, we expect to operate with a relatively high effective tax rate in 2024, mainly due to losses generated by various credit Suisse entities, primarily in Switzerland, and the U S and the U K that cannot at present offset profits in their counterpart UBS entities in the same jurisdictions.
Speaker Change: The legal entity merger as planned for later this year will resolve a considerable level of this inefficiency driving down our effective tax rate to around 40% by the end of 2024.
Todd: It is worth highlighting that the more modest level of tax loss DTAs expected over the next couple of years limits the impact of one of the key differentiators between tangible equity and CT1, signaling their convergence. Finally, let me briefly touch on how we plan to communicate our progress across the integration timeline. As you would expect, demonstrating the headway we're making in our cost reduction plans is, and will remain, of paramount importance. We intend to regularly report on developments and to track our performance versus the OPEX and integration cost trajectories I described earlier, even when we switch back to focusing on year-over-year comparisons by 3Q24. NCL risk reduction will continue to feature in our quarterly performance reporting.
Speaker Change: Further optimization of our legal entity structure combined with improved profitability and opportunities for tax planning are expected to drive the effective tax rate to below 30% by the end of 2025, and finally to our normal levels of around 23% in 2026.
In terms of deferred tax assets, our year end 2023 balance sheet reflects recognition of around $3 billion in net tax loss DTA is mainly relating to the U S of those we expect to amortize around 0.5 billion against profits and convert around 2 billion into temporary difference DTA is by the end of <unk>.
Speaker Change: Twenty-five seeking to maintain a balance equal to the eligible cap of 10% of our CET one capital.
Speaker Change: The remaining level of recognized net tax loss DTA 0.5 billion absent further planning considerations is expected to remain relatively stable over the near term.
Todd: And we'll periodically check in on where we stand in terms of key integration milestones, including the legal entity mergers, systems migration of client accounts, and infrastructure decommissioning, as well as improving overall efficiency in the utilization of our financial resources. With that, I hand over to Sergio for his closing remarks before we move to Q&A. Thank you, Todd.
It is worth highlighting that the more modest level of tax loss DTA is expected over the next couple of years limits the impact of one of the key differentiators between tangible equity and CET one signaling there convergence.
Speaker Change: Finally, let me briefly touch on how we plan to communicate our progress across the integration timeline.
Speaker Change: As you would expect demonstrating the headway, we're making in our cost reduction plans is and will remain of Paramount importance.
Sergio Amati: To recap, we are pleased with the progress we have made so far. As you can see and hear, we have detailed plans to achieve our ambition. We are in full execution mode.
Speaker Change: We intend to regularly report on developments and to track our performance versus the Opex and integration cost trajectories I described earlier, even when we switched back to focusing on year over year comparisons by <unk> 24.
Sergio Amati: While our progress over the next three years will not be measured in a straight line, our strategy is clear. With enhanced scale and capabilities across our leading client franchises and improved resource discipline, we will drive sustainable long-term growth and higher returns. We are confident that by the end of 2026 and beyond, this will allow us to deliver significant value for all of our stakeholders. In particular, our clients will benefit from an even stronger product and service capability.
Speaker Change: And C. L risk reduction will continue to feature in our quarterly performance reporting and will periodically check in on where we stand in terms of key integration milestones, including the legal entity mergers systems migration of client accounts and infrastructure decommissioning as well as improving overall efficiency in the.
Speaker Change: Nation of our financial resources.
Speaker Change: With that I hand back to Sergio for his closing remarks before we move to Q&A.
Sergio: Thank you Todd.
Sergio: To recap we.
Operator: Our people will have a better platform to grow their careers, and our shareholders will benefit from higher capital returns. Last but not least, we will remain a reliable economic partner, employer, and taxpayer in the communities where we operate. With that, let's get started with questions from J.P. Morgan. Kian, good morning. We can see you on screen.
Sergio: We are pleased with the progress we have made so far.
Sergio: As you can see and you heard that we have a detailed plans to achieve our ambitions.
Sergio: We are in full execution mode.
Sergio: While our progress over the next three years will not be measure in a straight line.
Sergio: Our strategy is clear.
Sergio: With enhanced scale and capabilities across our leading client franchises and improved resource discipline, we will drive sustainable long term growth and higher returns.
Sergio: We are confident that by the end of 2026 and beyond.
Kian Abouhossein: Please do go ahead with your questions. Yes, first of all, thanks for taking my questions. Looking at the slides, I can put together a revenue picture, as you're giving some details around risk turn on risk-related assets in the long term, as well as your risk-related assets overall, absolute. I get to about 48.5 billion in revenues, which implies around a 70% cost income of 34 billion. And clearly, first of all, I wanted to see if the revenue assumption that I'm making here is reasonable and what underlying scenarios to use to calculate that. And secondly, on the cost side, clearly, even if I assume some kind of growth rate in cost inflation, I still see that most of the cost savings come from your legacy non-core reduction. So it looks like there is a lot of flexibility.
Sergio: This will allow us to deliver significant value for all of our stakeholders.
Sergio: Particularly our clients will benefit from even an even stronger product and service capabilities.
Sergio: Our people will have a better platform to grow their careers.
Sergio: And our shareholders will benefit from higher capital returns.
Sergio: Last but not least we remain a reliable economic partner employer and taxpayer in the communities where we operate.
Speaker Change: With that let's get started with questions.
Speaker Change: Okay.
Speaker Change: Okay.
And J P. Morgan Keegan good morning, we can see on screen. Please stick I had enough questions.
Speaker Change: Yes first of all thanks for taking my question.
Speaker Change: I am looking at the.
Like I can put together our revenue picture.
Speaker Change: Giving some details around risk return on risk weighted assets in the long term as well as you are.
Speaker Change: Risk weighted assets of Wall Street.
Speaker Change: To about $48 5 billion of revenues, which implies around 70% cost income off.
Sergio Amati: So can you talk a little bit about whether my calculation is correct to some extent? And secondly, how should I think about the cost flexibility as it seems to mainly come from non-core and legacy? That's the first question.
Speaker Change: 34 billion and clear.
Speaker Change: Clearly first of all I wanted to see if the revenue assumption that I'm, making here in isolation.
Speaker Change: Reasonable.
And what underlying scenarios he used to calculate that and secondly on the cost side.
Sergio Amati: If I may, just secondly, on the investment bank, you're clearly making a big investment push. And here I want to understand, at what point do you see delivery has to be achieved? I think you mentioned N26 in terms of revenue improvement, but is there any milestone that has to be achieved in order to illustrate that this cost income will continuously improve, not just in the first quarter?
Speaker Change: Really even if I assume some kind of growth rate in kind of cost inflation I still see most of the cost savings.
Speaker Change: From your legacy noncore reduction so it looks like a lot of flexibility. So can you talk a little bit about is my calculation correct.
Speaker Change: And secondly, how should I think about the cost flexibility as it seems to mainly come from non core and legacy.
Todd: So I think in terms of it, I'd say the key is to think about a cost-income ratio below 70% is really the driver as we exit 2026. You know, the revenue picture that we gave, as I commented, is not based on blue-sky scenarios. You see that for two of the core business divisions, we effectively priced in flat revenue growth.
Speaker Change: The first question if I may just secondly on the investment bank, you're clearly, making a big investment push and he at one time and at what point do you see delivery has to be achieved dimension and 26 in terms of revenue improvements and is there any milestone that has to be achieved in order.
Speaker Change: To illustrate this cost income to continuously improve not just in the first quarter.
Sergio Amati: NCL, we priced in flat revenue growth. We talked quite, I think, appropriately about what we would expect from GWM as it improves its asset base and, of course, on the IB, coming from a low 2023 and given the onboarding of the Credit Suisse bank, as we've discussed, and getting them productive over the next 12 to 18 months, one could see that our revenue picture is appropriate in that respect and not too high. That said, when you look at, say, the return on RWA, which is, I think, what you used as a basis, that is certainly our ambition to do the financial resource optimization to improve the ratio of revenues over RWA, and that's clearly something we know we need to do.
Speaker Change: Your questions, let me take the first so I think.
Speaker Change: In terms of the way you are.
Speaker Change: Thinking about it.
Speaker Change: I'd say that the key is to think about a cost income ratio below 70% is really the driver as we exit 2026.
Speaker Change: The revenue picture that we gave as I commented is not based on Blue Sky scenario as you see that for two of.
Speaker Change: The core business divisions, we effectively priced in.
Speaker Change: Flat revenue growth NCL, we priced and flat revenue growth, we talked a quite.
Speaker Change: Think appropriately about what we would expect from gws and improves its its asset base and of course on the I b coming from a low 2023 and given the the Onboarding of the credit Suisse bankers, we've discussed and getting them productive over the next 12 to 18 months, one could see that our revenue picture is.
Speaker Change: Is appropriate in that respect and toppy that said you know when you look at say the return on our W. E, which is I think what you used as a basis.
Sergio Amati: You saw in the depiction of how dilutive the CS revenues have been on that metric, so clearly we're going to keep working on that. But the key, really, the takeaway here is that, as both Sergio and I said, we have the flexibility to pace the reinvestments of the $13 billion in gross cost saves depending on how that revenue trajectory develops. So for us, that's really the key.
Speaker Change: You know that is certainly our ambition is to do the financial resource optimization to improve.
Speaker Change: The ratio of revenues over our W. A and that's clearly something we know we need to do or you saw in the depiction of.
Speaker Change: Of how dilutive the sea us.
Speaker Change: C. S revenues have been on that metric so clearly when it keep working on that but the key really the takeaway here is that.
Todd: Maintaining less than a 70% cost to income ratio is where the discipline comes in. And as I said, pricing in what is an appropriate revenue picture and just ensuring we keep to the gross cost saves, and then we can pace the reinvestment as appropriate. Kian, vis-Ã -vis your second question on the IB, I think, of course, we do expect the on-boarded resources, particularly in the banking part of the business, to start to ramp up to the average productivity of the incumbent UBS bankers. And that will happen, and is already happening, to be honest, because we have been observing good mandates winning. Of course, now what we need is the second condition. The first one is, do we win mandates? Do we get any traction?
Speaker Change: As both surgeon I said, we have the flexibility.
Speaker Change: To.
Speaker Change: Pace, the reinvestments of the $13 billion of gross cost saves depending on how that revenue trajectory develops so for us that's really the key maintaining less than a 70% cost to income ratio, that's where the discipline comes in.
Speaker Change: And as I said pricing in what is an appropriate revenue picture and just ensuring we keep to the gross cost saves and then we could pace.
Speaker Change: The reinvestment as appropriate.
Speaker Change: Ken vis vis your second question on the a b I think of course, we do aspects there.
Speaker Change: We are on boarded resources, particularly in the banking part of the business to start to ramp up to average productivity of the incumbents are.
Sergio Amati: And the answer is clearly yes, so I'm very pleased with that outcome. Now, the most difficult question to answer is, is the market going to be there to support monetizing those mandates? And you know what's going on. It's very difficult to predict the near future. So post a very, very hard 2023.
Speaker Change: UBS bankers and and and that will happen and it's already happening now to be honest because we are being.
Speaker Change: Observing.
Speaker Change: Good mandates winning of course now what we need is the second condition. How do at first one is do we win mandates do we get traction.
Speaker Change: And the answer is clearly, yes, so I'm very pleased with that outcome now the most difficult question to answer is is the market is going to be there to support.
Sergio Amati: But the momentum is very good, so I do think that it's important to measure that. The other observation I try to take on each executed transaction will be, are we gaining market share? How do we do relatively to our competitors? A third element, which is very important for me, how is TIB contributing to the value creation in our wealth management and P&C businesses? Because it's very, very important. It's a pillar.
Speaker Change: Monetizing those mandates and you know what's going on.
Speaker Change: It's very difficult to predict.
Speaker Change: The near future so.
Speaker Change: Boston very very hard 2023, but the momentum is very good so I do think that Seth.
Speaker Change: It's important to measure that the other observation I tried to think on execute a transaction will be are we gaining market shares how do we do relatively to our competitors a third element, which is very important for me how is D. I b.
Sergio Amati: It's a very important driver, and particularly now in the US, but also, for example, in Australia, but also in APEC. In general, we can drive this real value creation by working closer together. But lastly, it will be over the cycle; can they deliver return on allocated? As we said, as a target, there is a set of short-term, medium-term, and long-term measures that we will use. But I'm confident that the trajectory we have had in the last seven, eight years, which has elements of volatility, will continue, but in a way that adds value to our shareholders and clients. Thank you. Thanks Kian, and we now have our next caller, which is Chris Hallam from Goldman Sachs. Good morning, Crest, and we can see you on.
Speaker Change: Contributing.
Speaker Change: 32.
Speaker Change: To add the value creation in our wealth management and P&C businesses. Because he is very very important is a pillar is a very important driver and particularly now in the U S.
Speaker Change: But also for example in Australia, but also in epic in General we can drive this real value creation by working closer together.
Speaker Change: But lastly, it will be over the cycle can they deliver return on allocated equity as we set as a target so.
Speaker Change: Is a set of short term and medium term and long term measures that we will use but I'm confident that the trajectory we had in the last seven eight years, which adds volatility elements.
Chris Hallam: Thanks, Sarah. So first, on slide 28, if I zoom in on 2026, you've guided to an exit run rate of 15% return in quarter one, but for the year as a whole, you flag double digits, which I guess is sort of 10 to 12%. So I was just wondering if there's something specific happening later towards the end of 2026 that's causing a sort of big jump in profitability, or perhaps whether I'm just being a bit too pessimistic on assuming that double digit means 10 to 12. And then second, on distribution, we have the details in terms of what you want to do on the dividend this year, also the comments you've made on buybacks for 20 So it's just thinking about what you would think about the overall payout ratio longer term 2026 onwards and the split in that between dividends and buybacks. Hey Chris.
Speaker Change: We'll continue but in a way that accrue value to our shareholders and clients.
Speaker Change: Thank you.
Speaker Change: Thanks, Ken and we now have our next caller is Chris Holland from Goldman Sachs. Good morning, Chris and we can see on screen.
Chris Holland: Thanks, Sarah So first on slide 28, if I zoom in on 2026, you've guided to an exit run rates of 15% return on core tier one for the year as a whole you flagged double digit, which I guess is sort of 10% to 12%. So just wondering if there's something specific happening later towards the end of 2026 is causing a sort of big.
Chris Holland: Jump up from profitability or perhaps whether I'm, just being a bit too pessimistic on assuming the double digit means 10 to 12.
Chris Holland: And then second on distribution you know we have the details in terms of what you want to do on the dividend. This year also the comments you've made on buybacks for 24 and for 2025. So I was just thinking about how you'd think about the overall payout ratio longer term 'twenty 'twenty six onwards, and the split in that between dividends and buybacks.
Chris Holland: So you take the first Hey, Chris.
Todd: So, firstly, I think what that dynamic is effectively the benefit of having the full year of 26 absorb all the savings that we're working super hard to achieve over the next two to three years. So during the course of 2026, we're still going to be taking significant costs out. In particular, the expectation is more in the middle and back office.
So on the on the first I think what whats that dynamic is effectively the benefit of having the full year of twenty-six absorb all the.
Speaker Change: The savings that we're working super hard to achieve over the next two to three years. So during the course of 2026, we're still going to be taking significant costs out in particular, the expectation is more in the middle and back office, whereas I mentioned, you know things are sequenced a bit.
Sergio Amati: As I mentioned, things are sequenced a bit; we have to get the client tech decommissioning done, and you'll start to see sort of a lot of the middle and back office functions, including, say, my own, where we'll see more of the cost takeout in the latter part of the journey. And so what you're seeing really priced in at the end of 26, is the full harvesting, effectively the complete cost income story. Whereas in 2026, a year from now, of course, you're just having the averaging effect over the course of the year. Thanks, Chris.
Speaker Change: We have to get the client.
Speaker Change: Tech decommissioning done.
Speaker Change: And you'll start to see sort of a lot of the middle and back office functions, including say my own where we'll see more of the cost takeout in the latter part of the journey and so what you're seeing really priced in at the end of 'twenty. Six is the is the full harvesting Ah effectively the the complete cost income.
Speaker Change: <unk> story, whereas in 'twenty 'twenty six in year of course, you know you're just having the averaging effect over the course over the course of the year.
Todd: On payback, of course, in 2026, we're going to have to factor in different considerations. But, generally speaking, I would say that we want to continue to have a good mix. I think that our progressive dividend policy is extremely unlikely to change over the long term.
Speaker Change: Just curious on on a pay back of course in 2026, we're going to have to factor in different.
Speaker Change: Our considerations, but generally speaking I would say that's a we want to continue to have a good mix I think that's.
Speaker Change: Our progressive dividend policies are extremely unlikely to change over the long term. So I think that we want to continue to deliver a cash dividend growth every year, the pace will be a function as well of where the stock trades right Tony.
Sergio Amati: So I think that we want to continue to deliver cash dividend growth every year. The pace will be a function as well of where the stock trades. At the end of the day, there is an element of balancing cash versus stock, depending on where the stock trades. Having said that, I do recognize that, also from a prudential and capital management standpoint of view, share buybacks offer more flexibility. So we want to always make sure that our cash dividend is sacrosanct and our progressive policy is also very, very important. Therefore, we're always going to measure this in two ways. Our dividend will also be a benchmark in respect of making sure that we have an attractive story for more yield-focused equity investments. Thank you, Chris.
Speaker Change: At the end of the day, there is an element of balancing cash versus stock depending on where the stock trades, having say that I do recognize that also from a prudential and capital management standpoint of view share buybacks offers more flexibility right. So what we want to always make.
Speaker Change: Sure that our cash dividend is sacrosanct an hour an hour.
Speaker Change: Progressive policy is also very very important therefore, we always going to measure. This in two ways. Our dividend will be then benchmark also in respect of making sure that we have an attractive story for more yield focused equity investors.
Todd: And now moving on to Jeremy Sigee, who's calling from BNP Paribas Exane. Thank you. And my apologies, my video is not working, actually, so I'm audio only. So sorry for that.
Speaker Change: Yeah.
Speaker Change: Thank you, Chris and now moving on to Jeremy sticky, he's calling from and BNP Powerbar Exane.
Jeremy: Thank you Mike.
Speaker Change: Video is not working out she saw him audio aynsley sorry for two questions.
Jeremy Sigee: Two questions, if I could. So I think what you said about RWA reductions is very welcome, you know, the target of 510 in the medium term, and that frees up a lot of capital, which is really great to hear. You've talked about optimization outside non-core, so within the core divisions. And I just wonder if you could sort of talk about that a bit more, just give us some examples of the kind of lazy assets that you think you can cut. So that's my first question.
Jeremy: My Kids. So I think what you said about <unk> reductions is very welcome in the targeted 510 in the medium term and that frees up a lot of capital, which is really great to hear.
Jeremy: You've talked about optimization outside non core so within the core divisions. I was just wondering if you could sort of talk about that a bit more just give us. Some examples of the kind of lazy assets that you think you can cut so that's my first question.
Sergio Amati: The second one is back on capital returns. You've talked about 24, and you've talked about 26 on buybacks. And I just wondered, in terms of how we think about what you might be able to do in 2025, is 14% CT1 the relative relevant threshold? Are there other constraints?
Jeremy: The second one is back on the capital returns you talked about 24, and you talked about 26.
Jeremy: On the buybacks and I just wondered in terms of how we think about what you might be able to do in 2025 is.
Jeremy: Is 14% CET one the relative the relevant thresholds of it are there other constraints that will constrain you in terms of what buybacks you can do in 'twenty five so does it have to wait for the Swiss integrations to be done does it have to wait for noncore milestones. If you just talk about the constraints that would affect that that would be great.
Sergio Amati: That will constrain you in terms of what buybacks you can do in 2025. So does it have to wait for the Swiss integrations to be done? Does it have to wait for non-core milestones? If you just talk about the constraints that would affect that, that would be great. Sorry, you take the first.
Speaker Change: So if you take the first okay.
Todd: OK. Hi, Jeremy. So in terms of RWA reduction, you were looking for examples of optimization in the core. So I'd say, you know, the classic example would be where, say, on the Credit Suisse side, in wealth management, to give an example, we are inheriting a situation where there was just, say, a loan relationship between the bank and a client, and perhaps, you know, we weren't bringing to bear the holistic client, array of services that is our expectation to sort of do now. It's been the blueprint for us in U And so that's just an example where you have kind of a monoline. It's a simple example of that.
Speaker Change: Hi, Jeremy so on the on the first in terms of our R. W. A rig.
Speaker Change: A reduction.
Speaker Change: Were you looking for examples in terms of optimization in the core.
Speaker Change: So I'd say the classic example would be where on.
Speaker Change: On say on the credit Suisse side in wealth management to give an example, we are.
Inheriting a situation where there was just say alone.
Relationship between the bank and our client and perhaps you.
Speaker Change: We werent, bringing to bear the holistic client.
Speaker Change:
Speaker Change: Array of services that is a is our expectation to sort of do now it's been the blueprint for us and UBS Gws and so that's just an example, where you have kind of a mono line as a simple example of that another example could be pricing. So you you might not be getting the pricing.
Sergio Amati: Another example could be pricing. So you might not be getting the price for the risks that you're effectively taking with respect to that financing. So I think those are two examples where we need to do work to ensure the holistic client coverage is brought to bear in a given situation, or we're looking at up-pricing opportunities in particular cases. Yeah, Jeremy, in respect of the share buyback in 2025, I think it's a little bit early to discuss that. But I would say that first of all, the integration, the Swiss topic, is a 2024 matter. So by mid 2024, or, during 2024 at the latest, we will know exactly how we will manage the integration of the parent company, the U.S. entities, and the Swiss operation. That will, so in 2025, be unlikely to play a role in our capital return policies.
Speaker Change: For the risks that you're effectively a T.
Speaker Change: Taking with respect to that financing. So I think those are two examples where we need to do work to ensure the holistic client coverage is brought to bear in a given situation where we're looking at.
Speaker Change: Our pricing opportunities in particular cases.
Speaker Change: Yeah, Jeremy on in respect of a share buyback in 2025, I think is a little bit early to discuss that but I would say that first of all.
Speaker Change: The integration of the Swiss are a topic is a 2024 matters. So by by mid 2024 are you.
Speaker Change: During 2024 latest we know exactly how we manage the integration of the parent company of the U S entities and <unk> and the Swiss operation that will.
Speaker Change: So in 2025 is unlikely to play or to pay a role to play a role in our capital return policies. The 14% is a good assumption and what we mean by around 14% means 13.8 to 14 point do not $14 five when we have excess capital well above the 14%.
Sergio Amati: The 14% is a good assumption, and what we mean by around 14% means 13.8 to 14.2, not 14.5. When we have excess capital well above the 14%, it's because we are creating the buffer to do share buybacks, to offset temporary timing differences between costs to achieve in our integration journey and the savings we realize, and have the necessary buffer to also phase in the reduction of our tax rate.
Speaker Change: It's because we are creating the buffer to.
Speaker Change: To do share buyback to offset a temporary are timing differences between cost to achieve in our integration journey and the savings we realize and have the necessary buffer to also a phasing that.
Speaker Change: The reduction of our tax rate so in a sense nothing really changes yeah.
Sergio Amati: So in a sense, nothing really changes, but we do indeed expect the underlying profitability to improve and, therefore, potentially giving us more flexibility. But this is something that we will focus on in exactly 12 months' time, and we will communicate our plans for 2025. That's great. Thank you, and our next caller is Andy Coombs calling from Citigroup. Andy, please do go ahead.
Speaker Change: But we do indeed expect also the underlying profitability to improve and therefore potentially giving us more flexibility, but this is something that we will focus in exactly 12 months' time, and we will communicate our plans for 2025.
Speaker Change: That's great thanks very much.
anti: Thank you and our next caller is an anti <unk>, calling from Citi clean and at please go ahead.
Todd: Good morning. Thank you for taking the time to answer my questions. So the first one would just be coming back to some of the math that I think Kian outlined at the start and just trying to understand your decision-making process. So if you look at slide 20, I think it's over 9% revenue to RWA post Basel IV. So you're essentially suggesting an exit run rate of 46 billion of revenues, 7% cost income, 32 billion of costs. That's a couple of billion below the full year 26 consensus revenues and full year 26 costs, so we're comparing exit versus full year 26 there.
anti: Good morning, Thank you for taking my questions.
anti: The first one would just be coming back to some of the math.
anti: Thank you Anne outlined at the start.
anti: I understand your decision making.
anti: Slide 29 cents each one.
anti: Oh.
anti: Suggesting.
anti: Suggesting actually had been made 46 billion in revenues.
Cost income added to cars.
anti: And that's a couple of million.
anti: Full year 'twenty six consensus revenues in full year 'twenty six cost depreciation.
anti: Oh, yes.
Sergio Amati: But with that in mind, could you elaborate on where you've identified the additional cost opportunities, given that you were previously at 10, and you're now at 13. And you're on the tape as saying we are sacrificing some top-line growth in order to enhance returns. So also where you've made the decision to perhaps exit some product areas where there was revenue. That's the first broad question.
Speaker Change: And with that in mind could you elaborate on where you've identified additional cost opportunities given that you appreciate that.
anti: Gene.
Gene: And you're on the tape is saying we are sacrificing some top line growth in order to enhance returns to Wuxi, where you've made the decision.
Gene: And perhaps come out some product areas when it was a revenue opportunity.
Gene: That's the first question second question on Caf II.
Todd: The second question is on capital return. Again, trying to run the numbers, 510 RWAs, 14% quarter 1, you need to be on that basis 71.5 billion in quarter 1 capital. You're at 78 today.
Gene: Again trying to run the numbers 510.
Gene: 14, 41 need to be on that basis, and two 1 million in continental.
Gene: 78 today.
Sergio Amati: So already, there is a lot of excess capital there. Then there's the retained earnings coming through. So just trying to understand, are there any other moving parts aside from the amortization of the FINMA waiver?
Gene: Axis capital.
Gene: Then as retained earnings coming straight.
Gene: So just trying to understand is there any other moving parts aside net amortization and the waiver.
Sergio Amati: between tangible equity and core tier one capital over the next three to four years. Thank you. I will let Todd take the questions, only noting that you may have got the rest.
Gene: Between tangible equity and core tier one capital over the next three to four years.
Gene: Angie.
Angie: So I'll, let Todd take the questions and all the noting that you may have got the revenues wrong, but you may address decision.
Speaker Change: Uh huh.
Okay.
Todd: Yeah, So Andy Hi.
Todd: I will just go on the on the cost side because I.
Todd: Yeah, so, Andy, hey, I will just go on the cost side because, you know, I think I addressed the revenue side anyway in response to Kian. I would also, it's also important to point out just quickly on that slide that, as we say in there, it's pre-impacted by the Basel III final and model update, so that, you know, also will impact on the return on RWA. In terms of additional cost opportunities that we found, as you asked, first, I would say we're just confirming what we said last year about greater than $10 billion and saying we had to go do the work to validate all the details. And so, you know, the $13 billion that we've come out with, neither Surgeon or I think that that's, you know, going further. It was, for us, always the neighborhood of where, you know, we thought the plan, the detailed bottom-up plans would get us.
Todd: I think I addressed.
Todd: The revenue side any way in response to Ken I would I'd also it's also important to point out just quickly on that slide that as we say in there its pre impact from the.
Todd: The Basel III final and model updates so that.
Todd: Also we will will impact on the return over our wip.
Todd: In terms of additional cost opportunities that we.
Todd: Found as you asked I mean first I would say, we're just confirming what we said.
Todd: Last year about greater than $10 billion, and saying we had to go do the work.
Todd: To validate all the details and so you know the.
Todd: <unk> 13 billion that we've come out with neither surgeon or I think that that's.
Todd: Going further it was for US though is.
Todd: The neighborhood of where we thought the plan the detailed bottom up plans would get us and ultimately when we were communicating greater than 10.
Sergio Amati: And ultimately, when we were communicating greater than $10 billion, you know, that was an informed estimate, of course, because we had done a fair bit of work. But, of course, all the work that we've done over the last three months validated that number. So that's sort of the first thing I just want to emphasize that it's not as if we've gone deeper. But in terms of terms, so on that basis, I would just say that the $13 billion remains, for us, on a gross basis, critical. You know, as I said, half is going to be personnel-related, and the other half will be consistent, comprised of things like mainly tech, but also real estate, also third-party costs. So again, it's a validation of what we've done and also, as I highlighted going through the trajectories, giving you a sense of when we think these will come through.
Todd: That was an informed estimate of course, because we had done a fair bit of work but of course, all the work that we've done over the last three months validating that.
Todd: You know that that number so that's the first thing is just important to emphasize that.
It's not as if we've gone deeper but in term so on that basis I would just say that the 13 billion remains.
For us on a gross basis are critical as said half is gonna be personnel related half is the other half will will be.
Todd: Consisting comprised of.
Todd: Things like.
Todd: Mainly tack, but also real estate also third party costs. So again, it's a validation of what we've done and also as I highlighted are going through the trajectory is giving you a sense of when we think these will these will hit through and just quickly.
Sergio Amati: And just quickly on the question you asked about, you know, sacrificing top-line growth. I think the point that both Serge and I have made is just, of course, when you do financial resource optimization work, and we've done this before, naturally, to reduce the balance sheet means, at times, well, you know, you're going to be sacrificing revenues as assets come down. And so, you know, it all comes down to the accretion of return on CET1, ultimately, and how we think about this in terms of trade-offs. So that's how I would respond to that. And then I think you were saying any other differences, if I took your point on CET1 and tangible equity, was that the point that you were making, the differences, I think you were saying, Andy? It's exactly that.
On the you asked about sacrificing topline growth I think the point that both surgeon I have made is just of course when you do a <unk>.
Todd: Actual resource optimization work and we've done this before.
Todd: Naturally to reduce the balance sheet means at times, well, you're gonna be sacrificing revenues as.
Todd: As assets come down and so it all comes down to the the accretion of a return on seat you want ultimately and how we think about this in terms of trade off. So that's that's how I would I would.
Speaker Change: Respond to that and then I think you were saying any other differences if I. If I took your point on on CET. One in tangible equity was that was that the point that you were making the differences I think you were saying any bye.
Todd: I'm just trying to get over the capital build. Thank you. Yeah, so I was, well, I was just pointing out in terms of convergence, as I highlighted, you know, historically, one of the big differentiators between CET1, which we think, by the way, is the right model anyway, because that's the basis for being able to buy back shares and pay dividends. So, you know, we think measuring return on CET1 capital is right. But we know there's always interest in CET1 versus TE.
Nobody cares about.
Speaker Change: So why was it well I was just pointing out in terms of convergence.
Speaker Change: As I highlighted.
Speaker Change: Historically, one of the big Differentiators between CET, one, which we think by the way is the right.
Speaker Change: Is the right model anyway, because that's the basis for being able to buyback.
Speaker Change: Shares in.
Speaker Change: And pay dividends. So we think you know measuring return on CET, one capital was right, but we know there's always interest in that seat.
Sergio Amati: So what I was just suggesting was that as our tax loss DTAs, which were one of the big differentiators, are amortizing down and being converted into temp difference DTAs, which are CET1 accretive, that that becomes much less of a delta and therefore, you know, signals a move towards convergence. Yeah, maybe let me just add quickly to your comment on driving optimization of the balance sheet and return on risk-related assets. You mentioned if we are planning to exit products; I have to say that, you know, never say never, because in the next two or three years, you never know how developments will work out. But at this stage, everything that we don't deem as a product that we want to have is part of the non-core. So it's all about repricing the existing core relationships and businesses. It's not about exiting businesses. I mean, I'm talking about meaningful businesses, of course, right?
CET one versus a T E. So what I was just suggesting was that our as our tax loss DTA is which we're one of the big differentiators or amortizing down and being converted into attempt difference DTA as which are seeds, you want accretive that that becomes.
Speaker Change: Much less of a delta and therefore signals.
Speaker Change: A move towards convergence.
Speaker Change: Yeah, maybe let me just add quickly to your comment on driving optimization of the balance sheet and a return on risk weighted assets. You mentioned that if we are planning to exit products I have to say that you know never say never because in the next two or three years, you never know our developments workout, but at this stage.
Everything that we don't deem as our brothers, we want to have as part of noncore. So it's all about repricing the existing core relationships and businesses is not about exiting exiting businesses I mean, I'm talking about meaningful businesses of course, right. So I don't expect that it's really in.
Sergio Amati: So don't expect – it's really – and that's the reason why – it's not an immediate effect because we have to manage the relationship. We have to manage the discussion with clients in a way that they understand risk-reward for us, for them, and they understand the value of the advice we give clients, the services, and products we give. We also have to make sure that, you know, where applicable, we stop having discounts. And so, this is, over time, of course, going to help to close the gap. That's great!
Speaker Change: That's the reason why.
Speaker Change: It's not a an immediate effect because we have to manage the relationship we have to.
Speaker Change: And manage.
Speaker Change: The discussion with clients in a way that they understand risk reward for us for them. They understand the advice at the value of the advisory Heath to clients the services and products. We gave we also have to make sure that you know.
Speaker Change: Where applicable we stop having discounts and so and this is over time of course is going to help to close the gap.
Speaker Change: That's great.
Todd: Perhaps I could just follow up on the opening remark. I think you said my revenue calculation was wrong on slide 20. The 510, I think, is post-Basel 4. And in the footnote, you said 9% post the Basel 4 finalization model update. So should we be taking 510 times the 9% or 510 times the 10% on the slide, just to be clear? Well, it would be 510 times the 9% since that would be the return inclusive of the cost, so that's apples and apples.
Speaker Change: Remark I think you said my revenue calculations Marlins by 'twenty.
510, I think is positive for <unk>.
Speaker Change: You said nine cents.
Speaker Change: Finally.
Speaker Change: So should we be taking.
Speaker Change: 10 times the nonsense.
Speaker Change: I'm, sorry, just to be clear.
Speaker Change: Well it would be it would be 510 times, the 9% since that would be the return inclusive of the so that's apples and apples.
Sergio Amati: Brilliant. Thank you. Thanks Andy, and our next caller is Anke Reingen from RBC. Morning Anke, we can see you, so please do go ahead.
Speaker Change: Thank you sure.
Speaker Change: Thanks, Andy and our next caller.
Rangan: <unk> Rangan from RBC. Good morning, Ann can we can see is at least to go ahead.
Todd: Thank you very much for taking my question. The first one is on the path from 15% to 18%. I mean, your previous target was 15% to 18%. So, that's it. We've got an NT Connection question, a Q4 question. I'm so sorry, Anke, we've had a, um, there's an internet connection, maybe, yeah, to see if that helps with the bandwidth. Sorry, if you wouldn't mind starting again. Yeah, I'm sorry, hopefully that works.
Alright, Thank you very much for taking my question.
Rangan: Okay.
Rangan: Apart from <unk>, so the 18th.
Speaker Change: Got it.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Uh huh.
Speaker Change: Okay.
Thank God, we say three and we've got an engine.
Speaker Change: A simple question.
Speaker Change: I'm sorry, Frank can we patent and that's M. Connect collection may be asked to see that helps them. The bandwidth if you wouldn't mind starting again.
Frank: And he can talk about.
Sergio Amati: If you can talk about the path from the 15 to the 18% in 2028 return on Q1 capital, given you had 15 to 18% before. So how conservative is the timing, as well as the 18% compared to your previous range? And how much is that self-help versus market?
Frank: Apart from the <unk> into the 18th.
Frank: And <unk> question on Capex.
Frank: At 15% to 18% before so how conservative.
Frank: Timing is that compared to your previous range and how much is that south market.
Todd: And the second question is a Q4 question. Your net C generating assets were negative in Q4. If you can maybe elaborate a bit on what's been driving this, thank you. No, Anke. I take this one.
Frank: And the second question.
Speaker Change: Thank you for question.
Speaker Change: The generating assets.
Speaker Change: Before you can maybe elaborate how much in line. Thank you.
Speaker Change: Yeah.
Speaker Change: And can I take this one I think.
Sergio Amati: I think... I guess, on the exit rate, we are trying to model what the potential will be and outline that we can definitely converge back into a level of value creation that is in the middle range. Since maybe it's also appropriate to remember that if we wanted to really reiterate the old story, we would have talked about 15 to 18 percent. What we are saying is that we believe the exit rate is 18 percent. So I believe that the combined story over time will deliver a better, more stable, less volatile return. And those returns will be in the mid of that range between, you know, from above 15% to around 18%. So I would say that the nuances of the changes are the ones I just mentioned. So we are not talking about 15 to 18%. I believe that we are well positioned to be sustainably in the high teens going forward. I don't think there is a level of being conservative five years ahead.
Speaker Change: Secondly, I thought I guess on the exit rate, we are trying to model what the potential will be in and I outlined that we can definitely converge back into a level off of.
Speaker Change: Of our value creation.
Speaker Change: Creation that's there.
Speaker Change: Is that in the Middle ages since that maybe it's also appropriate to remember that if we wanted to really reiterate the old story, we would have talked about 15% to 18% and what we are saying is that we believe the exit rate is 18%. So I believe that the combined story all of them.
Speaker Change: Time will deliver a better more stable less volatile.
Speaker Change: Returns and those returns will be in the mid of that range between you know from about 15% around 80%. So I would say that's the nuances of the changes are the one I just mentioned so we are not talking about 15% to 18% I believe that we are well position to be.
Speaker Change: Sustainably in the high teens.
Speaker Change: Going forward.
Speaker Change: I don't think there is there.
Speaker Change: A level of being conservative five years ahead, we need to really work out the execution of the phase and understand what is the potential and overtime, we will fine tune a short term ambitions.
Todd: We need to really work out the execution of the phase and understand what the potential is, and over time, we will fine-tune short-term ambitions. Anke, on the net new fee-generating assets in the quarter, as you mentioned, they were negative. But to unpack that a bit, we saw good NNFGA on the UBS platform.
Speaker Change: And I can on the on new fee generating assets in the quarter. As you mentioned they were negative just unpack that a bit we saw good and an F. G. A on the UBS platform would you see a bit as more the credit Suisse dynamic in terms of mandates on the credit Suisse platform.
Todd: What you see a bit is more the Credit Suisse dynamic in terms of mandates on the Credit Suisse platform and the fact that there was a net outflow of mandates that could also be from relationship managers who have left. We are countering that by virtue of having now an aligned CIO view and aligned solutions and offerings that we're bringing out on both platforms. So we expect going forward that the CS mandates that perhaps we were seeing a bit less of than ideal, we should be able to stem that issue a bit going forward from an NNFGA perspective. Thank you.
Speaker Change: And the fact that there was a net outflow of mandates that also could be as well from.
Speaker Change: Our relationship managers, who have left.
Speaker Change: We are.
Speaker Change: Countering that by virtue of having now have an aligned CIO view and aligned our solutions and offerings that we're bringing out to two both on both platforms. So we expect going forward that.
Speaker Change: The the C. S mandates that perhaps we were seeing a bit less than ideal we should be able to.
Todd: Thanks Anke, and our next caller is Alastair Ryan from Bank of America. Thank you, good morning. Could I ask you about the net new asset? And the hundred billion guys that feel like about interest and dividends. Bye-bye. So, Sarah, we're looking at you holding something up.
Speaker Change: Stem that that issue a bit going forward from an FDA perspective.
Speaker Change: Thank you.
Speaker Change: Thanks, Ankur and our next caller is Alastair Ryan from Bank of America.
Alastair Ryan: Thank you good morning and.
Alastair Ryan: Can I ask at net new assets.
Alastair Ryan: And the 100 billion gallons.
Todd: Is that to me? Yeah, we are. We are losing the connection now. Yeah, it's better you switch the video.
Alastair Ryan: That feels like about interest and dividends.
Alastair Ryan: <unk>.
Alastair Ryan: Yeah.
Alastair Ryan: Yes.
Alastair Ryan: Oh boy.
Alastair Ryan: So it's not as I said I was looking at your whole instance, it up it's up to me.
Speaker Change: Is that yeah. We are we are losing the connection now.
Todd: Yeah. Okay. Sorry, try this.
Speaker Change: You switched a video so yeah okay.
Okay.
Speaker Change: Okay.
Todd: Yep. Yeah, that's better. Yeah. Okay, apologies. Technology is not my specialty.
Speaker Change: So I'll try that.
Speaker Change: Yep Yep.
Yep, Okay apologies.
Speaker Change: Technology is not loss speciality 100 billion net new assets in 'twenty 'twenty, four and 'twenty five.
Todd: 100 billion net new assets in 2024 and 2025. That feels like a bounce dividends and interest given the shape of the balance sheet you provide in the slides. So, could you just talk, just expand a little bit on what else?
Speaker Change: About dividends and interest given the shape of the balance sheet you provided in the slides.
Speaker Change: So could you just talk just.
Speaker Change: On the little bit on what else.
Todd: You know the underlying outflow assumptions you're making perhaps on and some of the relationships you took over with Credit Suisse, whether that's the case. And secondly, cash, now 18% of the balance sheet, a very, very high liquidity coverage ratio. Is that something that's just the new run rate?
Speaker Change: The underlying outflow assumptions, you're making trips home.
Speaker Change: And some of the relationships you have.
Speaker Change: He took over with credit Suisse, whether that's the case.
Speaker Change: And secondly, cash now 18% of the balance sheet.
Speaker Change: Very very high liquidity coverage ratio is that some things just a new run rate or can you bring that down as you complete the.
Todd: Or can you bring that down as you complete the complex legal entity restructuring? Thank you. Hey, Alastair, I'll take those.
Speaker Change: Complex legal entity restructuring thank you.
Speaker Change: Hey, Alastair I'll I'll take those so on.
Todd: So first on net new assets, you know, the $100 billion over the next two years just reflects the fact that, you know, to the point that I think we've been making that while we're going to continue to grow the asset base, I mean, $100 billion is still $100 billion over the next, each of the next two years, and $200 billion by the end of 2025. And that's a focus of the team. You know, in terms of where we think the appropriate ambition would be normally when we're just in full growth mode and not looking to also ensure that appropriate hygiene on the balance sheet, that's reflecting that discount in there a bit. We still think it's a strong number. It's still growing its asset base.
Alastair Ryan: First on our net new assets.
Speaker Change: You know the $100 billion over the next two years just reflects the fact that.
Alastair Ryan: You know to the point that I think we've been making that while we're going to continue to grow the asset base. I mean 100 billion is still 100 billion over the next each of the next two years 200 billion by the end of 2025, and that's a and that's a focus of the team.
Alastair Ryan: You know the.
Alastair Ryan: And in terms of where we think you know the the appropriate ambition would be normally when we're just in growth full growth mode and not looking to also ensure that the appropriate hygiene on the balance sheet.
Alastair Ryan: The debt, that's reflecting that discount in there a bit we still think it's a it's a strong number it's still growing the asset base, it's still providing a basis to grow our revenues as I highlighted in my comments, but it is reflecting the fact that in addition to growing client relationships and bringing more and more.
Todd: It's still providing a basis to grow revenues, as I highlighted in my comments. But it is reflecting the fact that, in addition to growing client relationships and bringing more and more aligned products and solutions to our clients, there are going to be situations, as we both highlighted, where perhaps we see potential outflows because of decisions we've made around a given service, for example, trying to up-price a loan, potentially unsuccessfully, and then seeing that roll off, and then potentially the collateral moving out of the bank as a So it's just appropriate to price in some of that as we do this good and necessary work to ensure an ultimately stronger return on RWA and sustainably higher returns in the long run. In terms of cash or the HQLA that we have, Jaafar, you could assume going forward that that is structurally our run rate for now, just given the new Swiss liquidity ordinance requirements that we're complying with. So you can assume that that's right.
Alastair Ryan: <unk> aligned products and solutions to our clients, they're going to be situations as we both highlighted where you know, perhaps we see potential.
Alastair Ryan: Potential outflows because of decisions we've made around.
Alastair Ryan: Given service for example, China, a price alone potentially unsuccessfully in and seeing that roll off and then potentially the collateral moving out of the bank as a result, so it's just appropriate to price and some of that as we do this.
Alastair Ryan: Good good and necessary work to ensure ultimately stronger return on order of the way and sustainably higher returns in the long run.
Alastair Ryan: In terms of.
Alastair Ryan: In terms of cash or the HQ L. A that we have yeah, you could you could assume going forward that that is.
Alastair Ryan: Structurally our run rate for now just given the new.
Alastair Ryan: New Swiss liquidity ordinance requirements that we're complying with so you can assume that that's a that that's right.
Todd: Naturally, we're focusing on winning back deposits and continuing to diversify sources of funding, not least given the structural funding gap we've inherited from the Credit Suisse subsidiary in Switzerland. So we're taking steps in our funding plan to narrow that. But in the end, you can assume that for now, that level of liquidity is the run rate level. Thank you. Thanks, Alastair. And the next caller is Giulia Miotto from Morgan Stanley. Good morning, Giulia. We can see you.
Alastair Ryan: Naturally where we're focusing on.
Alastair Ryan: Winning back deposits and <unk>.
Alastair Ryan: Diversity, continuing to diversify sources of funding not least given the structural funding gap we've inherited from.
Alastair Ryan: From the credit Suisse subsidiary in Switzerland. So.
Alastair Ryan: We're taking steps in our funding.
Alastair Ryan: <unk> two.
Alastair Ryan: To narrow that but in the end you can assume that for.
For now that level of liquidity is is sort of run rate level.
Speaker Change: Thank you.
Speaker Change: Thanks, Alistair and the next cooler as Giulia <unk> from Morgan Stanley. Good morning, Jane here, we can see he please go ahead.
Todd: Please do go ahead. Hi, good morning. Can you hear me well?
Giulia: Hi, Good morning can you hear me well, we can yes, okay.
Todd: We can, yes. Okay, perfect. So my first question goes to GWM Americas. I think the target is low teens until 2026 and then up to mid-teens TBT margin. So what strategic actions are you taking to structurally lift profitability in this division? I think I heard you are basically rebuilding the banking platform in-house, but could you give us more color on that? So that's my first longer-detailed question. Whereas, in the short term, in terms of transaction margins, those have been subdued for a while, especially in Asia. What evidence are you seeing, or are you seeing any evidence of that coming back? Thank you. Yeah, hi Giulia.
Giulia: Okay perfect.
Giulia: My first question goes to and she said in America, and I think the target is low teens.
Giulia: And in that 'twenty 'twenty six and then after mid teens EBIT margin.
Giulia: One strategic actions are you taking to.
Dr Chang: Dr Chang.
Dr Chang: Okay.
Dr Chang: And I think I heard and and this.
Dr Chang: Okay.
Dr Chang: Building the banking platform.
Dr Chang: But if you can give us more color on that so that's my first.
Dr Chang: Whereas on the short term in terms of actual margin doesn't being some children and wine, especially.
Dr Chang: In Asia, what evidence are you seeing.
Dr Chang: And half of that coming back.
Speaker Change: Yeah, Hi, Julia so on in terms of the sorts of investments, we're making as you mentioned, we think the core banking infrastructure work is.
Todd: So in terms of the sorts of investments we're making, as you mentioned, we think the core banking infrastructure work is critical because that effectively institutionalizes clients much more effectively. In doing that, the more that you have a broader suite of products and capabilities to offer clients, the more, in effect, they become stickier. The clients and the advisors become stickier. We know that playbook; we run that playbook in every part of the world outside the US. And so it's something that, for us, is quite fundamental. And so we're going to continue to do that and continue to invest in digital capabilities to make being both a client and advisor to the US business of GWM better. There are also some other things that we're doing to bring that profit margin up. Sergio mentioned in his comments that a lot of it is also about products and capabilities. And we're seeing that start to hit through. And that's just in terms of, again, borrowing a page from the playbook that we use outside the US.
Julia: Is critical because that effectively institutionalizes clients much more effectively doing that the more that you have a broader suite.
Julia: <unk> of products and capabilities to offer clients more and in fact, it becomes you know they become stickier the clients and the advisors has become stickier and we know that playbook, we run that playbook and every part of the world outside the U S and so it's something that for us is quite fundamental and so we're going to continue.
Julia: Two.
Julia: To do that and continue to invest in digital capabilities to make being both the client and advisor.
Julia: The U S business of Gws <unk>.
Julia: Better.
Julia: There are also some other things that we're doing to bring that profit margin up Sergio mentioned in his comments a lot of it's also about products and capabilities and we're seeing that start to hit through and that's just in terms of again borrowing a page from the playbook that we use outside the U S. It's.
Todd: It's, you know, the global markets approach. So it's having a more joint GWM investment bank approach to serving clients from a transactional perspective, especially clients with more sophisticated needs, also from a lending perspective as well, having, you know, more of a focus on lending solutions, as we've done outside the US as well. So I think doing all that and thinking, you know, just doing the sort of good blocking and tackling will, you know, should support a profit margin in the mid-teens over the next two to three years.
Julia: The.
Julia: Global markets approach. So it's having a more joined our gws investment bank approach to serving clients from a transactional perspective, especially our clients with more sophisticated needs also from a lending perspective as well having.
Julia: You know more of a focus on.
Julia: On lending solutions as we've done outside the U S. As well so I think doing all of that is where we think just doing the sort of good blocking and tackling will you know should.
Julia: Support our profit margin and in the mid teens over the next two to three years in terms of transaction margins in APAC I think we are.
Todd: In terms of transaction margins in APAC, yeah, I think we are seeing, we actually saw some good performance in the fourth quarter from a TRX perspective, in particular on the UBS platform, which is, which is encouraging. So we're, and also in, in APAC, you know, given just our diversification in the region, we're not just limited to one location potentially underperforming from an equity markets perspective. And we actually saw good performance in the region.
Julia: Seeing a we actually saw some good performance in the fourth quarter from a T. Rx perspective in particular on the on the UBS platform, which is a which is encouraging so we're oh and also in our in APAC.
So again, given just our diversification in the in the region.
Julia: Were not just limited to.
Julia: One location potentially underperforming from an equity market's perspective, and we actually saw a good performance in our in the region.
Todd: In particular, we saw good performance in transactions in Japan this quarter. And so you know, we have a good diversified approach to ensure that even if one, as I said, one particular part of the region isn't generating the sorts of margins that are ideal for us, we're able to compensate. Thanks.
Julia: In particular, we saw good performance in transactions and in Japan. This quarter and so we have that we have the good diversified approach to ensure that even if one as I said, one particular part of the the region isn't generating the sorts of margins that are ideal for us.
Julia: We were able to compensate.
Todd: Thank you. And our next caller is Stefan Stalmann from Autonomous. Good morning, Stefan.
Julia: Thanks.
Julia: Thank you and our next caller is Stefan installments from autonomous.
Todd: Yes, good morning everyone. Thanks for the presentation and for taking my questions. I hope you can hear me well. I wanted to first ask you about the share buyback to restart this year. I was a bit surprised that you make this link between the legal entity merger of the parent banks and the ability to restart the share buyback. Do you actually see a direct link there between the group payout capacity and what happens to the parent bank merger? Or is it just a short form for you to say, if the merger works, that's a good indication that the integration is online, and that's why I can go back to ShareMyBank. And the second question is about capital requirements. You have obviously presented the plan very much on the basis of the rules as they currently stand. But we also have an upcoming review by the government, and we don't know how that will look. On a confidence scale of 1 to 10, where do you think the outcome will be? Do you think your numbers will still be proven fine after this review, or do you think it could change? Thank you, Stefan.
Julia: Stefan.
Stefan: Good morning, everyone. Thanks for the presentation is for taking my questions.
Stefan: Oh.
Stefan: First ask on the Shannon I think.
Stefan: Should we start this year.
Stefan: It's a price that you make this link between the legal entity merger, the parent bank and the ability to restart the Shannon I think to.
Stefan: He actually is a direct link between group payload capacity and what happens to the parent.
Stefan: Or is it just a shortfall for you to see.
Stefan: If the merger works that's a good indication that the integration is online and it's Flanagan will make to chamonix.
Stefan: And the second question is on capital requirements.
Speaker Change: Obviously presented.
Speaker Change: And very much on the basis of the rules as they currently stand.
Speaker Change: We also have an upcoming review by the government and we don't know what it looks like.
Speaker Change:
Speaker Change: On a confident and scale of one to 10.
Speaker Change: Where do you think the outcome will be do you think you'll remember this was to be prudent fine. After this review or do you think it could change.
Speaker Change: Thank you.
Sergio Amati: I think the link... between Sher, Bayek, and... and the parent-bank merger and the underlying U.S. operation, and later on the Swiss one, it's very relevant. Because if we have a delay... our ability to start to deliver on the cost synergies will come just later. And therefore, we would lose capital buffers that we believe are necessary. So I think it's totally, there is no gaming or anything
Thank you Steffen.
Speaker Change: I think the link care.
Speaker Change: Between our share buyback and.
Speaker Change: And the parent bank merger and the underlying U S operation.
Speaker Change: And later on the Swiss one it's it's it's very relevant because if we have a delay.
Speaker Change: Our ability to start to.
Speaker Change: Deliver on the cost synergies will come just later and therefore, we would lose.
Speaker Change: Capital buffers that we believe is necessary. So I think it's totally there is no gaming or nothing is just prudent reasonable way to look at the two major risks associated with such an integration is regulatory approvals to execute.
Sergio Amati: It's just a prudent, reasonable way to look at the two major risks associated with such an integration are regulatory approvals to execute, legal entity mergers; we are talking about 50 plus countries. And the second one is IT migration. This is probably more the 24 into 2025 as we start to migrate. So if we don't get into a good place, with our parent company merger by the end of the second quarter, we have a delayed effect, which has to be reflected in our prudence in terms of how we accrue capital. I hope this is very clear. In terms of capital requirements, yeah, well, I mean... I can only...
Speaker Change: Legal entity mergers, we are talking about 50 plus countries.
Speaker Change: Okay and the second one is IP migration. This is probably more of the 24 into 2025 as we start to migrate so if we don't get into a good place.
Speaker Change: Our parent company merger by the end of the second quarter, we have a delayed effect, which has to be reflected in our prudence in terms of how we accrue capital so.
Speaker Change: I hope this is a very clear now.
Speaker Change: In terms of capital requirements.
Speaker Change: I mean.
Speaker Change: I can only.
Speaker Change: I can only.
Sergio Amati: I can only say, you know, watch and listen to what has been said publicly by different international and domestic experts around the topic of capital and why Credit Suisse failed. Credit Suisse didn't fail because of a lack of capital or lack of liquidity per se, but it failed because, you know, partially, I would say, a loss of trust and confidence, a lack of underlying profitability, and that created a self-fulfilling problem. I think if you look at the regulation, you know, the regulation was well applied and fully functioning for UBS, so the same regulation should have worked for Credit Suisse. I do think that I'm pretty convinced that any authorities and governments, before taking actions on capital, will also have to sit down and look at what happened, like the commission that is investigating the matter is doing.
Speaker Change: Say, a watch and listen to what has been say publicly by different international and domestic experts around the topic of capital and why credit Suisse failed criticize didn't fail because of lack of capital or lack of liquidity per se, but.
Speaker Change: It failed because you know partially.
I would say are the last of trust and confidence the lack of underlying profitability and that created a self fulfilling problem.
Speaker Change: If you look at regulation.
Speaker Change: The regulation was a well applied them fully functionally for UBS. So the same regulation should have worked for credit Suisse. I do think that's a I'm pretty convinced that any authority and governments before taking actions on capital. They will also have to sit down and look at what happened like that.
Speaker Change: The commission that is investigating the matter is doing.
Sergio Amati: And everybody will have to pause and think about what they could have done better, being a little bit more self-critical about what happened. So I believe the current regime, and not just experts, is saying that more capital is necessary. I'm not going to give you an answer on my rating of confidence because there is only the downside to that, but I can only tell you that the facts are telling us a crystal clear story, that capital is not the way to manage such a situation. Thank you very much, and now moving on to Adam Terelak who's calling in from Mediobanker. This morning,
Speaker Change: And everybody will have to pause and think about what they could have done better being a little bit more self critical about what happened. So I believe the current regime and no experts is saying that more capital is necessary. So.
Speaker Change: I'm not going to give you an answer on my rating of confidence because there is only downside on that but I can't I can only tell you that fact are telling us are crystal clear story.
Speaker Change: That capital is not the way to manage is such a situation.
Speaker Change: Thank you. Thank you very much.
Speaker Change: Thanks, Stefan and I'm, leaving anki atom pteryla, he's calling in for media a banker.
Todd: Thank you for the questions. I've got three on capital, one of which is a clarification. I wanted to dig into slide 36, the 15 billion of balance sheet optimisation. Clearly, it's talking about net growth as well. So can we get a feeling for what the underlying moving parts are, because it's clearly two going in different directions, and whether there's any kind of regulatory securitisation type benefit to think about, so non-revenue costing, RWA efficiencies to think about on the forward look. And then linked to that, clearly, the lower RWA outlook has created lots of flexibility in your plan. How do you guys think about redeploying your balance sheet if there are profitable growth opportunities, particularly given that your stock is trading above Tangible Book or CET1? And then just a clarification on the 81 build out, it says it increases to 18% by 2029, but I think you referenced 2026 as well in terms of that Tier 1 capital requirement. So if you just give us color on the 81 build out timeline, it would be very helpful.
Good morning.
Speaker Change: Thank you for the questions I've got three on capital one of which is a.
Speaker Change: Clarification I wanted to dig into slide 36, the 15 billion of balance sheet optimization, clearly, it's talking about net of growth as well. So can we get a feeling for what the underlying moving parts Oxiclean T going in different directions, and whether theres any kind of regulatory securitization.
Speaker Change: Benefit to think about say non revenue costing.
Speaker Change: Are there efficiencies to think about on a forward look.
Speaker Change: And then linked to that clearly below at if your outlook has created lots of flexibility in your plan or how do you guys think about redeploying your balance sheet, if there are profitable growth opportunities.
Speaker Change: Given that your stock is trading above tangible book cool or CET, one and then just a clarification on the 81 build outs.
Speaker Change: There's increasing to 18% by 2029, but I think he referenced 2020 seats as well in terms of that tier one capital requirements. So you can just give us color on the 81 build out timeline would be very helpful. Thank you.
Todd: Thank you. So let me, thanks for that, Adam. Let me just cover the last one is 2029, cause that's, you know, that is how we've modeled it. And also just given the...
Speaker Change: Okay.
Speaker Change: So let me thanks for that Adam Let me, let me just cover the last one is 2029 because that's.
Speaker Change: That is how we've modeled and also just given the.
Todd: The way our expectations are on the too big to fail requirements coming in impacting on going concern capital out till 2030. So that is the correct reading in terms of the first question on slide 36. So the 510, effectively where we think we can get to, of course, is net of growth. So there is growth that is priced in. So the fact that we have, say, balance sheet optimization in the core businesses, we say net of growth. So these are trade-offs that we're making. And look, we've done this before.
Speaker Change: The way the our expectations are on the too big to fail.
Speaker Change: Acquirements coming in impacting on going concern capital out till 2030. So that is a that is the correct.
Speaker Change: Read in terms of the first question.
Speaker Change: On slide 36.
Speaker Change: So the 510 effectively where we think we get to of course is net of growth. So there is a growth that is priced in so the fact that we have say balance sheet optimization in the core businesses. We say net of growth. So this is a trade offs that we're making.
Speaker Change: And look we've done this before and it's.
Sergio Amati: And it's, you know, taking the balance sheet and areas where there are opportunities to generate greater returns on RWA. That's the work that we're doing. And obviously, where there are opportunities to grow, especially to start to begin to harvest the combination and the scale that we have, you know, clearly, clearly that will be the case. Yeah, I guess a 5% return on risk-weighted assets is not acceptable.
Speaker Change: Taking the balance sheet and areas, where there are opportunities to.
Speaker Change: Generate greater returns on our W. E. That's that's the work that we're doing and obviously, where there are opportunities to grow especially to start to begin to harvest the combination and the scale that.
Speaker Change: That we have you know clearly clearly that would be the case.
Speaker Change: I guess, a 5% return on risk weighted assets is not acceptable.
Sergio Amati: Right, so I think that's the reason I'm saying it makes no sense for us to try to impress anybody with growth on the top line if this is just destroying value or not sustainable. So we are willing to take a step back in terms of growth, but still, in some areas, are we going to grow? Now, it's very important to understand the restructuring element up until the end of 2026. Afterward, we will grow. Of course, we will.
Speaker Change: Right. So I think that's the reason I'm, saying it makes no sense for us to try to overly impress our antibody with growth on the topline FTC suggests destroying value or not sustainable. So we are willing to take a step back in terms of growth, but still in some areas are we going to grow now it's very important.
Speaker Change: To understand the.
Speaker Change: The restructuring element of until the end of 2026 afterwards, we will grow of course, we will grow so.
Speaker Change: So we are not sir.
Sergio Amati: So we are not a restructuring story. We will grow again because our business will grow, but from a base that I believe is gonna be much more reliable and sustainable. Could I follow up in terms of what volume of RWA you are sitting below your aspiration in terms of RORWA?
Speaker Change: Our restructuring story, we will grow again, because our business will grow but from a base that I believe is going to be much more reliable and sustainable.
Speaker Change: Can I follow up in terms of what volume of Adria sitting below and if youll aspiration in terms of all right what anyway, just trying to size the opportunity in terms of recycling.
Sergio Amati: Just trying to size the opportunity in terms of recycling your risk weights into high growth. Well, you look at the balance sheet of Credit Suisse that we onboarded as revenues and risk-weighted assets of five percent on average in 2022. Now, we are already taking action, but this is the volume you have to think about. So we were perfectly happy with the return profiles of our wealth management, IB, and Swiss bank operations. So we need to bring it back now.
On the risk weights into high growth, while you look at the balance sheet of credit Suisse that we on boarded as our revenues on risk weighted assets of 5% on average in 2022 now we are already taking actions, but this is the volume you have to think about think about so we were perfectly happy with our <unk>.
Speaker Change: Return profiles of our wealth management, and IV, and <unk> and <unk> and Swiss Bank operation, So we need to know.
Sergio Amati: And I think it's very important that, you know, it's all about giving clear directions to our people. Our new colleagues from Credit Suisse fully understand that they are now following what they believe is also the best way to create value for clients, but also for shareholders, but also for clients, because we want to be predictable. We want to be a partner that is there and where the relationship allows us to tell what our expectations are and what the client's expectations are.
Speaker Change: Bring it back in and I think it's very important that you know, it's all about giving clear directions to our people our new colleagues from credit Suisse fully understand that they are now following at what they believe also he is the best way to create value for clients, but also for shareholders, but also for our clients because we want.
Speaker Change: To be predictable, we want to be a partner that is there.
Speaker Change: And and where the relationship allow us to tell what are our expectations and what is the client expectations and that will need to be addressed and we now have a clear.
Sergio Amati: And that will need to be addressed. And we now have a clear aligned way of looking at how to develop and grow the business. Great, thank you very much.
Speaker Change: Line, a way of looking at how to develop and grow the business.
Speaker Change: Alright, Thanks Robert.
Sergio Amati: And moving on to Ben Goy, who is joining us from Deutsche Bank. Ben, hi, good morning. We can see you, go ahead. Hi, good morning.
Robert: And meeting on tea and coffee, he and joining us from Deutsche Bank and Hi, Good morning, we can see a need.
Speaker Change: Please go ahead.
Speaker Change: Uh huh.
Sergio Amati: Two questions, please. One on global wealth management and one on investment banks. Maybe you can add a bit more color on the $100 billion net new asset run rate that should rise to $200 billion per year by 2028. So just wondering how much is the reduced impact from business exits or any kind of risk appetite, financial advisor leaving, and then how much is to say acceleration of the platform of a unified platform. And then secondly, sounds like the Credit Suisse bankers you onboarded have pretty low revenue so far, but it's picking up in the next one to two years. I was just wondering because you mentioned for the markets position that it will be transferred at the end of Q1, but you also feel that in sales and trading, the Credit Suisse colleagues you onboarded have been under earning and whether they could see an acceleration this year.
Speaker Change: Two questions. Please one on wealth management, one on the investment Bank, maybe you can add a bit more color on the 100 billion net new asset run rate. It should rise to 200 billion per year by 28. So just wondering how much is <unk>.
Speaker Change: <unk> impact from from business exits are kind of risk appetite.
Speaker Change: Our financial adviser, leaving and then how much is sort of say acceleration off the platform of a unified platform and then secondly, it sounds like the credit Suisse bankers you onboard at a pretty low revenue. So far it's taking out the next one to three years, whilst just wondering because you mentioned for the market position that it will be transferred end of Q1.
Speaker Change: But we also feel that in sales and trading and the credit Suisse colleagues you onboard it has been under earning and Boes a day.
Speaker Change: See an acceleration this year. Thank you.
Sergio Amati: Thank you. Ben, so in terms of the run rate of net new assets from 100 billion, I would say, as Sergei just highlighted in response to the last question, we for sure will grow once we feel like the balance sheet is in a better, better spot. We, we think that that will build quickly in terms of, you know, us focusing on growth. So the bridge to 200, while we're not disclosing specifically what we think the numbers are, you can expect that, you know, certainly in 2026, we should start to see that come up pretty significantly and then build to build to 200 billion by 28. So I would say it's not necessarily just a linear straight line; we should see a bit of an acceleration early on in 26.
Speaker Change: Okay.
Speaker Change: Hey, Ben So in terms of the run rate of net new assets from 100 billion I would say is surgery just highlighted in response to the last question.
Ben: Sure will grow in the AR.
Ben: Once we feel like the balance sheet is in a better better spot, where we think that that will build quickly.
Ben: In terms of you know us.
Ben: I was focusing on growth so the bridge to 200, while we're not disclosing specifically what we think the the numbers are you can you can expect that.
Ben: Certainly in 2026, we should start to see that come.
Ben: Come up pretty significantly and then build to build to 200 billion by 28, So I would say, it's a it's not necessarily just a linear.
Ben: A linear straight line, we should see a bit of an acceleration early on in 'twenty six but I think there's some hard yards that we have modeled in to get to the 200 billion on the latter part of that five year.
Todd: But I think there are some hard yards that we have to go to get to the 200 billion mark on the latter part of that five year cycle. In terms of IB productivity on the market side, I mean, one of the key points that I highlighted was, you know, actually onboarding on the market side, fully onboarding, not only the traders but their positions, which is now, it's been a four queue, but really, it's an intense piece of work in one queue, where we expect the majority of the positions to be onboarded on UVS infrastructure. Once that happens, you know, we think that the market personnel should be able to start generating, you know, appropriate revenues. Yes, there's a ramp, but it's not the same as on the banking side, where that productivity is going to take a longer ramp, as you might appreciate it. But we should, we should see, and we expect that we'll see better productivity pretty quickly once the positions are onboarded to the UBS infrastructure. Understood, thank you. Thank you, and our next caller is Tom Hallett from KBW. Tom, good morning. Morning, morning, morning.
Ben: Cycle in terms of IV productivity on the market side I mean, one of the key points that I highlighted was actually onboarding on the market side fully onboarding of not only the traders, but theyre positions, which is now its been a for Q, but really it's an intense a piece of work.
In <unk>, where we expect the majority of the positions that will be on boarded on UBS infrastructure. Once that happens we think that the.
Ben: The market's personnel should be able to start generating.
Ben: Appropriate revenues, yes, theres a ramp but it's not the same as in the on the banking side, where that productivity is going to take a longer ramp as you might appreciate it but we should we should see.
Ben: And we expect that we'll see better productivity pretty quickly once the physicians are on board it onto the UBS infrastructure.
Speaker Change: Understood. Thank you.
Speaker Change: Thank you and our next caller is Tom Hallett and K P company.
Tom Hallett: Tom Good morning.
Good morning morning morning, Yeah, Hi, guys.
Todd: Um, yeah, guys. Um, so most of my questions have been answered, but just maybe I'll go back to NII. You'll see it grows again in the second half of the panning period. Am I right in just assuming that's the second half of 2025? So I kind of, and I should decline through to early 2025. And then secondly, you know, one of your peers in the US said the deposit mix changes were kind of ending. Is that what you're seeing as well?
Tom Hallett: I think my questions me announce it but just maybe get it back.
Tom Hallett: Back to NII.
Tom Hallett: Hey, Greg and in the second half of the planning period.
Speaker Change: Alright, and just assume that the second half of 2025.
Speaker Change: Say I kind of and I should decline at three to <unk> 25, and then secondly.
Speaker Change: In the U S.
Speaker Change: Next changes were.
Speaker Change: Hi.
Speaker Change: And then.
Todd: And could you clarify the wider international business, what's going on in the deposit mix changes there, or what you expect going forward? Thanks. Hey, Tom.
Speaker Change: What youre seeing as well and could you maybe just clarify that the wider international business, what's going on in the deposit mix changes that.
Speaker Change: Or what you expect going forward sure.
Speaker Change: So in terms of NII yards.
Todd: So in terms of NII, yeah, we see the recovery coming from more the mid 2025. So that's correct, that that's the right read. So, you know, again, just given how we're pricing in rate reductions, you know, whether they come, you know, I think, as you know, the different views, but whether they come over 12 months or 18 months. So, you know, we're running our models, but we definitely have rate reductions before we see stability, you know, into 25 for sure. And then that stability then corresponds as well with what we think would be a pickup in loan volumes and loan revenues overall, on top of, of course, the funding efficiencies that I talked about at length during my comments that really start to accelerate the recovery in NII in the latter part of the, or the second half, effectively, of the three-year planning cycle. In terms of deposit mix effects, absolutely.
Speaker Change: We see the recovery coming from a more mid 'twenty 25. So that's correct that that's the right read so again, just given how we're pricing in a.
Speaker Change: Rate reductions.
Speaker Change: Whether they come.
I think I think as you know the different views, but whether they come over 12 months or 18 months. So we were running our models, but we definitely have a rate reductions before we see stability.
Speaker Change:
Speaker Change: Into twenty-five for sure and then that that stability then corresponds as well with what we think would be a pickup in in loan volumes and the loan revenues overall on top of of course, the funding efficiencies that I talked about at length. During my comments that really start to accelerate.
Speaker Change: The recovery in NII in the latter part of the or the second half effectively of the of the three of the three year planning cycle in terms of deposit mix effects absolutely.
Todd: We've seen a tapering in the U.S. We started seeing that even last quarter, even in 3Q. We're seeing that continue to taper, still seeing a little bit of that though, where there's spillover in higher rates in some of the non-U.S. dollar currencies, in particular in Switzerland. So we're still seeing a bit of deposit mix shifts, but we, we, we sort of priced them more or less out of our outlook once we get beyond 1Q and in terms of how that looks, you know, across, you know, I think the U.S. we're now, we've seen stability for the first time since 4Q21 that we've had net deposit inflows. So that's, that's good. In, in, in APAC, we've actually seen some good deposit inflows also, not least because we've just given the wind back. So there's that impact as well. And in Switzerland, we're seeing a bit of a slightly downward move in terms of deposit inflows. So that'll give you a sense of the sort of deposit volume as I see it across the, across the spectrum.
Speaker Change: We've seen a tapering in the U S. We started seeing that even last quarter, even <unk>. We're seeing that are that continue to taper.
Speaker Change: Still seeing a little bit of that though where there's spillover and higher rates and some are some of the non U S. Dollar currencies in particular in Switzerland. So we're still seeing a bit of a deposit mix shifts.
Speaker Change: But we sort of price them.
Speaker Change: More or less out of our outlook once we get beyond <unk> and in terms of how that looks you know across you know I think the U S. We're now we've seen stability first time since for Q 'twenty, one that we've had net deposit inflows. So that's.
Speaker Change: That's good.
Speaker Change: In in APAC, we've actually seen some good deposit inflows also not not least just given a win back. So there is there is that impact.
Speaker Change: As a as well and in Switzerland, we're seeing a bit of a slightly.
Speaker Change: Downward move in terms of deposit inflows. So just to give you a sense of sort of the deposit volume as I see it across the across the spectrum.
Todd: That's very clear, thank you. Thank you. And our next caller is Andrew Lim from Societe Generale. Andrew, good morning. We can see you now.
That's very clear thank you.
Speaker Change: No.
Speaker Change: Great. Thank you and our next caller is Andrew Lim from Society Generale.
Andrew Lim: Andrew Good morning, we can see now.
Andrew Lim: Okay. Thanks for taking my questions.
Todd: Fantastic. Thanks for taking my questions. So the first one on capital, I'm really trying to square your RWA guidance with how you feel about buybacks. So looking at that equation, you know, that 5-10 on RWAs, obviously, quite low versus consensus.
Andrew Lim: First one on capital and maybe trying to square.
Andrew Lim: Your line.
Andrew Lim: Nine.
Andrew Lim: Thanks.
Andrew Lim: So.
Andrew Lim: That equation.
Andrew Lim: On a few ways.
Andrew Lim: Obviously quite low.
Todd: But if you take consensus capital, let's say 80-81 billion, then you're looking at about a 15.8% CT1 ratio. So either you come to the conclusion that your buyback potential is quite a lot higher than what you've indicated, or maybe your expectation for CT1 capital is maybe lower than 81 billion. So I just wanted to see how you feel about that.
Andrew Lim: Sentences.
Andrew Lim: But if you take consensus capital.
Andrew Lim: <unk> 1 billion.
Andrew Lim: Bob talked about.
Andrew Lim: $15 eight.
Andrew Lim: CET one ratio.
Andrew Lim: EBIT for the conclusion.
Andrew Lim: It's quite a lot higher than what you've indicated your.
Andrew Lim: Your expectation for CET, one cap rates may be muted.
Andrew Lim: 81 billion.
Speaker Change: So I just want to see how you feel about that.
Todd: And then the second question is on the NII guidance that you've given. Ultimately, we've drawn down into the deposit mix shift there, but we've noted from one of your competitors that also one of the big drivers there has been the leveraging of Lombard loans. And I wanted to see if that was actually a big driver for yourselves as well and how it impacts your thoughts on NII for this year and going forward. Thanks for that, Andrew. So I'll take on the second one.
Speaker Change: And then the second question.
Speaker Change: On.
Speaker Change: You've given.
Speaker Change: Obviously, we've drilled down into them.
Speaker Change: Sure.
Speaker Change: I think on one of your competitors that also one of the big drivers.
Speaker Change: Deleveraging.
Speaker Change: Martin.
Speaker Change: And I want to see to see if that was actually a big driver for yourselves as well.
Speaker Change: And how this impacts the Giulio tools.
Speaker Change: For this year and going forward.
Speaker Change: Yeah. Thanks, Thanks for that Andrew So I'll take the second one.
Todd: No, we're not seeing, I mean, we've had some deleveraging that we've highlighted in prior quarters, but we're not seeing that as a major factor in our guidance at this point, other than around, you know, the impacts from the resource optimization that I've highlighted. But in particular around Lombard deleveraging, we're not pricing that to any significant degree into our guidance.
Speaker Change: No we're not seeing.
Speaker Change: I mean, we've had some deleveraging that we've highlighted in prior quarters.
Speaker Change: But in no way.
Speaker Change: We're not seeing that as a major factor in our guidance at this point other than around.
Speaker Change: The the impacts from the resource optimization that I've highlighted but in particular around Lombard deleveraging, we're not we're not pricing that to any significant degree into our into our guidance.
Todd: I was just trying to pick up on your first point where you were trying to square where the RWA levels are in terms of how that informs the way you want to think about share buybacks. I just want to understand your point; you can repeat the... Yeah, so let's say we're taking that consensus of 81 billion CC1 capital, uh, indicated 5.10 on RWA, so that would be 0.15, 0.9 CT1 ratio, so actually there's quite a lot of buffer, maybe five billion or so above, five-and-a-half billion buybacks that you might be pointing towards for 2026. So, you know, there's either a lot more capacity for you to actually... push up your buybacks there, or maybe you're thinking that CT1 capital might be a bit lower than consensus thinks. So I just want to see what you think about it.
Speaker Change: But I was just trying to pick up on your first your first point, where you were sorry, you were trying to square if.
Speaker Change: The where the <unk> levels are in terms of how that I'm in.
Speaker Change: Informs the way you want to think about share buybacks I just want to understand your point.
Speaker Change: If you can repeat them.
Speaker Change: 81.
Speaker Change: 1 billion CET one capsule.
Speaker Change: Yes.
Speaker Change: On August <unk>.
Speaker Change: It would be 15% CET one ratio.
Speaker Change: Actually this is quite an honor.
Speaker Change: Uh huh.
Maybe finally a boss.
Speaker Change: Fun in a heartbeat and buybacks that you might be pointing towards for 2020.
Speaker Change: There's a lot more.
Speaker Change: More capacity for you to actually.
Speaker Change: Push up your buybacks.
Speaker Change: Or maybe you will see that CET, one capital might be a bit lower.
Speaker Change: And what consensus thinks so I just want to see when you can start sir.
Todd: Yeah, I think it's okay, clear. So, yeah, I think in terms of your CET1 capital calculations, I'm not sure that squares with how we've, you know, we model it under one baseline scenario. But I think it's fair to say that, you know, if we generate, as we go out to 2026, the extent to which we're able to generate the returns that we expect to generate at the end of 2026, there will be sufficient capacity, as Sergio said, to be able to undertake as much share buyback as we had, in fact, more so than pre-acquisition levels. So I think, you know, I won't comment specifically on whether your CT1 number is the same number we consider under one scenario, but I think it's fair to say that there is share buyback capacity naturally if, you know, we hit these targets that we've set out.
Speaker Change: Okay.
Speaker Change: Yeah, I think okay clear so yeah.
Thank in terms of your CET, one capital calculations are I'm not sure if that squares with the with how we've we model under one baseline scenario.
Speaker Change: But I think it's fair to say that.
Speaker Change: We generate as we go out to 2026, the extent to which we're able to generate the returns that we expect to generate at the end of 2026 that you know there will be sufficient capacity as Sergio said too.
Speaker Change:
Speaker Change: <unk> be able to undertake as much share buybacks as we had in fact more so than our pre acquisition levels. So I think.
Speaker Change: I won't comment specifically on whether your your CET. One number is the same number we we consider under one scenario, but I think it's fair to say that there is share buyback capacity naturally if.
Speaker Change: We hit these these targets that we've set out.
Todd: Great, thanks. Thank you, Andrew. And now, moving on to Nicholas Payen from Kepler Chevreux. Good morning, Nicholas. We can see you on screen.
Speaker Change: Great. Thanks.
Thank you, Andrew and now I'm, leaving onto Nicholas <unk> from Kepler Chevron or a.
Speaker Change: Good morning, Nicholas we can see on screen.
Todd: Yes, morning. I have two questions, please. Two on wealth management. The first one would be on your pre-tax profit margin targets in the US. You're targeting mid-teens by 2026, and it's still significantly below what your US peers are doing.
Nicholas: Yes. Good morning, I have two questions. Please tune in wealth management. The first one would be on your pre tax profit margin targets in the U S. You're targeting mid teens by 2026, and it's still significantly.
Nicholas: Below what's your U S peers are doing so I want you to know what kind of.
Todd: So I want you to know what kind of levers you can pull to have this convergence toward the profitability level that we are seeing at the US peers. And, the second one will be on the net inflow that you're targeting. Are there any geographies where you see the most potential or where you are the most excited about, where the CS merger is bringing new capabilities and new outlook? Thank you. Thanks, Nicholas.
Nicholas: Levers you can pull to two halves. This convergence to walk the profitability level that we are seeing of the U S peers and.
Speaker Change #101: The second one would be on the net you feel that you are targeting is there any geographies, where you see the most potential where you you are the most excited about where you were this yes merger is bringing new capabilities and new new outlook. Thank you.
Speaker Change #102: Yeah, Thanks, Nicholas so on the.
Todd: So on the look at pre-tax profit, you know, as we laid out, I think Sergio's prepared comments and mine in response to a question earlier, you know, we're building back to mid-teens through the work that we've described, which we think is quite important. At that point in time, getting to what we think is an appropriate level, given, you know, where we are now. You know, then at that stage, we have, you know, options to consider beyond that to narrow the gap further. And that's, you know, that's certainly the plan. So, you know, it's a little bit of a walk before we run.
Speaker Change #103: Look on the pre tax profit you know as we laid out I think Sergio and his prepared comments and mine in response to a question earlier.
Speaker Change #103: You know, where we're building back to mid teens through the the work that we've described which we think is quite important at that point in time getting to what we think is an appropriate level given where we are now.
Speaker Change #103: Then at that stage, we have options to consider beyond that to narrow the gap further and that's you know that's certainly the plan. So you know, it's a little bit of walk before we run and.
Todd: And we want to just be clear that the things that we think need to happen in US business that we're going to do over the next three years will set us up for success and, being able to, at that stage, drive greater returns and narrow the gap further beyond 2026. In terms of the geographies in GWM that we're excited about, I mean, just, you know, off the top, and I've talked about this before, but certainly places where we become really meaningful, we're excited about many places that the CS integration brings to bear on wealth. But, you know, what comes to mind are places where meaningful change is what we had in the particular region, just given maybe a focus on different client segments.
Speaker Change #103: And we wanted to just be clear that we you know the things that we think.
Speaker Change #103: That need to happen in the U S business that we're going to do over the next three years will set us up for success and being able to sort of then at that stage drive a greater returns and narrow the gap further beyond 2026 in terms of the geographies in gws that we're excited about I mean, just you know off the top and I've talked about.
Speaker Change #103: This before.
Speaker Change #103: But certainly places where we become really meaningful we're excited about many places that.
Speaker Change #103: The sea us integration brings to bear on wealth, but you know what.
Speaker Change #103: It comes to mind or places where meaningfully.
Speaker Change #103: Meaningfully changes what we had in the particular region just given maybe a focus on different client segment, maybe we exited so two examples come to mind would be Brazil more on the former in terms of the client segment, we focused on another as Australia, where we exited again more.
Todd: Maybe we'd exited, so two examples come to mind would be Brazil and Australia, more on the former in terms of the client segment we focused on. Another is Australia, where we exited, again, more of an affluent practice that we had many years ago, and we have an opportunity now to inherit a business in Australia, aligned, by the way, with the IB in Australia, which is quite exciting. And that business is more, you know, the high net worth and the ultra-rich that is our bread and butter. So, two examples where, and for different reasons, what excites us in terms of the acquisition.
Speaker Change #103: Of.
Speaker Change #103: You know an affluent a practice that we had many years ago and we have an opportunity now.
Speaker Change #103: To inherit a business in Australia aligned by the way with the IV in Australia, which is quite exciting.
Speaker Change #103: And in that business is more you know.
Speaker Change #103: The high net worth and the ultra.
Speaker Change #103: That is our bread and butter, so two examples where and for different reasons why of what what excites us in terms of the acquisition.
Todd: Thank you, and our final caller is Piers Brown from HSBC. Yeah, good morning. Most of my questions have been answered, but maybe just one final one on litigation. Just whether there's anything in the plan for a sort of a business as usual, normalized charge for litigation? I know you've taken a lot of, um, Adjustments on the CS acquisition, and you've got four billion in balance sheet reserves at this stage. But having had a good chance to look at the casebook at this point, is there anything in there which you think might still burden the P&L over the course of the targets that you've laid out this morning? Thanks. Hey Piers.
Speaker Change #104: Thank you.
Speaker Change #104: Thank you and our final coronary piers brown from HSBC.
Piers Brown: Yeah. Good morning, most of my questions have been answered, but maybe just a final one on litigation.
Just whether there's anything in the plan for instead of a business as usual.
Piers Brown: Normalized charge for litigation I know you've taken a lot of.
Piers Brown:
Piers Brown: Adjustments on the <unk> acquisition that you got on your 4 billion of on balance sheet reserves at this stage, but having had a good chance to look at the case book at this point.
Piers Brown: Is there anything in there, which you think might still burned in the P&L over the course of the the targets you've laid out this morning.
Piers Brown: Thanks.
Appears: Appears thanks for the question, Yeah, I mean.
Speaker Change #107: Just refer you to the litigation note, which gives a both the UBS heritage and credit Suisse Heritage.
Todd: Thanks for the question. Yeah, I mean, just refer you to the litigation note, which gives both the UBS heritage and Credit Suisse heritage legacies there, and say that's the best bet. Otherwise, I'd just tell you that, given where those matters sit, we're comfortable with the levels we're at. But that's all I would comment on in terms of litigation at this stage.
Speaker Change #108: Legacy is there say that's the best bet.
Speaker Change #109: Otherwise I'll, just tell you that our provision levels.
Speaker Change #109: Augmented by the PPA that I described in August.
We're comfortable with the levels, we're at just given the.
Those were those are matters that but that's all I would comment in terms of litigation at this stage.
Todd: Great, thank you. Thank you. There are no more questions, so it just leaves for me to hand it back to Sergio for final remarks. Well, it will be very short. I won't abuse your patience.
Speaker Change #110: Alright, thank you.
Speaker Change #111: Thank you and there are no more questions. There just leads to me to hand back to Sanjay for final remarks.
Sanjay: Well it will be very short they want the abuse of your patients who have been with us. Thank you for two hours plus.
Sergio Amati: You have been with us. Thank you for two hours plus. Thanks for the questions. And thanks for attending. I hope you got enough information. But most importantly, if you have any further needs or any further questions, please reach out to Sarah's team, IR, or I'm sure between myself and Todd, we'll have a chance to catch up with many of you in the next few weeks. Thank you for attending, and enjoy the rest! www.globalonenessproject.org
Sanjay: Thanks for the questions. Thanks for attending I I Hope you got enough.
Sanjay: Informations are but most importantly, if you have any further needs are any further questions. Please reach out to <unk> IR or I'm sure between myself and I thought we'd have a chance to catch up with many of US in the next few weeks. Thank you for attending and.
Sanjay: Enjoy the rest of the day. Thank you.
Sanjay: [music].