UBS Group AG Q4 FY2024 Earnings Call

Good morning, everyone. Welcome to the UBS Full Year 2024 Results Presentation. Please note that this conference should not be recorded for publication or broadcast. I would now like to turn it over to Sarah Mackey from UBS Investor Relations. Please proceed.

Good morning and welcome everyone. Before we start, I'd 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 included in our Annual Report, together with additional disclosures in our SEC filings. On Slide 2, you can see our agenda for today. Sergio and Todd will go through our fourth quarter and full year results, as well as our investor update, before we move on to Q&A. It's now my pleasure to hand over to Sergio Ermotti, Group’s CEO.

Thank you, Sarah, and good morning, everyone. Before we provide an update on how we are delivering on our priorities to meet our 2026 commitments, let me share some highlights for 2024. Strong fourth quarter results contributed to an even stronger full year financial performance as we rebuilt profitability across our businesses. Our full year net profit of $5.1 billion and underlying return on CET1 capital of 8.7% reflect our unwavering commitment to serving our clients, our diversified global franchise, and the disciplined progress we have made on our integration plans. Throughout 2024, we maintained robust momentum as we captured growth across our global asset gathering platform and gained market share in the investment bank in the areas where we have made strategic investments. With over 70 billion Swiss francs of loans granted or renewed during the year and outstanding balance of 350 billion, we also maintained our commitment as a reliable partner for the Swiss economy, supporting families and businesses to achieve their goals. We delivered on all of our key integration milestones in 2024, including all major legal entity mergers and the successful completion of our client account migrations in Luxembourg, Hong Kong, Singapore, and Japan in the fourth quarter. This builds upon the successful integration of our key operating entities, the optimization of our balance sheet, and the reduction of cost and risk-weighted assets in non-core and legacy. Combined, these milestones have significantly reduced the execution risk of the Credit Suisse acquisition. As a result, we remained confident in our ability to substantially complete the integration and deliver on our financial targets by the end of 2026. Our capital position remained robust as we ended the year with a CET1 capital ratio of 14.3%. For the financial year 2024, we intend to propose a dividend of $0.90, representing a 29% increase year-on-year. This is in line with our intention to calibrate the proportion of cash dividends and share repurchases. As we execute on our business and integration plans, we are building additional capacity to invest in our people and to enhance our products and capabilities. This will allow us to better serve our clients and position UBS for future success. That includes the Americas, a region that remains a core component of both our asset-gathering foundation and our capital-efficient business model. In 2024, we start to make changes across the business to introduce new capabilities that will help increase the operating leverage of our platform, improve profitability, and drive sustainable growth. Across all of our businesses and supporting functions, we continue to invest in technology, leveraging our strong foundation to improve the client experience and enhance how we operate. Now, I hand over to Todd, who will cover the fourth quarter results.

Thank you Sergio, and good morning everyone. Throughout my remarks, I'll refer to underlying results in U.S. dollars and make year-over-year comparisons unless stated otherwise. For the fourth quarter, profit before tax tripled to $1.8 billion. Revenue momentum in our core franchises and cost synergies across the group drove a 12-point improvement in operating leverage. Our EPS for the quarter was $0.23, with a 7.2% underlying return on CET1 capital. Our underlying cost-income ratio was 82%. Looking at the drivers of our fourth-quarter group performance on Slide 5, total revenues rose by 6% to $11 billion, driven mainly by strong top-line growth in global wealth management and the investment bank, powered by our capabilities and advice in supportive market conditions. Operating expenses declined by 6% year-over-year to $9.1 billion and were 1% lower sequentially as progress on synergies and a stronger U.S. dollar more than offset the expected 4Q tick-up in non-personnel expenses. This achievement was supported by a lower overall employee count, which fell sequentially by another 2% to below 129,000. The total staff count is down 27,000, or 17% from our 2022 baseline. Excluding litigation, variable compensation, and currency effects, operating expenses decreased by 9% year-over-year. The 4% quarter-over-quarter increase was caused by seasonally higher charges, including the U.K. bank levy and increased marketing expenditures. Our reported profit before tax for the quarter included $0.7 billion of revenue adjustments relating to PPA effects, a remeasurement loss of $0.1 billion on an investment in an associate, and $1.3 billion of integration-related expenses. Reported net profit was $0.8 billion in the quarter on an effective tax rate of 26%. We expect a similar tax rate in the first quarter. Turning to our business divisions and starting with global wealth management on Slide 6. GWM's pre-tax profit was $1.1 billion, an increase of over 80% as revenues grew by 10%. Excluding litigation charges, PBT rose to $1.2 billion. Net new assets reached $18 billion, and net new fee-generating assets were $13 billion, fueled by sales of mandates and separately managed accounts. Flow performance this quarter reflects the maturity of over $50 billion of fixed-term deposits associated with our 2023 win-back campaign. Like in previous quarters, we managed to retain over 85% on our platform, including converting over 20% into more profitable solutions, including mandates. For the full year 2024, we acquired net new assets of $97 billion, representing a 2.5% growth rate. As I've highlighted in the past, our net new asset achievement this year reflects several challenges that we successfully navigated over the course of 2024. This includes retaining the vast majority of Credit Suisse invested assets, despite significant levels of relationship manager attrition, keeping the bulk of maturing fixed-term deposits, and increasing profitability on sub-hurdle lending relationships from our balance sheet optimization efforts. Collectively, while these factors weighed down flows by around $30 billion, importantly, they've contributed to enhanced profitability and returns. This is evidenced by the 3-percentage point year-over-year increase in revenues over RWA. Recurring net fee income increased by 12% to $3.3 billion, as our invested assets grew sequentially to $4.2 trillion, absorbing roughly $80 billion in FX headwinds. Client traction with mandates remained strong, with around $5 billion in net new mandates globally, mainly driven by sales of our differentiated discretionary solutions and supported by continued momentum in SMAs in the U.S. Margins held up sequentially and are expected to remain around these levels, especially as recently migrated clients and those remaining on the Credit Suisse platform now have access to the full breadth of our CIO value chain-led offering. This quarter, we once again demonstrated the benefits of combining our leading market solutions and capabilities with our CIO's investment calls. This drove a 12% increase in transaction-based revenues in an environment that saw broad re-risking after the U.S. elections. Structured products, equities, and alternatives all recorded double-digit transaction revenue increases. Our investments and capabilities, solutions, and unified teams support the durability of this revenue line and fuel our ability to capture wallet share in all climates. Year-on-year transaction revenue growth was led by APAC and the Americas, up by 30% and 13% respectively. Net interest income at $1.7 billion was up 4% sequentially reflecting improvements in both lending and deposit margins. While fixed-term deposit balances decreased in the quarter, we saw inflows into sweeps and current accounts across our platform as our clients increased transactional balances in a constructive trading environment. I would note that the planned sweep deposit pricing changes I mentioned previously went into effect for our U.S. Advisory accounts in early December. Our 2025 outlook as a result of introducing these rate adjustments remains unchanged. Turning to our NII outlook for GWM. Since I offered an initial view on 2025 last quarter, we've seen a significant divergence in rates expectations between the U.S. dollar on the one hand and the Swiss franc and euro on the other. This distinction is important for GWM, while our U.S. business is effectively operated entirely in U.S. dollars, in GWM's businesses outside the U.S., half of all deposits and the majority of loans and low beta transactional account balances are denominated in currencies other than the U.S. dollar. Looking at the rates outlook, the Federal Reserve is now expected to cut U.S. dollar rates more gradually. Meanwhile, both the Swiss and the European Central Banks are expected to continue to more actively cut. Based on this, in the first quarter we expect to see headwinds from lower rates, particularly in the Swiss franc and euro and lower balances from deployment of sweep and transactional account balances partially offset by higher margins from balance sheet optimization. Combined with a lower day count effect, this is expected to result in a low to mid-single-digit percentage sequential decrease in GWM's NII. Looking further out, lower Swiss franc and euro rates will remain a headwind to deposit margins partially offset by the benefits of continued balance sheet optimization; particularly on the deposit side, net new loan growth should also help. I should note that if we do see a more hawkish U.S. dollar rates policy, while helpful to deposit margins, this is likely to moderate the extent of re-leveraging particularly in Lombard lending. For the full year 2025 compared to 2024, we expect a low single-digit percentage decrease in NII, inflecting by 2Q with the second half of the year broadly flat versus 2H ’24. Underlying operating expenses were unchanged from last year at $4.8 billion with lower personnel and support costs offset by higher variable compensation tied to revenues and increased litigation provisions. To offer a look-through comparison excluding litigation, variable compensation, FX and last year's FDIC special assessment costs were down 5% year-over-year. Turning to personal and corporate banking on Slide 7. P&C delivered fourth quarter pre-tax profit of 572 million Swiss francs, down 18% primarily from lower interest rates affecting net interest income down 8% and elevated credit loss expense. Recurring net fee income increased by 8% driven by higher volumes of investment products and gross margin expansion. Transaction-based revenues were up 13% also on higher client activity. Sequentially NII decreased slightly by 1%. We offset some of the effects of the SNB's third 25 basis point rate cut from late September by moderately decreasing deposit rates and pricing loans to appropriately reflect risk and capital costs. After the 50 basis point cut by the SNB in December, there is a reasonable likelihood that we'll see interest rates drop to zero by mid-2025. The impact of near-zero rates will drive down deposit margins both sequentially and for the full year 2025. Additional headwinds in 1Q are expected from the sequential day count effect and lower rates in U.S. dollar and euro affecting deposit margins on transactional accounts. Hence for P&C's Swiss franc NII we currently expect a roughly 10% sequential decline in the first quarter. For full year 2025, the drop will be somewhat more pronounced versus 2024 with NII expected to trough in the second quarter and plateau thereafter. From there, any move in interest rates whether negative or positive should be constructive to our NII and net interest margin in P&C. Credit loss expense was 155 million Swiss francs, a 25 basis point cost of risk on an average loan portfolio of $243 billion. The quarterly result was driven by stage 3 charges, predominantly from new venture financings and loans to corporates in the metals and automotive industries, which have shown financial vulnerability in a challenging market environment across Europe. These exposures by and large are on the Credit Suisse platform reflecting lending practices and underwriting standards from the pre-acquisition period. We expect CLE to remain elevated at around 350 million Swiss francs in 2025, as we continue to build allowances for pre-acquisition Credit Suisse portfolios with many exposures still having more than a year until maturity. In the first quarter, we may see lower CLE versus the implied quarterly average due to seasonal factors. Operating expenses in P&C will be 1.1 billion Swiss francs up 2% and flat sequentially as the business offsets increased investments in building up support functions related to its larger footprint through cost reduction initiatives and synergy realization. Moving to asset management on Slide 8, pre-tax profit increased by 20% to $224 million as strong cost discipline more than offset lower revenues. Overall revenues were down 7% or 6% excluding gains on asset sales. Net management fees declined by 5% mainly from continuing shifts out of active equities compressing top line margins. Performance fees were $44 million, compared to $52 million in the prior year quarter with improvement in hedge fund solutions more than offset by decreases across other products including fixed income funds. Net new money in the quarter was positive $33 billion led by a large institutional inflow and passive equities and net flows into money market funds. For the full year 2024, net new money was $45 billion, a strong result in light of flow dy-synergies we were expecting from integrating Credit Suisse Asset Management. Operating expenses were 15% lower both year-over-year and sequentially as the business is demonstrating good progress in transforming its operating model and driving cost saves. On to Slide 9 and the investment bank. Pre-tax profit of $452 million was driven by strong revenue performance, up 37% year-on-year. Banking revenues increased by 19% to $675 million with advisory up 36% and LCM which more than doubled its revenues the main drivers of growth. Regionally, we saw particular strength in the Americas up 33%. Markets revenues increased by 44% to $1.9 billion with increased client activity on higher cash volumes and supportive volatility across equities and FX. This led to our best fourth quarter markets revenue on record with particular strength in financing supported by all-time high client balances. For markets, regional revenues in the Americas and APAC surged by around 50% and grew by about a third in EMEA driven by broad-based increases across both equities and FRC. Operating expenses were down 4% on lower personnel costs. On Slide 10, non-core and legacies pre-tax loss in the quarter was $606 million. Revenues were negative $58 million, mainly reflecting funding costs that unlike in prior quarters were not offset by gains on exits or the carry in our now much smaller credit book. Operating expenses were down by nearly 50% year-on-year and 5% sequentially as we continue to make good progress in driving out costs. NCL risk-weighted assets were $41 billion down $3 billion sequentially, mainly from position exits. LRD was down $15 billion or 22% quarter-on-quarter. Turning to our capital and balance sheet position on Slide 11. As of the end of the fourth quarter, our balance sheet for all seasons consisted of $1.6 trillion in total assets, including around $600 billion at end of period loans and $750 billion in end of period deposits. Our loan portfolio reflected credit impaired exposures of 1%, up sequentially by four basis points. The cost of risk in the quarter increased to 15 basis points as credit loss expense in our Swiss business drove this measure higher. We ended the year with a sequentially unchanged CET1 capital ratio of 14.3% as a decline in CET1 capital of $2.8 billion was offset by a proportionate decrease in risk-weighted assets of $21 billion. CET1 capital was mainly affected by the stronger U.S. dollar as well as by higher cash taxes and dividend accruals more than offsetting quarterly profits. RWA likewise was lower on current effects as well as asset size reductions, mainly in the IB and NCL.

To summarize, our fourth quarter performance caps off a strong 2024 in which our non-core and legacy team successfully ran down balance sheet and costs, and our core franchises demonstrated strength and scale in delivering for our clients even while absorbing substantial costs associated with the integration. With that, I hand back to Sergio for the investor update.

The first question is from Chris Hallam from Goldman Sachs. Please go ahead.

Good morning, everyone. Regarding integration, on one hand, it appears we have progressed beyond our expectations for 2024, particularly with RoCET1 performing significantly better than anticipated. However, on the other hand, we are now projecting an additional $1 billion in total integration costs by the end of 2026, while maintaining our exit rate on returns. My question is about whether we can consider this phase of the integration as the easier part, and now the challenging tasks of decommissioning and data integration begin. Have we essentially accelerated the integration process, or do we still have an opportunity to exceed expectations over the next couple of years? Additionally, concerning capital, I would like to clarify your position on the buyback target, which assumes there won't be any significant and immediate changes to the current capital framework. How do you assess the likelihood of such changes being both significant and immediate, as opposed to significant but with a lengthy phase-in period, or less significant but immediately applicable? When do you believe we will receive final clarity on this matter? Sergio, you mentioned earlier that the public consultation starts in May. Thank you.

Let me address the second question, and then I'll hand it over to Todd. I believe that our approach to capital returns remains consistent with what we've said before, maintaining 14%, fulfilling our financial plans, while also minimizing the execution risks associated with the integration. I want to emphasize that the significant data migration we will undergo in 2025 poses potential operational risks, so we need to be cautious about our share buybacks. I am confident that we can manage this, but I have no more insight than you do regarding future developments beyond what has been publicly shared. I must reiterate that it is not appropriate for us to speculate on any outcomes. We will continue our efforts up to the last moment to ensure that any proposal we consider addresses the concerns and topics I have outlined in my remarks.

And Chris, to address the first point, the change is not indicative of what we view as more complex versus less complex. When we formulated this perspective a year ago, it was considered a very low multiplier, given the $13 billion of costs to achieve compared to the gross savings we projected. Even with $14 billion, we still have a very low multiplier, and that should be taken into account. It's also crucial to emphasize that these changes were influenced by certain assumptions we modeled a year ago, or by changes that I mentioned earlier. Importantly, we've discovered additional opportunities as we progress through the integration to unlock further shareholder value, which has required some added costs to realize.

Thank you for answering my questions. I have two inquiries. First, regarding the too-big-to-fail rules, you've mentioned several times the potential impact on your current returns based on your assumptions from 2014. While I understand there's substantial uncertainty, do you believe that you will be able to offset the dilution in your return on equity caused by higher capital requirements? Secondly, concerning the U.S. wealth management operation, I would appreciate more details. You've previously discussed improving the performance of U.S. operations. What is different this time that suggests this will be successful? Thank you.

Thank you, Anke. Unfortunately, as I mentioned before, there are no easy fixes and there are no potential offsets on the table that are not already planned and communicated. So no easy fixes, no low hanging fruits, whatever comes is on top of our plans, and it will be dilutive. Todd?

Yes. We want to emphasize the current actions we're taking and the initiatives in place that will help us make progress. We are realistic about the margins we expect in the midterm, and we have a thorough strategy for achieving that. There isn’t a simple solution that will dramatically enhance the pre-tax margin. As I mentioned earlier, we are committed to executing across various strategies. We are implementing all of these efforts collectively to enhance the efficiency of the business. That is our primary focus and the result we aim to achieve.

Yes, morning. Thank you. Two questions, please. Firstly, just a sort of revenue in the quarter, the capital markets growth, so ECM and DCM was a bit less than some of the peer groups, 11% year-on-year. Just wondered if there's any mix reasons for that or if there's any sort of delay still in Credit Suisse teams becoming fully productive. So just a question on capital markets revenues. And then second question, is on the foreign subsidiaries topic. It sounds like you've reduced the UBS Americas CET1 ratio to around 20% from the previous 27%. In the past, you run that anywhere from 14% to 22%. Is it realistic to think about going back into the mid-to-high teens in that subsidiary on a say, five-year view?

Jeremy, regarding your second question, we are aiming for a lower CET1 capital ratio in the upper teens level, which is significantly reduced from what we've seen in capital repatriation. In line with Swiss standards, this translates to a more typical range of 13% to 15%. This addresses the concern. Concerning investment banking, it's important to note that we are underweight in DCM compared to our peers, which is reflected in our performance in ECM. We are making progress, but we expect the benefits from our pipeline development to be realized more significantly in 2025 and 2026.

Yes, thanks for taking my question. I really only have question regarding the key Slide 32. Sergio, I get the message, don't get over excited in terms of how capital would be repatriated and solved potentially a capital issue. But if I look at Slide 32, and I got very excited when I saw the $30 billion, but clearly, it hasn't ended up in the parent bank. It has been further upstream it looks like it. And I'm just trying to understand the rationale of the upstream and also trying to understand if there is room to downstream again, if necessary. And in that context, we're also trying to understand how much more capital is there in CS international. It should be something like $5 billion to $6 billion from what I calculate, and if there's any other subsidiary that you would highlight was there's room for potential further upstreaming into the parent going forward. So really just trying to square the process. I'm a little bit confused in that sense. And if you could help me, I would really appreciate.

Thank you, Kian. I'm sorry. And I really appreciate your enthusiasm, and I'm sorry that you started with an enthusiasm and then you ended up being confused. So in that sense, I can only reiterate that we don't really have some so much low-hanging fruits here. There are no short fixes. There are technicalities that I think that Todd can explain now but that's essentially the situation. So we have been quite coherent and consistent in saying and planning for capital well ahead of the curve when we started to plan for the 2026 targets.

Kian, I think it's worth just pointing out that remember, we acquired Credit Suisse and the capital ratios at the parent bank were distressed relative to what UBS AG's fully applied capital ratio was and the strength and resilience of our capital on the UBS side, also to consider the equity double leverage that was there on the Credit Suisse side. And as we inherited that, the pressure it put on our own, just given what we had to address and pushing up that double leverage. So taking out the capital and rebalancing the capital from former Credit Suisse subsidiaries in, say, the U.K. and the U.S. up to the parent and fundamentally at group level, as you say, has been part of the plan but also helps to alleviate the pressure in the equity double leverage. And I think that's an important point to mention. And that's why we made the comment that if there's going to be onerous capital imposed on the parent bank, it's going to be funded with the retention of future profits.

Yes, good morning. Thank you for my question. I have two. Referring to Slide 31 on the non-core deleveraging, how is it that if I exclude operational risk, which I understand is calculated by a formula, the market risk has decreased by $42 billion since Q2 '23, yet you only plan to reduce it by $7 billion in '25? Shouldn't we expect faster deleveraging since the market remains supportive? Secondly, I appreciate the additional details on GWM in the U.S. Regarding the NII discussion in that division, which I look forward to seeing disclosed in Q1, I believe operating under a national charter instead of Yota would be beneficial. How quickly do you anticipate obtaining that license? Thank you.

Giulia, regarding our goals for credit and market risk, particularly in relation to the projected PBT for '25 compared to '24, I emphasize that our current positions are considerably smaller and are hedged. There may be times when these positions have transfer restrictions, and we must ensure that the counterparty is prepared to end the agreement. We could also be dealing with specialized securities that have unique features limiting potential buyers. There are numerous complexities involved as we analyze the portfolio with these smaller positions, and it will require significant effort to make progress. While we have made notable reductions in RWA with larger positions, opportunities to exit at values above book value will become increasingly rare. It's crucial to recognize this within the context of the RWA rundown. Regarding your second question about the national charter and our timeline, we are actively working on submitting the application. It's a considerable undertaking, and we are aiming to progress swiftly to enhance our banking product offerings. We are not idle; there is much work being done now to get everything up and running. Securing that license will certainly enable us to offer certain products that we currently cannot.

Yes, good morning. Thank you very much for taking my questions. I wanted to ask about the U.S. wealth management plans, please. It looks like you're tilting away the business mix from the high end of the market towards more affluent and lower wealth brackets, which is pretty much the opposite of what you've been trying to achieve over the last 20 years, I would say. What has changed? Why are you coming to this different assessment of the relative attractiveness of different wealth brackets in the U.S.? And the second question, I just wanted to make sure that I understood this correctly. The share buyback plans and aims that you outlined, they are not yet accrued and deducted from CET1 capital at the year end, isn’t it? Thank you very much.

Yes, Stefan. Regarding the $2 billion we plan to buy back based on the conditions Sergio mentioned, that is correct. On the U.S. wealth side, I want to clarify that this is not a shift in strategy. We are looking to rebalance more toward the high net worth and affluent client segments. Currently, we are quite overrepresented in the Ultra segment, which is our strength. However, it’s also important to note that the return on assets tends to decrease as you go down the client segments, resulting in higher profitability in those lower segments. Our goal is to rebalance to maintain strong representation in Ultra while increasing our presence in high net worth and affluent segments to create a better balance more aligned with the market. While we want to remain more focused at the top end, as that is our strength, it’s crucial to emphasize that we are looking to shift and rebalance toward high net worth and affluent clients, where profitability has improved. This is a rebalancing effort rather than a change in strategy.

Good morning. I have a follow-up question regarding GWM Americas and then I’d like to discuss P&C NII. Concerning GWM Americas, you've mentioned several times that you're adjusting the FA incentives to better align with your strategic goals related to net new money through acquisition and NII growth. Could you elaborate on the specific changes you're implementing? How do these changes stack up against your U.S. peers, especially considering your comment that there may be some FA attrition and lower net new money in the near term? That's my first question. My second question revolves around P&C NII, which has clearly been a significant challenge for you. You mentioned expecting a much more noticeable drop this year compared to last, yet anticipate it will plateau after the second quarter. Can you share what your rate assumptions are for the SMB rates? You also mentioned that it should plateau regardless of the rate trajectory. Could you clarify on that? Additionally, what are your loan assumptions given that your loan balance has decreased by a couple of billion this quarter? Thank you.

So first, on your first question with respect to the FA comp changes. I think the changes that I highlighted that align better with our strategy also are more aligned to what we believe or observe are the comp models at our competitors as well. We had certain features. We think that we're perhaps off market, and we are looking more to align with what our peers do. But I think the more important point, though, is that in discussing this with many financial advisers and getting their take on these changes, it's clear that those who are very aligned with our strategy of bringing value to their clients and growing their books of business. And as I said, bringing more solutions to their clients from essentially across what we can offer, those FAs will benefit in this model, and they'll get paid more, and I think that's the key point. My comment about FA attrition is just that those who may have benefited from features that we have eliminated may decide that they would be better off trading away and we have to cater for that prospect in our modeling. And so that's why I mentioned that. But it's important to keep in mind that the changes we're making are really not intended to reduce compensation but to increase it as long as it's being done in ways that are very aligned with our strategy. And I think that's the most important point. On P&C net interest income, you had several questions. I mean in terms of rate assumptions, well, first of all, the current rates are at 50 basis points having come down 125 basis points over the last three quarters of 2024. There's an expectation if you look at implied forwards that the rate curve will approach near 0. So there is really a lack of deposit margin room for maneuver as we look out, which is why we think that the full year 2025 NII, especially if rates move down further, will be even more pronounced than the Q1 guidance. I talked about plateauing once we inflect because if you look at the yield curve, it's actually quite flat, if not even inverted, but it's certainly flat. And as such, we don't see movements in it. So therefore, if it's effectively hitting a trough, I see it plateauing. And then I commented, which was your other question, if rates move, obviously, if they move up, it gives us a bit more deposit margin room for maneuver. If they move down into negative territory, that is also helpful because we can typically charge certain clients and also drive greater lending NIM as well. As far as the expectation around loan balances, we have a stable outlook for lending in P&C, and also a stable outlook for deposits in P&C. So we're quite focused continuing to do balance sheet optimization, ensuring that the pricing reflects the appropriate cost of risk and capital. And on the deposit side, we've been very thoughtful in how we have moved pricing down in relation to the central bank dropping rates in order to retain deposits where possible.

Thank you for the clarification on the capital. I have a couple of questions regarding the U.S. business. Firstly, as you aim for a 15% profit before tax margin by 2027, what is your plan or thought process for achieving operating margins similar to your peers, like 25% or 30% in the future? Do you believe that your peers are overearning? What steps do you foresee, and will expanding your banking offerings and delivery model be part of this strategy, and what costs will that involve? Secondly, I am curious about the profit before tax margin you are targeting. You mentioned 15% by 2027, whereas you previously indicated a mid-teens target for 2026. Can you confirm if this is a minor adjustment or if the expectations remain the same? Thank you.

Yes. Regarding our expectations, we haven't clearly defined them, but I previously mentioned that we anticipate mid-teens in the midterm. Sergio and I have been discussing the business, and I believe our views are consistent. Over the next few years, we aim to continue our growth and expect to reach that mid-teens level by 2027. When it comes to comparing ourselves to peers, this isn’t about trying to catch up; rather, it’s about narrowing the gap, which has been our consistent approach to enhancing the overall cost-to-income ratio of the business.

Good morning. It's Antonio from Bank of America. Two questions from me, please. Actually, two follow-ups really. One on capital, one on the P&C. So you've repatriated $13 billion capital at the parent company this quarter. And despite that, your CET1 ratio at the AG level was only up 20 bps or so Q-on-Q to 13.5%. Now could you please explain why that was the case? And maybe talk us through the moving parts. I'm sorry if it's a repetition, but I think it's important. And the second question is, again, a follow-up on your Swiss business. You've talked about your NII guidance. Can you just remind us your sensitivity to rates and hedging structure in Switzerland? And more in general, what flexibility would you have to mitigate some of this trend on NII with the rest of the P&L? You've alluded to more cost synergies. So if you can share a little bit more about the moving parts of the P&L, that would be super helpful. Thank you.

In response to the challenges we're facing, we're concentrating on driving non-NII revenue growth where feasible, improving recurring revenue in P&C, and focusing on transaction revenues to help mitigate the obstacles present in P&C. When it comes to effectively hedging or extending duration, the current low rates and flat yield curve make extending duration on non-maturing deposits largely ineffective. It could actually lock in funding costs and prevent us from capitalizing on future rate cuts, even if rates drop below zero, while also introducing some mismatch risk. With rates nearing zero, we have limited flexibility and must wait for potential changes in the yield curve. Regarding your question on capital, after receiving capital from subsidiaries, UBS AG is accruing a dividend to the parent to address the previous point about capital repatriation to AG from its first-tier subsidiary.

What we mentioned is not our pipeline. We indicated that based on market data, the industry has decreased by 26% so far this year, specifically in the first month. Our pipeline is growing, and we are very confident in our ability to generate new business and expand our market share.

So in any case, a 2 handle in front. That's the industry and not UBS, just to be clear. Okay. So there are no more questions. There are no more questions. So thank you for calling in and for your questions. So we'll touch base next quarter. Thank you. Ladies and gentlemen, the webcast and Q&A session for analysts and investors is over. You may disconnect your lines. We will now take a short break and continue with the media Q&A session at 11:30 CET. Thank you.