Julius Baer Gruppe Namen

Ladies and gentlemen, welcome to the Julius Baer 2024 full year results presentation for media and analyst conference call. I'm Sandra, the course co-operator. I would like to remind you that all participants have been listened 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 Alexander van Leeuwen, Head of Investor Relations. Please go ahead, sir.

Good morning, everyone. Welcome to the Judas Bear 2024 full year results call. I am Alex van Leeuwen, Head of Investor Relations. Before starting the presentation, allow me to flag the important information provided on slide two of the presentation. It is now my pleasure to hand over to our CEO, Stefan Bollinger.

And good morning, everyone. And thank you for dialing in. I'm excited to open this earning call for investors and analysts in my role as the new CEO of Julius Baer. And I'm looking forward to an open and constructive collaboration with all of you. I'm joined this morning by Nick Trackman, COO and Deputy CEO, and Evi Kostakis, our CFO. Before Nick and Avi start with the presentation of the full year 2024 results, I would like to make a few remarks. As you know, I joined Julius Baer on January the 9th and since connected with many colleagues and clients here in Switzerland and abroad. I also visited Hong Kong and Singapore as well as the Middle East and started a constructive dialogue with our regulators. Everything I've seen and heard so far in the past three weeks has not only confirmed but reinforced the reasons why I took on the CEO role. To mention just a few things I feel particularly strongly about. We have a high-quality client portfolio, a compelling wealth management proposition, a unique and resilient brand, and excellent people with an entrepreneurial mindset. I'm looking forward to building on these strengths and unleashing the full potential of Julius Baer's unique market position. Hence my conclusion that we have all the ingredients required to become the most admired international wealth manager. Having said that, I'm fully aware of some of the challenges we have faced in the recent past, as well as some of the areas for improvement that you, the analysts and investor community following us closely, have identified. We aim to address these swiftly and decisively to deliver on two-fold performance imperatives. Relentless focus on high-quality net new money generation and sustainable and profitable long-term growth, while at the same time delivering on margin resiliency and on structural and operational efficiencies. In that context, we have announced an extension of our ongoing 2023 to 2025 cost program. You will hear more about it from my colleagues in a moment. Looking ahead, in order to execute on those objectives and to deliver the performance our shareholders expect and deserve, I have identified five immediate short-term priorities that I have already communicated to our people. These priorities are an enduring client focus or what I call internally client obsession. Back to the roots culturally, but since it's 2025, technology enhanced. Disciplined entrepreneurship. a phrase I coined that you will hear me talk about a lot, a performance and ownership-led culture, and a prime spot for prime talent. This is obviously not yet a full strategic vision, but these priorities will guide all our short-term actions from here. I see them as a foundation and a necessary guide to rapidly get back on track and prepare for more to come. They will also represent the core principles for the comprehensive strategy review that I'm about to launch and will present to you at the strategy update day that will take place before the summer break. As a very first step in delivering on those priorities and setting the right tone from the top, I have decided to substantially downsize our executive board and to reorganize our top management structure. As announced this morning, the new eXp will be reduced from a current 15 to newly 5 members. And beside myself will be composed by Nick and Evi, who you know and are with me this morning, Oliver Bartolet, Chief Risk Officer, and Christoph Hestand, Group General Counsel. In the new Executive Board, I will personally assume direct responsibility for all revenue generating activities with the region and product heads reporting directly to me. In addition, the role of the COO will be strengthened and as such the areas of client strategy and experience and HR and corporate affairs will newly be reporting to Nick in his COO capacity. This is my first move to create a leaner, more straightforward way of running our business. while increasing accountability, simplifying decision-making, instilling disciplined entrepreneurship top-down and reinforcing our client focus. We're going to apply the same principle through the entire organization. I am convinced that clients and all other stakeholders will feel the difference. With that, I would like to conclude my initial remarks. Nick and Evi will now take you through the 2024 result in detail. Over to you, Nick.

Thank you very much, Stefan, and a very warm welcome also to all of you from me. Stefan, thank you also for the introduction. But now let's focus on 2024. As you're all aware, Julius Baer had a very testing start to the year. Since then, and as underlined by the numbers published today, momentum has been clearly regained. This is thanks to our strong brand, franchise, employees, as well as our longstanding and deep client relations. This has been displayed by our strong asset base and the regained momentum on growth and net new money. Let's start with our asset base. We're very happy with our record assets under management of nearly half a trillion Swiss francs, driven by 14.2 billion in net inflows, of course helped by a strong equity market and currency tailwinds. This not only shows our global strength, but also provides us with an excellent base for future growth. As mentioned in our first half results, We had a slow start to the year in terms of net new money generation, but we saw strong momentum going into the second half of the year when we displayed a 4.4% of net new money growth. Net new money was primarily driven by recent high-quality hires delivering on business case, proof of our ongoing ability to attract industry talent to join our ranks. In the second half of the year, we also registered improving contributions from seasoned relationship managers. It's also worth mentioning that we saw strong net new money, particularly from strategic key markets like Singapore, Hong Kong, India, the UK, Germany, Switzerland, and the UAE. The work we're doing in driving performance management and onboarding best-in-class talent is paying dividends, but we continue to have room for additional progress. Momentum going forward is as usual subject to market and client sentiment. Moving on to profit. We ended the year with 1.1 billion Swiss franc of adjusted profit before tax, outperforming our run rate of the first half, and the 1 billion Swiss franc of adjusted net profit, with the latter benefiting from a favorable tax impact. This is a solid result, remembering where we all came from in 2023. Despite the year-on-year rise in the cost of deposits, where we will provide further details, we're able to notably compensate with three other revenue streams. recurring fees, activity-driven income, and treasury swap income. Therefore, underlying operating income, excluding the private debt loan allowance, was up 1%. Our balance sheet is highly liquid and our capitalization strong. We achieved a return on CRT1 capital of 32%, exceeding our target of 30%, And the board is proposing a dividend of two francs and 60 Rappen per share stable from last year. Our CT1 capital ratio stood at 17.8% based on Basel III Actual and shows the capital generative business model that we have at Julius Baer. Proforma for Basel III Final, which will come into force in 2025. Our CRT1 capital ratio would have been at 14.2%, primarily driven by an increase in operational RWA. Evi will provide you with more details later. Now, a few remarks about costs and our related efforts. As already communicated, at the start of 2024, Julius Baer increased its target of for the 2023 to 2025 cost reduction program from originally 120 million Swiss francs to 130 million gross. By the end of 2024, the underlying cost initiatives delivered 140 million gross cost savings on a run rate basis. The total cumulative program-related restructuring costs to date amount to 39 million Swiss francs, out of which 24 million were booked in 2024. Despite these meaningful savings, the underlying cost-income ratio of 70.9% is still that dissatisfactory and far removed from the below 64% target that had originally been set for 2025. Therefore, The decision has been made to extend the ongoing 2023 to 2025 cost program, aiming to deliver further 110 million Swiss francs of run rate savings by the end of 2025. These savings will be achieved across gross personal and general expenses through strategic and structural restructurings, while continuing to invest in growth. The costs to achieve these target savings are currently estimated at approximately 55 million Swiss francs expected to be booked in 2025. To conclude on the cost program, while we have been very active in enhancing operating efficiency in 2024, there is still a lot of work to do. Related to the cost topic, we continue to assess our business proposition and footprint, ensuring that we're best positioned to deliver incremental value to clients and shareholders and managing performance stringently across the whole organization. Our commitment in streamlining our operations is reflected in the sell, of Kairos in 2024 and the announced sale of our Brazilian onshore business in January this year. We anticipate the closure of the Brazil sale as early as the end of the first quarter this year. On risk controls, we remain diligent in strengthening our overall framework and continue to have a constructive engagement with our regulator. I'm pleased to announce that we've made faster than expected progress on the wind down of our private debt book, which has been more than halved since the end of 2023. We're therefore well on track to deliver what we've communicated to you previously. I'll conclude by sincerely thanking all the employees and colleagues who worked tirelessly in 2024. It's been an honor and a privilege for me to work as the CEO last year. I would like to echo the sentiment that we have a high-quality franchise with great employees, excellent clients, and a unique value proposition at scale. This has been evidenced by the various accolades we received last year, including, for example, the 25 awards from Euromoney and some new ones in Asia in January this year. So I'll now hand over to Evy to walk you through our results in greater detail.

Thank you, Nick. And thank you, Stefan. And good morning, everyone. As usual, before discussing the results, I'll start on page 10. with the key market developments. First, looking at the securities markets and foreign exchange. Stock markets were clearly positive in 2024, and while the US markets again outperformed, it was overall a broad-based bull market. Bonds ended the year down, but only slightly. An important development for our P&L, given the currency mismatch between revenues and costs, was the 8% strengthening of the U.S. dollar versus the Swiss franc from spot 84 to spot 91. We saw meaningful rate cuts in 2024 with the Swiss National Bank reducing rates by 125 basis points to 0.5, the European Central Bank reducing the main refi rate by 135 basis points to 3.15, and the Federal Reserve by 100 basis points to a range of between 4.25 and 4.50. The third set of graphs shows that the shape of the yield curves started to normalize, although at the shorter end, overnight to one year, they are still somewhat inverted. Finally, stock market volatility saw a few very brief and idiosyncratic spikes in August and with the yen carry trade unwind, and in December when the Fed changed its tone on rate cuts. But overall, it's fair to say remained relatively muted. Moving on to the next slide, which shows that our assets under management were up 16% to 497 billion, helped by the strong equity markets and the weaker Swiss franc, and by over $14 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 $6.2 billion AUM decrease related to divestments. Please note that the recently announced sale of Julius Bear Brazil with AUM of approximately $9 billion is not yet reflected here. That deal is expected to close later this quarter. Monthly average asset center management important for the margin calculations grew by 7% year on year. And including 93 billion in custody assets, total client assets grew by 15% to a new high of 590 billion. Proceeding to the net new money slide on page 12. After a slow start last January, the net new money pace picked up to 3% in the subsequent months until the end of June, and in the second half, the pace picked up further to over 4%, resulting in net inflows for the year of $14.2 billion. In terms of regional contributions from key markets, I would highlight in Europe the UK, Germany and Switzerland, in Asia, Singapore, Hong Kong and India, and in the Middle East, the UAE. The relationship managers we welcomed onto our platform in 2023 and 2024 are so far tracking in line with our expectations. While in the second half, the contribution for the more seasoned RMs picked up again after a more challenging first half. The impact of deleveraging diminished towards the end of the period. And in fact, if you look carefully at the bubbles above the graph, you see that in H2, we had for the first time since 2021, a small positive impact again from client leverage, albeit just 0.1%. So, while deleveraging appears to have ended, in our view, it's too soon to hail a new era of significant releveraging. In fact, in combination with the implementation of some further refinements in our risk framework, we currently think the net new money pace in 2025 will probably be closer to the 3% we did in 2024 rather than the 4-plus percent we saw in H2. So now let's move on to revenues on slide 13. Despite the significant decline in net interest income as a result of the inevitable year-on-year rise in the cost of deposits, the strong growth in recurring fee income Client activity-driven revenues, as well as treasury swap income, drove a 1% underlying net increase in revenues to $3.9 billion, the highest in our history. Net commission and fee income grew by 14% to $2.2 billion, helped, of course, by the rise in client assets, driving up recurring income, but also by higher client activity. Net income from financial instruments at fair value through profit and loss improved by 21% to $1.3 billion, helped by increased activity-driven income as well as higher quasi-NII, i.e. treasury swap income. Accounting NII, excluding the quasi-NII income sitting in income from financial instruments, declined by 55% to just under $0.4 billion. While interest income on the Treasury portfolio grew by 20% year-on-year thanks to higher rates, interest income on loans declined by 7%, partly following the private debt wind-down, and interest expense on deposits due to the shifts from current accounts and determined call deposits increased by 17%. In the graph, you will also see that other ordinary results decreased by 5 million to 12 million, and you may recall that this was, back in H1, impacted by a 16.5 million transaction-related loss related to the sale of Kairos, of which 11 million were non-cash cumulative currency translation adjustments already recognized in the group's equity, i.e., not relevant for the P&L, but not relevant for capital. In the media release this morning, we confirmed that the sale of Julius Bear Brazil is on track to be completed in the first quarter. And similar to the Kairos transaction, the completion of this deal will also result in a transaction-related P&L impact, in this case currently estimated at approximately $120 million, stemming from the recycling of cumulative currency translation adjustments from other comprehensive income to the P&L, given the persistent depreciation of the Brazilian real versus the Swiss franc in the last few years. Again, mostly a non-cash impact. In fact, we expect that this transaction will be slightly accretive to our capital ratios to the tune of roughly 30 basis points. Turning to slide 14, where the gross margin analysis shows the key moving revenue drivers more clearly. In fact, as most of the impact from higher deposit costs was reflected in the H1 results, I will focus here on the half-yearly development. On the top left-hand side, we show the gross margin in line with a customary IFRS reporting split, but for the purpose of discussing the true business drivers, the usual bubbles below the main graph are the ones to focus on. So by combining NII with treasury swap income, or what we like to call quasi-NII, we saw back in H1 the significant decrease versus 23 in the gross margin contribution of total interest-driven income. What we saw in H2 was essentially a stabilization in this downward shift, with the interest-driven gross margin at 23 basis points, just one basis point lower than in H1, with an exit rate of around 22 basis points, now basically close to the level three years ago in H1 2022. The recurring income gross margin ticked down very slightly in H2. From the graph, the decrease looks larger than it was, because if we were to show an extra decimal, then the decrease versus H1 was just 0.4 basis points, which is fully explained by the deconsolidation in early 2024 of Kairos, with revenues that were basically all recurring in nature. Of course, that means we still have our work cut out for us to get to our ambition to take the recurring gross margin to north of 39 basis points. Finally, at 20 basis points, the H2 gross margin from activity-driven components decreased by four basis points versus H1, but was significantly higher than the 15 basis points in the same period in 2023. On slide 15, for completeness sake, we present the same gross margin analysis on a full year basis, which shows that the year-on-year improvement in the activity-driven and recurring income gross margins is more than offset by the year-on-year decrease in the interest-driven gross margin. On slide 16, we show our updated mathematical sensitivity to large changes in interest rates. This model approach assumes no change to the year and size, and structure of the balance sheet, and no change to the year-end AUM level. The model calculated impact is not meaningfully different from what we showed last July in the half-year results presentation, i.e. close to neutral direct impacts from changes in rates. You will notice that we did not assume any further shift of current accounts to call and term deposits in the event of a 100 basis point parallel shift upward, and likewise, no shift from call term deposits to current accounts and a parallel shift downward. Of course, it is highly unlikely that the balance sheet will not change in 2025. And as I mentioned earlier in the net new money discussion, we are, for example, not yet factoring in strong loan growth in our thinking. So the 22 basis point interest-driven exit gross margin may well end up being the upper bound of what the business will deliver in 2025, unless we see a dramatic shift in balance sheet structure driven by much lower rates, particularly in the dollar. Now let's move on to operating expenses on the next slide. Costs were up 3% or $77 million year-on-year to $2.78 billion. as our further investments in hiring and technology were partly offset by lower provisions and by an acceleration of the cost program. I'll come back to the cost program on the next slide. Personnel costs rose by 4% to $1.78 billion, slightly below the year-on-year increase in the monthly average number of full-time employees. General expenses were essentially flat at $767 million, helped by an $18 million decrease in provisions and losses. Excluding provisions and losses, general expenses went up by 3% to $723 million. This latter increase was driven predominantly by a rise in professional service fees and IT-related expenses. Depreciation and amortization went up by 3% to $238 million following the rise in capitalized IT-related investments in recent years. So, as the expense margin improved year on year, it's clear that the year-on-year drop and the gross margin of minus five basis points was the main driver behind the year-on-year increase in the cost-to-income ratio to 70.9%, which means we must remain more than vigilant on costs, which brings me to the important topic of cost savings. On slide 18, we provide an update on our cost savings program, which we have now decided to extend. As you may recall, last February, I presented a detailed update, and at that time, we increased the target for this program to $130 million gross. We have executed against that target, and in the meantime, we have delivered $140 million on a run rate basis by the end of 2024, with cumulative total costs to achieve of $39 million, including $15 million in 2023 and $24 million in 2024. We are now extending the cost program to target an additional 110 million of gross cost savings to be executed in 2025, bringing the total cumulative savings program to 250 million on a run rate basis. The planned cost savings will be more structural in nature. We will simplify group governance and streamline back and middle office functions to reduce complexity. We will also further optimize the operating model at the front and intensify low performer management to catalyze operational efficiencies. And finally, we will rationalize external staff, consolidate our vendor landscape, and improve demand management, getting to an even more deeply ingrained culture of what Stefan likes to call disciplined entrepreneurship throughout all layers of the organization. Given the structural nature of some of these savings to be executed this year, we are factoring a fiscal year cost to achieve of $55 million. Slide 19 summarizes the profit development. Pre-tax profit came down by 4% year on year to just below 1.1 billion, and the pre-tax margin dropped by 2.5 basis points to 23 basis points. We had a substantial release of tax provisions following the successful completion of a Swiss corporate income tax audit covering the financial years 2017 to 2022. As a result, the effective tax rate was just 3%. resulting in an 11% increase in net profit to $1.047 billion and a return on CET1 of 32%. For the current year and the next few years, our forward tax guidance is now between 18% and 20% based on the expected impact of the implementation of the OECD minimum tax rate in different jurisdictions. On to our balance sheet on slide 20. our balance sheet remains highly liquid with a loan-to-deposit ratio of 61% and one of the highest LCRs in Europe at 292%. As large portions of the balance sheet are denominated in other currencies, especially dollars, the year-to-date strengthening of the dollar against the Swiss franc had a meaningful impact on how those balance sheet items developed in Swiss franc terms. For example, The loan book grew by 7%, or 2.7 billion to 41.6 billion. But on an FX neutral basis, the increase in loans was just 4%. And deposits grew by 9%, plus 5.5 billion to 68.7 billion. But on an FX neutral basis, the development was 3%. Except for Swiss franc deposits... Client cash still shifted somewhat further from current accounts to term and call deposits, which now make up 66% of the overall due to customers' position, up from 63% at the end of 2023 and from 65% at the end of June. However, for Swiss franc deposits, following the significant cut in Swiss rates to rather low levels, we saw the first reversal of this trend, with term and call deposits now at 50% of total Swiss franc deposits, versus 54% a year ago. The treasury portfolio decreased to 16 billion, of which a third is now measured at amortized cost. On slide 21, just a quick update on the progress we're making on the wind down of the private debt book. As we communicated last 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 very well on track, with the book in the last 12 months having shrunk by half to 0.4 billion at the end of 2024. Turning to the capital development on slide 22. On a Basel III classic basis, CET1 capital grew by 21% to $3.6 billion, helped by the solid profit generation and the continuing benefit of the pull-to-par effect in the Treasury portfolio. And in the appendix, you can find the usual linear estimate of the timing of the remaining pull-to-par benefit of just over $200 million. At the same time, risk-weighted assets decreased slightly by 1% to $20.2 billion, mainly following a small decrease in operational RWA and market RWA. And as the increase in credit, RWA was limited by the wind-down of the private debt book, which carries a risk weighting of 100%. As a result, the CT1 capital ratio improved from 14.6% to 17.8%. In Switzerland, the final Basel III set of standards are fully implemented starting in 2025 and mainly impact the calculation of risk-weighted assets. While the first official reporting date is at the end of March 2025, we show here the pro forma impact of Basel III final as of Jan 1, 2025. As we can largely mitigate the impact on market RWAs from the fundamental review of the trading book by adjustments already implemented in relation to certain trading-related activities, for Julius Baer, the main impact of Basel III Final is on operational risk weights, the calculation of which, under Basel III Final, considers the bank's historical internal loss data reflecting operational losses incurred over the preceding 10-year period. For Julius Baer, for this year, This still includes the $547 million provision taken back in 2015 for the agreement with the U.S. Department of Justice about the group's legacy U.S. cross-border business. This inclusion will therefore temporarily inflate operational RWA by $1.7 billion before being eliminated again for the calculation at the end of 2025. As a result... had Basel III final already been in place in 2024, the Basel III final equivalency to uncapital ratio would have been 14.2%, i.e. an impact of 350 basis points compared to the reported ratio. And just mathematically, if one considers that the methodological impact of the 2015 DOJ agreement on the calculation of operational RWA ends at the end of 2025, the look-through Basel III final equivalent CET1 capital ratio would on that basis have been 15.3%, i.e. on that basis an impact of 250 basis points compared to the pro forma ratio. A quick review of the development in the Tier 1 leverage ratio on slide 23. As a result of the CET1 capital development and modestly impacted by the redemption in September of the $300 million worth of AT1 bonds issued back in 2017, Tier 1 capital increased by 10% to $5.3 billion. The leverage exposure rose also by 10% to $107 billion following the growth in the size of the balance sheet. As a result, the Tier 1 leverage ratio remains stable at 4.9%, comfortably above the regulatory floor of 3%. For the sake of completeness, I can confirm that the Basel III final implementation has almost no impact on the calculation of leverage exposure and the leverage ratio. The appendix includes a table with the performer impact on all these key ratios. Before handing it back to Stefan, allow me a brief moment on important upcoming dates. On March 17th, we will publish our annual report and send out the invitation to the 2025 AGM. We will also publish the details of the upcoming strategy update, including date and venue. May 22nd is our IMS for the first four months, and in July 22, we have the publication of the half-year results here in Zurich. With that, it is my pleasure to hand the microphone back to Stefan.

Thank you, Evi. We're opening for questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one At this time, our first question comes from Jeremy CG for ENP. Please go ahead.

Thank you. Good morning and welcome to Stefan. Thanks for being with us on the call. I had two specific questions, please, just to start off. One was on the net new money. I was a little surprised by Evi's comments on the outlook of just 3% this year. It felt like flows were accelerating as we came through the back end of last year and with all the advisor hires. So I just wondered if you could talk us through why you expect flows to be easing back again, just what your assumptions are around that. And then my second question is, you referred to your target of recurring fee income getting above 39 basis points yesterday. I just wanted to sort of hear your comments on whether that's still in place, still valid, and what changes you think you need to make to get there, including perhaps any perspectives that Stefan may have on product mix or what does this bank need to do to get to that level of fee income?

Good morning, Jeremy. Thank you for the questions and thank you for welcoming Stefan on board. Let me start with... net new money. We do believe the midterm picture is quite strong. As you heard in my opening remarks, the seasoned relationship managers started contributing again in the second half of the year after a lackluster first half of the year. And the RMs on business case, which make up 25% of the total population, are well on track. In fact, business case achievement rates for the vintage 23 and 24, around 65%. That said, we said from where we stand today, we believe we'll be closer to the 3% rather than the 4% for the following reasons. Number one, we don't yet see all the necessary preconditions for re-leveraging to kick in in earnest. For that, we would have to see dollar rates come down substantially. Number two, we will be intensifying low-performer management in the next few months, and that might entail some outflows. And number three, we have also been further strengthening our risk framework and aligning risk tolerance, which will lead to a slightly more conservative risk profile when it comes to clients. On your second question with respect to recurring income, Revenue quality is a key priority and will remain a key priority for us. We obviously have our work cut out for us to get to north of 39 basis points. The levers do remain essentially the same. It's discretionary mandates, it's other recurring fees, it's private markets, it's funds. I would defer to the strategy update later this year to give you our latest thoughts on the matter. But my understanding is that it's also a very important priority for Stefan as well.

It absolutely is. And Jeremy, I'm looking forward to finally meet you very soon. Thank you.

Very good. Thanks very much.

The next question comes from Anke Reingen from RBC. Please go ahead.

Yeah, thank you for taking my question and welcome, Stefan. It's basically just about the capital. I mean, the battle for it is obviously somewhat larger than we initially expected. Is there anything in terms of, I mean, why is it so large? Does it already include something for the private debt matter? And is there anything in terms of mitigation or roll-off beyond the DOJ ruling. And then I just wonder where you are in the dialogue with FINMA about more clarity on your capital impact and distribution. And is there any impact about in your financial report, you talk about the regulatory assessment by enforcement assessment by FINMA. Can you talk about potential implications? Thank you.

Thank you, Anke, and good morning. On the impact of Basel III final, I essentially tried to explain it in the opening remarks. Basically, the USDOJ settlement from 2015 accounts for about 100 basis points equivalent to 1.7 billion of risk-weighted assets, and this will roll off of the operational loss database applicable to us by the end of 2025. So on a look-through basis, the impact is around 250 basis points.

Is there any more that could be potentially reducing the impact? And why is the impact so much higher than we initially thought? Is there something for the private debt matter already in there?

Nothing for the private debt matter.

Sorry, I didn't hear that.

No, this has nothing to do with a private debt matter.

Okay, thank you.

Okay, and let me take your question around FINMA and share buyback. As you know, the theoretical share buyback amount as we stand today would be roughly 60 million and would be too small in any case to justify a launch of the new buyback program. at that point in time. But as you know, in all jurisdictions, banks discuss capital planning and distribution with their regulators as a matter of standard practice. And we have done this in the past as well. And this obviously includes also cases like during COVID and topics like this. Hence, we believe it's prudent to await the completion of the FINMA review and focus in 2025 on completing any and all the post-private debt case-related remediation measures before discussing the possibility of share buybacks within order to ensure a sustainable capital planning and distribution.

Thank you, but you don't have any more on timing potentially. That's unclear on when that could conclude.

As mentioned, I think we are collaborating with our regulators on these topics on an ongoing basis, and we can't comment further.

Thank you very much. I'm sorry. Thanks.

The next question comes from Piers Braun from HSBC. Please go ahead.

Yeah, good morning, everybody. Good morning, Stefan. Just two questions. Back on the buyback, can you just confirm, I mean, it sounds like the capital position could improve quite materially as we go through the year with the Brazil sale and then obviously looking towards the cross-border dropping out of your up-risk RWA towards the end of the year. So would you completely rule out maybe an off-cycle buyback? I know this was raised as a potential topic last year. And then secondly, just on deposit flows, I mean, it's interesting, obviously, as rates are starting to decline, you're still seeing inflows into term accounts. Can you say if you're seeing any more recent shift of money back out of term and whether that may, through the course of this year, improve the prospects for your clients becoming a little bit more active and maybe helping the activity driven margin through this year? Thanks.

Hey, Piers. Good morning. Let me start with deposit flows. So in the second half of the year, we did see a small further shift from current accounts into call and term deposits. However, with a substantial drop in Swiss franc rates, we also saw the reversal of call and term deposits in Swiss franc into current accounts. And that is shown on the balance sheet page.

Maybe I'll take the one with regards to further share buybacks potentially going into 2026. I think the assessment of a potential share buyback in later years will obviously depend on the circumstances at that time, including capital planning considerations, which are aligned with our regulator to properly assess the availability of excess capital, not just from a pure numeric perspective, obviously.

Okay, thank you. Can I just come back on the deposit mix? I mean, I, sorry, I'm just looking at the, this is slide 16, but I thought there that your term numbers had gone up in the second half across all currencies. Could you just correct me if I'm wrong on that?

Yeah, if you look at the breakdown on the page, you'll see that I think for Swiss francs, we were at 55% and now we're at 50%.

Okay, and the numbers have moved up for dollar and euro.

The next question comes from Amit Ranjan from JPMC. Please go ahead.

Yes, hi, good morning. Thank you for taking my questions and a warm welcome to Stefan from my side as well. I have two, please. Stefan, I know it's a bit early, but how should we see the cost program extension that has been announced today? Is this a first step and there could be more to come as the strategy update is finalized? And how do you see the need for investments in the franchise, including tech investments versus the need to improve efficiency? And in that context, is the below 64% gross income target for 2025 still realistic? And the second question is around client sentiment, please. Is there a difference between geographies? Are we seeing an increased client risk appetite as rates are coming down? And how do you see the impact of the geopolitical tensions currently on client sentiment? Thank you.

Thank you and good morning and thanks for the warm welcome. Look, obviously, it's on my agenda. The cost-income ratio is not acceptable as we have made Very clear. As we have communicated, I will take my time to look carefully into all our businesses and then we'll communicate at the strategy update before the summer. Our plan, I would just say that this is a gross cost program and we'll continue to invest in areas where we see opportunities.

Maybe I can cover the client sentiment question and I'd break it down in terms of transaction income. I would break it down in terms of net new money. And clearly what we see from a transaction income point of view, we have seen Asia and the Middle East thriving quite significantly and maybe the other markets a bit less so. Also, when you're looking at where our net new money is coming from, as mentioned earlier, it comes predominantly from all our strategic markets, be that Asia, Singapore, Hong Kong, but also here, UK, Germany and Europe, India in particular as well, and Switzerland equally so. In terms of leverage or re-leverage, I think, as Evi mentioned, we have clearly not yet seen a re-leveraging. We see first signs, but not to make a trend out of this at that point in time. Thank you.

The next question comes from Benjamin Goy from Deutsche Bank. Please go ahead.

Hi, good morning. Two questions from my side as well, please. So first, on a new strategy, you know, with Stefan in less than a month, but you also have a chairman change ahead of you. Just wondering how this impacts the strategy planning and the timing of the presentation. And then secondly, as you mentioned, the 22 basis point exit rate on the quasi-NRI, would you also highlight that as the run rate for 2025?

Benjamin, good morning. As we communicated, the Board of Directors has decided that, and Romeo has announced that he will not stand for re-election in the coming AGM, and our search is underway. We'll communicate with the invitation of the AGM. The hopefully a new candidate. And of course, this is a matter of the NCC. And at that time, we'll obviously engage with our new chairman to make sure that we're in sync on strategy. So I don't think that has any other repercussions than what we said before, that we'll have a strategy update and give you more details before the summer.

And, Benjamin, on your second question around interest-driven margin, I did say in my opening remarks that from where we currently stand, we see the exit rate of 22 basis points as the upper bound. That, of course, always is under the assumption of unchanged balance sheet structure and assets under management. Thank you.

The next question comes from Nate Nemes from UBS. Please go ahead.

Yes, thanks for taking my questions, and Stefan, welcome on board. Three questions from my side, please. The first one is for Stefan. Would you be able to talk about your priorities in terms of capital allocation for the business? You mentioned in your introductory remarks that you would like to put the business back on a growth path, and highlighted as the preeminent independent wealth manager. What sort of capital allocation would help you do that? That's number one. The second question would be on where do you see the biggest opportunities in terms of improving the commercial and financial performance of the bank? You mentioned the cost-income ratio is clearly unacceptable, but are there any specific areas that you're looking at, be it the technology stack, the Swiss booking platform, or any other levers that you can identify today. And the third question would be on hiring. How shall we think about both growth and net hiring in 2025, given, I think, your comments regarding potential performance management and 3% net new money expectations? Thank you. Thank you very much.

Thanks, mate, for the question. I mean, obviously, it's day 18 in my job, so please give me a little bit more time to assess what we're doing in terms of capital allocation, commercial opportunities, and so forth. I'm very much looking forward to update you on our strategy update that will take place before the summer.

And, Mate, good morning. It's Abby here on the hiring side. We do see a strong pipeline of gross hiring for relationship managers. However, we have said that we will intensify low-performer management as well. So we'll see where that leads to in terms of net number by the end of the year.

Thank you.

The next question comes from Stefan Stahlmann from Autonomous. Please go ahead.

Good morning. Very welcome from my side as well, Stefan, and thanks for taking my questions. I wanted to follow up on the operational risk-weighted assets, please. The 1.7 billion drop-off that you expect at the year-end, is that an automatic drop-off or does it need to be approved by FINMA? And if the latter, has that already happened? I also wanted to follow up, please, on the issue of refining risk policy as one of the explanations of lower net new asset growth. Is this primarily about credit risk refinement or is it more about compliance perspective? And a final question just very quickly. I assume that the exit from Brazil is not part of the 110 million gross cost savings, is it? Thank you.

Hi, Stefan. Good morning. So on your first question, operational RWA, yes, it's automatic. On the second one, with respect to the refinement of the risk policy, it is comprehensive across all topics, from compliance to credit. And your third question, remind me again, was?

That is about whether the exit from Brazil and the cost relief that that produces is part of the 110 million extra cost savings. Sorry, could you hear me?

Yes. It is not. Brazil is not.

It's not, okay.

Yes.

Great. Thank you very much. Thank you.

The next question comes from Giulia Aurora Miotto from Morgan Stanley. Please go ahead.

Hi, good morning, and welcome, Stefan, also from me. a couple of questions left um so the first one cost savings it's very helpful to have this additional plan but i always struggle with them gross cost savings do you have any idea on the net side of things and then secondly lcr 292 is extremely high do you plan to reduce this at some point or is this actually driven by FINMA request and therefore we should expect it to remain higher. And then the third is just a follow-up to the 22 basis points being the upper end for interest-driven margin. Is that because you expect further shift to term or because rates are coming down in general? Thank you.

Hi, Julia. Thank you for the questions. So on the cost savings, as you know, we usually talk about gross cost savings because we do plan to reinvest some of these cost savings. Now, you're obviously interested in the net impact. What I can say is if you take our exit margin of 80 basis points, our 80 basis points gross margin, and you apply this additional 110% a million run rate gross cost takeout that we have announced today as an extension of the existing cost program. And excluding the cost to achiever, the restructuring costs, we would expect the cost to income ratio to end up roughly at the level where it ended up in 2024, all other things equal. and that is primarily because a lot of this cost takeout will start rolling off the P&L towards the end of the year. With respect to the liquidity coverage ratio at 292%, you're right, it's one of the highest LCRs in Europe, and that is purely because of the nature of our very liquid and solid balance sheet. It has nothing to do with regulatory requirements regulatory exigencies. And finally, on the 22 basis points, interest-driven income, the upper bound, again, as you know, this is a combination of NII and FX swap income, and given where we stand today, and based on, of course, always a stable balance sheet structure and a stable AUM base, we believe that that's the upper bound.

The next question comes from Nicholas Herman from Citi. Please go ahead.

Yes, good morning. Thanks for taking my questions and best wishes to Stefan as well in the new role. Just one quick follow-up and two questions, please, from my side. Just the follow-up. You were at 71% adjusted cost-income ratio in 2024. Did I just hear you say that do you expect to be, at the current levels, a pro forma for the 110 million gross takeout, or did I just mishear you? If you could clarify that, please. In terms of the two questions I had, one on compensation structure and one on cost savings. So I guess the first one is a question for Stefan. Again, I appreciate that you've only been in the role for for a number of days. But just at a conceptual level, just what do you think of Julia Baer's compensation structure for relationship managers? We've gone from an incentive system that was based previously on revenues and net new money to one more recently that was based on sustainable profitability. And then most recently, last year, some of those changes were unwound and the company reintroduced variable compensation linked to flow. So just at a conceptual level, where do you stand on this scale and what do you think is appropriate for a wealth manager like Julius Baer? And then the second question on cost savings – You said that cost savings are a mix of G&A and compensation. Could you just help us understand, please, what is the mix of cost savings across those two line items, please? And I guess within the compensation point, what proportion is front office versus back office? Thank you.

Why don't we let Avi start with the impact of the 110 million on the cost-income ratio, and then we can talk about...

Thank you, Nicholas, for the question. So what I said before is that if you assume an exit gross margin of 80 basis points comprised of the 37 basis points in recurring income, the 22 basis points in interest-driven income, and of course the always very hard to forecast activity-driven income of 20 basis points, that gets you to the 80. And then you factor in the back-ended nature of these 110 million gross cost savings, then yes, by end of year, the cost-to-income ratio will be around the levels where we ended up in 2024. But that is, of course, under the assumption that there's no upside to the gross margin.

I can take the other two questions. This is Nick speaking. The topic around the compensation structure for relationship managers, as you know, our relationship managers are compensated on the back of two particular components. One is growth, meaning net new money, and the other one is revenues minus costs, direct attributable costs. And this compensation structure actually has worked quite well also during this year. And yes, you allude to last year's very early on change where we switched in particular the growth factor to a net new money contribution. Again, also here, I think we continue to run along these lines. The second or the third question you had around the cost savings. I think if you look at our cost structure between personal expense and general expense is roughly 70% to 30%. And the cost measures that we announced are basically in line with this ratio as well.

That's really helpful. And just one final one, if I may, just in terms of the compensation one, just what proportion, could you give us an indication of what proportion might be on 2023 hires from the performance management side? Or is that going to be pretty limited given they're on track?

Of course, you know, there are always some relation managers that do not achieve their business cases. And as a matter of usual course of business, then if they don't achieve their business cases, then, you know, they leave the platform. However, we're pretty satisfied so far with vintages 23 and 24. As I said, they're tracking around 65% business case achievement rate. And you know that we plan our numbers at around 60%.

Very helpful. Thank you.

Nicholas, just a high-level observation, having traveled through the regions and met with many of our clients. As I said in my introductory remarks, we have a high-quality client portfolio. And, of course, you can only have high-quality client portfolios if you have great ORMs. And I think we have amazing people covering great clients. So I think we have all the ingredients that it takes to take us to the next level.

The next question comes from Hubert Lam from Bank of America. Please go ahead.

Hi, good morning. Thank you for taking my questions. And again, I'd like to welcome Stephan to his new role. I've got three questions. Firstly, for flows in the final quarter, can you talk about how much came from the existing RM base and how much came from the new RMs? And how do you think it will be split into 2025? Do you expect legacy RMs to make a greater contribution? The second question is, do you expect any potential write-backs from the Cigna private loans? Any realistic write-backs for this? And last question is for Stephan. How do you view M&A versus organic growth? So basically, do you think Bayer is big enough and has enough scale to succeed as it is today? Thank you.

Hi, Hubert. Let me take questions one and two on net flows. We did see existing relationship managers contribute in the second half of the year. For the full year, the contribution was north of 2 billion. And as you know, in the first half of the year, it was negative. So it was north of 3 billion for the second half for existing relationship managers. I already commented before on RMs that are on business case. And of course, one of the levers that we have to power net new money in the next coming quarters is, of course, to get those seasoned RMs to be as productive as they can be. And I'm sure that's going to be a focal point for Stefan as well. On the second question, with respect to the largest private debt case, we, as you know, it's a multi-jurisdictional case. complex administrative proceeding. We do expect to have some recovery. However, the timing and the quantum is still, as of right now, uncertain and in any case won't have a very material impact on our financials.

Look, we have the best of both worlds. We have scale of 500 billion asset management and we have global reach. Yet the simple and clear strategy focusing on wealth management exclusively. So specifically on M&A, we're currently focused on growing our business organically. And again, we're looking forward to tell you more on our strategy update.

Great. Looking forward to it. Thank you.

The next question comes from Krishendra Dubey from Barclays. Please go ahead.

Hello. Hi, Stephen. Welcome from my side as well. I think I have a couple of questions. One is on a cross-margin. I believe you talked about an exit rate of cross-margin at 37 basis point. Consensus gives you a 38 basis point for 26 and 27. Could you please help us understand the strategic initiative that group is taking to reach the ambition of 39 and make us believe that you would be there on a 39 basis point? Second question is regarding activity-driven income. I believe the activity-driven income was 21 basis points for July to October, four months, and it comes at 20 basis points for 2H. If I see the volatility on the slide then, it should have helped. What are the factors that we should consider and what would be the normalized range for the activity-driven income? I believe it's tough to judge, but what would be the range that you look at? Thank you.

Thank you for the questions. So on the gross margin with respect to the recurring revenues, I think we addressed it somewhat before. The levers continue to be the same. It's discretionary mandates. It's further penetrating with advisory mandates. It's doing service model rollouts like the one that is underway in our Monaco business. It is further increasing fund penetration, further deepening our private markets franchise, and I'm sure that you will hear a lot more from us during the strategy update. I think revenue quality remains a goal of paramount importance for us. And with respect to activity-driven gross margin, it was 20 basis points from July to October and 20 basis points in the November to December exit rate. And as you know, we look at two proxies to try and understand the development of activity-driven income. One is volatility, which has been, save for a couple of brief idiosyncratic spikes, rather muted. And the second is, in general, stock market activity. And stock market activity picked up in October, particularly in Asia, but then came down in November and December and has since been fairly subdued.

Thank you. I just have a small follow-up on the Brazilian business. I believe it's a 9 billion EAM. And have you ever talked to us about the gross margin that business runs?

So that is more of an EAM business model. So the gross margin is around 37 basis points.

Thank you. Thanks a lot.

The last question comes from Anke Reigen from RBC. Please go ahead.

Thank you very much for taking my follow-up question. I'm sorry to elaborate here again. I just wanted to follow up on Pia's question about the off-cycle buyback. I wasn't quite sure if I understood your answer correctly. Is the base case basically no off-cycle buyback in the course of 2025 or is it all pretty much uncertain? Thank you very much.

Thank you, Anke, for the question. So I think the assessment of a potential share buyback in 2025 will depend on the circumstances at the time. And we will align, obviously, with our regulator beforehand.

Okay, thank you. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Alexander van Leeuwen for any closing remarks.

Thank you all for your questions and for listening in. There will be more opportunities to discuss with many of you as Stefan and Evi will join our team on our upcoming roadshow. We will be back with more at our IMS in May and our strategy updates before the summer. Thank you and speak soon.