Julius Baer Gruppe Namen

Ladies and gentlemen, welcome to the Julius Baer 2024 half-year results presentation for media analysts. I'm Alice, the chorus call operator. I would like to remind you that all participants will be listed in only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Nick Dreckmann, CEO at Intrim, and Ms. Evi Kostakis, CFO. Please go ahead.

Good morning, ladies and gentlemen, and welcome to the presentation of our half-year results 2024. I look forward to sharing my takeaways of the past couple of months, what we have achieved, and more importantly, providing the context for what we will focus on in the remainder of the year. I'm joined by our CFO Evi Kostakis who will take you through the numbers after my introductory remarks. You will be able to follow our presentation on the screen and the participants who dialed in over the phone will have the opportunity to ask questions at the end of the presentation. So thank you for being here and now let's get started. As you can see from the numbers we released this morning, Julius Baer is clearly regaining momentum thanks to a renewed focus on business generation after an admittedly challenging start to the year. The results of these efforts are reflected in our set of figures today. From February onwards, we have seen net new money inflows at a continuous rate north of 3% throughout the end of June. A clear recovery from a negative January, leading to total inflows of 3.7 billion for the first half and 3.9 billion excluding deleveraging. We also saw stronger levels of client activity and a strengthening of our recurring revenues. This was offset, however, by higher interest expenses and thus a lower contribution from net interest income, effects that Evi will explain in more details shortly. And this also led to a shortfall in operating income compared to the all-time high in the first half of 2023. Yet compared with the second half of 2023, operating income was up 8%, showing constant improvement in our recurring income margin. The cost-income ratio and profitability were supported by lower levels of provisions and by ongoing efficiency gains balancing investments in growth. Both improved significantly from the underlying results reported in the second half of 2023. The cost-income ratio lowered from 73% to 71%, and net profit rose from 406 million CHF to 460 million CHF. Our strong CRT-1 ratio of 16.3% at the end of June demonstrates the capital-generative nature of our business. The financial strength of Julius Baer is further evidenced by the quality of our highly liquid balance sheet, with a liquidity coverage ratio of 325%, one of the highest in European banking. With our performance in the first half of 2024, we have created the prerequisite to continue to drive long-term business growth and make our franchise even more efficient and fit for the future. What was important in the first half will continue to play a role in further driving our momentum. We have always and continue to place a strong emphasis on the quality of the individuals we add and the values they share with Julius Fair ahead of the number of people we recruit. In 2023, the hiring numbers were very high, having added a net 95 new RMs over the full year. In 2024, we have maintained strong hiring momentum, even if not at the same level. I will provide greater detail later. This year, once again, the strength of our brand has allowed us to be selective when it comes to top talent. We're very pleased with our 21 additional new RMs that have already started in this first half year. And we continue to see momentum going into the second half. Let me add here that while the hiring of relationship managers is key, it's not the sole lever of our growth. Another is our exceptional and differentiating PurePlay value proposition, supported by state-of-the-art technology. Again and again, when I speak to our clients, they comment on the appeal of our value proposition, which continues to stand out from our peers. This allows us to remain close to our clients and successfully address their concerns and needs. This matters especially during times of volatility and geopolitical challenges as we are facing today, and therefore remains an important area of investment in growth. In these first six months, we have also made significant progress in delivering on our commitments announced on February 1st. we have advanced in the orderly wind-down of our private debt business. Our net exposure in the first half has been reduced by more than 20%. We've similarly delivered on our commitment to strengthen our corporate governance and risk framework, including altering the respective governance committees responsible for credit approvals at both the board and the executive board level, as well as strengthening our framework for credit limits more broadly. We have also made notable headways in our cost efficiency program. After launching the cost program for the strategic cycle 23 to 25 in May 2022, with targeted savings of 120 million Swiss francs, last February we increased the ambition level to 130 million Swiss francs. I'm very happy to report that we're actually ahead of plan here. We've achieved run rate savings of 120 million Swiss francs already in the first half of this year. We believe that at this pace we may even exceed our current target of 130 million and reach 145 million in savings by 2025. Last but not least, on the back of strong markets as well as superior investment performance, we also were able to increase recurring revenues. We've seen positive momentum with an increase of the recurring income margin to 38 basis points, up from 36 basis points in the first half, 23. We continue to aim for 39 to 40 basis points by 2025. When we look at our cost-income ratio target of below 64% by the end of 2025, there is further traction to be achieved both on the revenue side and the cost side. Achieving the target will need some tailwinds from the markets, but there is also some work on our end that still needs to be done. Before now handing over to Evie for the details, let me quickly recap. The figures we have presented today show that we are back on track. The momentum that we have been regaining is continuing well into the second half of the year, and we'll continue to execute our strategy and continue along our sustainable growth path. I'll now pass it on to Evie to walk you through our results in greater detail.

Thank you, Nick. Good morning, everyone. As usual, before diving into the results, I'll start on page seven with a bit of context in terms of the key market backdrop in the first half of the year. First, looking at the securities markets and foreign exchange. Stock markets were generally up, and while the US markets again outperformed, the dispersion was much less pronounced than last year. Bonds were mainly treading water, down slightly, 3% if you look at the Bloomberg Global Ag Index as a proxy. But an important development for our P&L was the weakening of the Swiss franc, particularly against the US dollar, which strengthened by 7%, while the euro not shown on the chart also strengthened in sympathy to the tune of 4%. Contrary to consensus expectations at the start of the year, U.S. interest rates did not yet come down. However, we did see the first rate cuts elsewhere, with the Swiss National Bank delivering two consecutive 25 basis point cuts to 1.25%, and the ECB a 25 basis point cut to 4.25%. The third set of graphs shows that the key yield curves remained inverted, although the inversion is now less pronounced than at the start of the year. However, the yield curve inversion did not materially improve yet. Finally, stock market volatility spiked in April before falling down back to lower levels again in May and June. Moving on to slide 8, which shows assets under management up 11% to $474 billion, helped by the strong equity markets to the tune of $28 billion and the weaker Swiss franc to the tune of $21 billion, and by close to $4 billion in net new money. In May, we completed the sale of Kairos with AUM of 4.8 billion, which was the main factor within the 5.4 billion AUM decrease related to divestments. Monthly average AUM important for the margin calculations grew by 5% year on year. And if we include the 91 billion in custody assets, total client assets grew by 10% to 564 billion. Moving on to net new money on slide nine. As we mentioned already in the interim management statement in May, net new money went off to a slow start in January, but improved meaningfully thereafter, resulting in net flows of 3.7 billion by the end of June, representing a growth pace for the full period of 1.7%. However, the growth pace after January was just over 3%. In terms of regional contributions, I would highlight the UK, Germany, and Spain in Europe, India and Singapore in Asia, and the UAE in the Middle East. The RMs we welcomed onto our platform in 2023 continue to track in line with our expectations, meaning that the pressure on flows came rather from the more seasoned RMs on our platform. The impact of deleveraging diminished towards the end of the period with an impact of just 0.2 billion year to date. However, at this point, with yield curves still by and large inverted, we feel it's too early to make a call around releveraging, despite the fact that lending penetration is at a multi-year low. That said, we are quite encouraged by the continued momentum in flows in the first three weeks of July post the half-year close. So let's turn to revenues on slide 10. At 1.95 billion revenues recovered nicely by 8% or 148 billion versus the second half of last year. But on the usual year-on-year comparison basis, revenues were down 4% or 85 million from the record high level achieved in the first half of 2023. What drove this development? In short, gains from recurring income and client activity gains were offset by higher interest expense. This will become clear when we go through the items line by line. Net interest income declined by 52% to 223 million. While interest income on loans and on the treasury portfolio went up year on year thanks to higher rates, that benefit was more than offset by a rise in interest expense on deposits due to a further shift by clients into term and call deposits, as well as higher interest expense on amounts due to banks as we further diversified our funding base. Net commission and fee income grew by 14%, or $130 million to almost $1.1 billion, helped, of course, by the rise in client assets, but also by a further shift towards recurring fee products, leading to recurring income growing twice as fast as average AUM, as well as higher client activity. Finally, net income from financial instruments at fair value through profit and loss improved by 7% or $41 million to $638 million, helped by significant increase in activity-driven income, which outstripped a slight decline in treasury swap income following a small drop in swap volumes. Other ordinary results decreased by 6 million to minus 2 million, impacted by the 16.5 million loss related to the sale of Kairos, which we booked in May after the IMS. And of that 16.5 million, 11 million were cumulative FX translation differences that were recycled to the P&L. Underlying net credit losses went up by $9 million to $7 million, as we had net recoveries of $2 million in the first half of 2023. This was also booked after the IMS, i.e. in line with a long-term average cost of risk of four basis points, which you will find in slide 37 of the appendix. Turning the page to slide 11, where the gross margin analysis shows the key moving revenue parts in a slightly different way. The gross margin came to 85 basis points in the first half, recovering from the 82 basis points underlying gross margin in H2, but 8 basis points below the multi-year high level of 93 basis points that we reached a year ago. On the top left-hand side, we show the gross margin in line with a customary IFRS reporting split. However, in the bubbles below the main graph on the left, we have again stacked the components in a way that ties them more clearly to the main business drivers. So, by combining NII with treasury swap income, or what we like to call quasi-NII, one clearly sees a further decline by six basis points down to 24 basis points in total interest-driven income, below our own expectations back in February, and I'll come back to this on the next slide. On a positive note, the recurring income gross margin picked up by a basis point and a half to almost 38 basis points, which is important as we are targeting to get this number up to at least 39 basis points by 2025 and hopefully even more. The other good development is clearly from the activity-driven components, which improved by four basis points year-on-year to 24 basis points, nine basis points higher than the multi-half-year low print in H2 of last year. On slide 12, we show our updated rate sensitivity analysis. Sequentially, I compared to the second half of 2023, the interest-driven gross margin dropped by six basis points to 24 basis points, with the NII margin down minus seven basis points and the swap margin up one basis point. That 24 basis points was well below the 30 basis points guidance we gave in February, so I want to briefly guide you through where our assumptions did not play out in practice. I think it's important to reiterate that our guidance is based on a stable balance sheet size, stable balance sheet structure, and stable assets under management. So, starting with the last point, the fact that AUM grew much faster than the balance sheet in and of itself had an impact of around minus one basis point. Secondly, there was a shift in the loan book, two and a half basis points versus our initial expectations as the wind down of the private debt book went off to a better start than we had anticipated. And because there was a relative shift, mixed shift towards lower yielding Swiss franc loans. And thirdly, the further terming out of deposits had an impact of around minus two basis points. Now looking forward to our estimated sensitivity from here. Our direct sensitivity to rate changes continues to be essentially neutral because right now the impact on NII would be balanced by an equal opposite impact on swap income. So if we assume, as we do, No major changes to the balance sheet structure, which I think is not an unreasonable assumption from where we stand today. No major change in speed in balance sheet growth relative to AUM growth. Continued positive rollover effects of the Treasury portfolio, and from here, only very limited further shifts into call and term deposits. Then, an interest-driven gross margin level of around 24 basis points appears well-supported for the second half. Now let's turn to operating expenses on slide 13. Costs were up 1% or 56 million year on year to 1.39 billion as our further investments in growth were balanced by lower provisions and by an acceleration of the cost program. I'll come back to the cost program in the next slide. Personnel costs rose by 4% to just over $913 million as the impact of the 7% year-on-year growth in average number of staff was partly offset by lower performance-related remuneration. General expenses were down 7% at $366 million, helped by a $47 million decrease in provisions and losses. Excluding provisions and losses, general expenses went up by 5% to 354 million. This latter increase was driven predominantly by a rise in professional service fees and IT-related expenses. Depreciation fell by 2% to 49 million, while amortization went up by 13% to 66 million following the rise in capitalized IT-related investments in recent years. So with the expense margin stable year on year, it's clear that the year on year drop in gross margin and in revenues was the main driver behind the year on year increase in the cost to income ratio to 71%. Which means we have to remain vigilant on costs and we'll need some help from the market environment in order to close in on our 64% cost to income ratio ambition in 2025. On slide 14, we provide an update on our cost savings program. As you may recall, we had originally announced a gross cost savings program for the 23-25 cycle of $120 million to help fund additional technology and growth investments. Last February, I presented a detailed update, and at that time, we increased the target for this program to $130 million on a gross basis. In the meantime, we've executed well. We are quite confident that we might be able to exceed that 130 million target. Based on current projections, we may well get to 145 million in 2025. On a run rate basis, we were already at 120 million at the end of June, and we may be able to get to 140 million on a run rate basis by the end of the year. with the estimated restructuring costs only slightly higher at $24 million this year versus a previous estimate of $20 million. Slide 15 summarizes the profit development. Pre-tax profit came down by 15% year-on-year to $551 million, and the pre-tax margin dropped by 5 basis points to 24 basis points. The tax rate went up slightly to 16.5%, right in the middle of our guided range, driven by a larger share of profit from higher tax jurisdictions, resulting in a 15% decrease in net profit to $460 million and a return on CET1 capital just shy of 30%. Our tax guidance is still the same as it was in February with the OECD minimum tax rates starting to kick in. Our current guidance for 24 is for an adjusted tax rate between 16 and 17% and potentially somewhat higher than 17% from next year. Moving on to the balance sheet on slide 16. Our balance sheet remains highly liquid with a loan-to-deposit ratio of 63% and one of the highest liquidity coverage ratios in Europe at 325%. As large portions of the balance sheet are denominated in other currencies, especially dollars and euros, the year-to-date strengthening of those currencies against Swiss franc had a meaningful impact on how those balance sheet items developed in Swiss franc terms. For example, the loan book grew by 8%, or 3 billion to 42 billion, but on an FX neutral basis, the increase in loans were short of 5%, or 1.8 billion. And deposits grew by 5%, also 3 billion to 66 billion, but on an FX neutral basis, the development was essentially flat. Within deposits, clients' cash continued to shift from current accounts into the term and call deposits, which now make about 65% overall due to customer's position, up from 63% at the end of 2023 and from 56% a year ago. The Treasury portfolio at $17 billion stayed where it was, more or less, of which a third is now measured at amortized cost. A quick update on the wind down of the private debt loan book. As we communicated in February, we expect to be able to wind down the book from 0.8 billion at the end of 2023 to 0.1 billion at the end of 2026. This process is clearly on track, with the book having shrunk by 0.2 billion to 0.6 billion at the end of June. The wind down is executed in a consensual manner with our clients, thereby keeping the related AUM outflows rather limited. In fact, if you refer to the top 10 exposures we showed you in February, all 10 have come down, with the second largest exposure reducing materially, meaning an overall less concentrated remaining portfolio. Turning to capital development on the next slide, slide 18, since the end of 2023, CET1 capital grew by 10% to $3.3 billion, helped by the solid profit generation and the continuing benefit of the pull-to-par effect from our Treasury portfolio. At the same time, risk-weighted assets decreased slightly by 2% to $20 billion. As a result, the CET1 capital ratio improved from 14.6% to 16.3%. On the right-hand side of the slide, you see the OCI pull-to-par development. In H1, the pull-to-par tailwind was a bit lower than guided for, given that the bond market came down slightly, with a five-year Treasury at year-end at 384, discounting several Fed rate cuts, and moving up to a level of around 433 by the end of June, so 50 basis points, more or less higher. The positive other side of that coin is, of course, that this means there's a larger benefit still ahead of us. We currently expect, based on a linear estimate, that of the remaining 329 million, around 26% will come back in H2, 37% in 2025, and the rest after 2025. Risk density came down to 20% at the end of June. Our current best estimate is that this will still be around 20% by year end, just based on expected business development. But then immediately after year end on January 1st, this would increase straightaway to somewhere between or somewhere around 22% as Basel III final kicks in in Switzerland, i.e. an impact of around two percentage points. There are still some uncertainties in there in which we'll have more clarity by year end, obviously, but an impact of around two percentage points seems reasonable from today's perspective. Finally, a quick review of the improvement in the Tier 1 leverage ratio on slide 19. As a result of the CT1 capital development, Tier 1 capital increased to 5.2 billion. The leverage exposure rose by 6% year-to-date, essentially in line with the growth in the size of the balance sheet. And as a result, the Tier 1 leverage ratio improved further to 5%, very comfortably above the regulatory floor of 3%. With that, I now hand the microphone back to Nick.