UBS Group AG Q1 FY2025 Earnings Call

Ladies and gentlemen, good morning. Welcome to the UBS First Quarter 2025 Results. The conference should not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Sarah Mackey, UBS Investor Relations. Please go ahead, madam.

Good morning, and welcome, everyone. Before we start, I would like to draw your attention to our cautionary statement slide at the back of today's results presentation. Please also refer to the risk factors included in our annual report, together with additional disclosures in our SEC filings. On Slide 2, you can see our agenda for today. It's now my pleasure to hand over to Sergio Ermotti, Group CEO.

Thank you, Sarah, and good morning, everyone. Our strong results in the first quarter demonstrate once again our ability to deliver for stakeholders in different market conditions. The quarter was characterized by a substantial shift in investor sentiment and growth expectations alongside periods of significant market volatility. This dampened the positive seasonal effect that we typically experience at the start of the year and tempered the bullish outlook the market had coming out of 2024 and into the first few weeks of January. Against this backdrop, these results reflect the power and scale of our diversified global franchise, our unwavering commitments to clients, disciplined cost management, and the substantial progress made in integrating Credit Suisse. All this is underpinned by a balance sheet for all seasons. First quarter net profit reached $1.7 billion, and our underlying return on CET1 capital stood at 11.3%, supported by positive operating leverage in our core businesses. Net new inflows onto our asset gathering platform were robust, including $32 billion in net new assets in Global Wealth Management and $7 billion net new money in asset management. Although we haven't seen a major strategic shift in asset allocation, the breadth and depth of our advice and global capabilities help clients protect their wealth and navigate market volatility. We saw significant demand for mandate solutions, structured products, and alternatives, including new offerings within our unified global alternatives units where total assets reached nearly $300 billion. For our clients in Switzerland, we kept delivering on our commitment to be a reliable partner. During the quarter, we granted or renewed CHF 40 billion of loans. In the Investment Bank, we continue to execute on our capital light strategy. Investments we made in our areas of strategic importance allowed us to win further market share. Global markets achieved their best quarter on record. In Global Banking, we outperformed the M&A and ECM despite a challenging market backdrop. I'm also pleased to see that we are building on our already healthy pipeline. As the second quarter kicked off with the unveiling of significant changes to tariffs on trading partners by the U.S. administration, increased uncertainty and market volatility, while on some days, trading volumes exceeded their COVID era peak by around 30%. I'm especially pleased by the way our colleagues were able to intensify their engagement with institutional and private clients during this period. The investments we have made to reinforce our infrastructure are paying off, with our operations proving stable and resilient as we facilitate client activity across asset classes. Looking ahead, the economic path forward is particularly unpredictable, and the range of possible outcomes is wide. The prospect of higher tariffs on global trade presents a material risk to global growth and inflation. While we are encouraged that negotiations are ongoing, a prolonged period of discussions and speculation will come at a cost. Uncertainty is likely to affect sentiment and lead businesses and investors to delay important decisions on strategy, capital allocation, and investments. In this environment, we expect financial markets to remain sensitive to new developments, both positive and negative, which are likely to lead to further spikes in volatility. In light of this, we are unwavering in serving our clients, executing on our growth strategy and following through on our integration plans. Over the course of the first quarter, we finalized our preparations to migrate more than 1 million clients in Switzerland onto UBS platforms and continued to integrate 95 petabytes of data. We moved a small pilot group of clients at the start of April, and we are on track to complete the first main wave of migrations by the end of the second quarter. We are pleased with our progress in non-core and legacy as we continue to reduce the complexity of our operations through book closures and decommissioning of applications. Moreover, our active wind down efforts have proven so effective that we have been able to upgrade our credit and market risk-weighted assets ambitions for 2025 and 2026. Our CET1 ratio capital stands in line with our guidance at 14.3%. This combined with a substantial derisking of the acquisition and our highly capital-generative strategy gives us confidence in our ability to deliver on our 2025 capital return objectives. This remains contingent on maintaining a CET1 capital ratio of around 14% and the absence of material immediate changes to the current capital regime. Our capital strength also supports our ability to deploy investments that reinforce our leadership across the globe and position UBS for the future. We are working to further enhance our client offering and capabilities to improve profitability in the Americas. At the same time, we are building on our status as the #1 wealth manager in APAC by scaling our offering in the fastest-growing markets across the region, while reinforcing our leadership position in EMEA and Switzerland. As highlighted in February, technology investments are a key enabler for growth. We are encouraged by our development and adoption of generative AI solutions as we empower our colleagues with tools to improve productivity and deliver tailored solutions to clients. In closing, we are pleased with our strong performance this quarter and continue to operate from a position of strength, but we are not complacent as we are only around two-thirds of the way to restoring UBS' pre-acquisition levels of profitability. In that sense, the next phase of the integration is especially important to harvesting the full benefits of the acquisition for our clients and shareholders and delivering on our long-term ambitions. In the meantime, we are staying focused on what we can control, serving our clients, delivering on our financial targets, and continuing to act as an engine of economic growth in the communities we serve. With that, I hand over to Todd.

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. During the first quarter of 2025, our core businesses grew their combined pretax profitability by 15% on strong positive operating leverage. Overall, our group profit before tax was $2.6 billion, down 1% year-on-year. Group revenues were broadly flat at $12 billion and up 6% across our core franchises. Operating expenses were also stable at $9.2 billion as we continue to successfully reduce our non-production-related costs across the group, offsetting higher financial adviser and variable compensation accruals in the quarter. Our EPS was $0.51, and we delivered an 11.3% return on CET1 capital and a cost/income ratio of 77.4%. As illustrated on Slide 6, this quarter's underlying performance demonstrates the strength of our franchise and diversified business model, particularly in challenging and complex markets. By supporting clients in ways that differentiate UBS, while maintaining a sharp focus on cost and resource efficiency, each of global wealth management, asset management and the investment bank achieved double-digit pretax growth, absorbing net interest income headwinds that, in particular, weighed on our Personal and Corporate Banking business. Our non-core and legacy unit delivered a strong first quarter, although short of the exceptional results of last year's Q1. On a reported basis, our pretax profit of $2.1 billion included $700 million of revenue adjustments from acquisition-related effects and $1.1 billion of integration expenses. Our effective tax rate in the quarter was 20%. For Q2, we expect a tax rate of around zero due to a capital-neutral tax credit from further legal entity streamlining in the U.S. and from other planning measures related to the integration. We continue to expect our full-year 2025 effective tax rate to be around 20% with a second half tax rate of around 30%, influenced by NCL's reported pretax performance. Turning to our cost update on Slide 7. In the first three months of 2025, we achieved an additional $900 million in gross run rate cost savings, bringing the cumulative total since the end of 2022 to $8.4 billion or around 65% of our total gross cost save ambition. By quarter end, we had nominally decreased our overall cost base by around 10% from our 2022 baseline. Yet looking through variable compensation and litigation and neutralizing for currency effects, we delivered an even greater net reduction in underlying expenses exceeding 20%. As a result, more than 50% of our cumulative gross cost savings have translated into net savings that benefit our run rate. The overall employee count fell sequentially by 2% to 126,000 and by around 20% from our 2022 baseline. As I've highlighted in the past, one of the keys to meeting our target cost/income ratio by the end of 2026 is shutting down legacy Credit Suisse technology applications and infrastructure. To date, we've retired over a third of the targeted applications, computer servers, and data centers in our plans for decommission. These actions have generated more than $700 million in technology cost savings with non-core and legacy balance sheet reduction being a key driver of this progress. We expect that most of the remaining $4.5 billion in gross savings required to achieve our $13 billion target will come from reductions in technology, staffing, and vendor costs. An example of what's to come in the technology context is a run rate cost save of $800 million related to Credit Suisse's legacy applications in the Swiss booking center, which will be decommissioned after the completion of the client account migration in 2026. Turning to Slide 8. As of the end of the first quarter, our balance sheet for all seasons consisted of $1.5 trillion in total assets with around $615 billion in loan balances, $745 billion in deposits, and a loan-to-deposit ratio of 80%. The strength of our balance sheet is not just an essential component of our strategy, but a competitive advantage and source of confidence for our clients, especially during times of uncertainty. A fundamental driver of our balance sheet strength is our credit book. 93% of our lending positions are collateralized with 57% of the total balance consisting of mortgages, where the average LTV is 50%. At the end of March, our lending book reflected credit impaired exposures of 1%, unchanged from the prior quarter. The cost of risk decreased to 7 basis points as we recorded group credit loss expenses of $100 million, reflecting $121 million of net charges on credit impaired positions and $21 million of net releases across our performing portfolio. The net releases were due to our recalibration of the expected credit loss scenarios and rebalancing of the factor weights. On to liquidity and funding. In the quarter, we made strong progress on our 2025 funding plan, having completed our AT1 issuances intended in 2025 in addition to having issued $3 billion in Holdco debt. I would highlight that our funding stability is underscored by the balanced currency mix across our assets and diversified sources of long-term funding and deposits. Our average LCR was 181% and remained around this level throughout April's volatile markets. Turning to capital on Slide 9. Our CET1 capital ratio at the end of March was 14.3%. As a result of our continued progress with the integration, coupled with strong financial performance in the first quarter, it is now our intention to execute all of our 2025 capital return ambitions announced in February. Consequently, our CET1 capital not only accounts for the $500 million in shares repurchased during the first three months of the year, but it also reflects the accrual of the remaining $2.5 billion share buyback we intend to execute through the rest of 2025, of which $500 million in the second quarter. Risk-weighted assets fell by $15 billion sequentially, driven by lower asset size and the implementation of the final Basel III standards, which ultimately resulted in a net reduction of $9 billion in RWA. This revised amount reflects further infrastructure and data quality improvements finalized during the quarter as well as the effects of additional mitigation and derisking actions we took across various credit, counterparty, and market risk categories. After receiving regulatory approval, the final operational risk-weighted asset level also came in around $2 billion lower than our February estimate. Netted within the overall reduction, FRTB led to an increase of $6 billion, mainly related to the investment bank. At the same time, despite the offsetting effects of mitigating actions, our leverage ratio denominator was $42 billion higher sequentially, resulting in a CET1 leverage ratio of 4.4%. The uplift in LRD was driven by an increase of $29 billion from derivatives exposures now calculated under the revised Basel III standardized approach for counterparty credit risk. With FX accounting for a $27 billion increase in the quarter, these factors more than offset asset size reductions of $13 billion. A word on parent capital and group equity double leverage. As of the end of March, our parent bank's stand-alone CET1 capital ratio on a fully applied basis is expected to be 12.9% within our target range. The sequential reduction reflects an accrual for dividends intended to be paid in 2026. Over the next few quarters, the parent bank's dividend paying capacity is expected to be supported by both dividends and capital repatriations from subsidiaries. Earlier this month, as expected, UBS AG paid a $6.5 billion ordinary dividend to our holding company. Taking into account capital returns to shareholders completed or anticipated during the first half of the year, we expect the group's equity double leverage ratio to improve to around 110% by the time we publish our group stand-alone accounts at the end of the second quarter. These actions are consistent with our intention to restore the group's equity double leverage ratio towards pre-acquisition levels over the next several quarters. Turning to our business divisions and starting with Global Wealth Management on Slide 10. GWM's pretax profit was $1.5 billion, up 21% year-over-year as revenue growth outpaced expenses by 5 percentage points. This translated to a year-over-year improvement in GWM's cost income ratio of over 3 percentage points to 75%. In Asia, with our integration efforts now largely complete, we are well positioned to deliver our full range of capabilities to our clients. Notably, our APAC franchise drove excellent PBT growth of 36% on 14 points of positive operating leverage and a pretax margin of over 40%. In the Americas, where we're executing on our growth plans, we delivered PBT growth of more than 40% and a pretax margin of 12%. In addition, each of our Switzerland and EMEA regions grew profits by 7% in the quarter. You can find additional regional details, including a breakdown of revenue lines, credit loss expenses, net new deposits, and customer deposit balances as well as comparatives across our four wealth regions in our newly enhanced disclosure in the quarterly report and on Page 22 in the appendix to this presentation. On to flows. GWM invested assets increased by 1% sequentially with favorable currency effects and positive asset flows offsetting negative market performance. Net new assets in the quarter reached $32 billion, representing a 3% annualized growth rate with growth in all regions, led by the Americas, where strong same-store performance supported NNA of $20 billion. Our flow performance again this quarter reflects the actions I've highlighted in the past regarding balance sheet optimization that support higher pretax margins and returns on attributed equity, but at times come at the expense of net new assets. For example, we again successfully managed the roll-off of preferential fixed-term deposits associated with our 2023 win-back campaign. Of the $54 billion in deposits maturing in Q1, as in prior periods, we converted around 85% into more profitable liquidity and investment solutions, but some less profitable flows left the platform. You can see the clear improvement we've achieved in enhancing profitability from these balance sheet actions in GWM's revenue over RWA ratio, which has grown 2 points year-over-year and has reattained pre-acquisition levels. Further evidence of clients seeking our market-leading advice and solutions and helping drive sustainable revenue growth is underscored by our net new fee-generating asset performance of $27 billion in the quarter, a 6% annualized growth rate. We saw continued momentum in discretionary mandates, including SMAs in the U.S. and our signature My Way solution delivered through our Swiss and international platforms. My Way mandates have grown to $20 billion, up almost 80% from the prior year quarter. NNFGA growth was especially strong in our APAC franchise at an annualized growth rate of 10% with mandate penetration at its highest level on record. Looking ahead to the second quarter, while maturing fixed-term deposits are becoming a less material headwind to flows, seasonal U.S. tax-related outflows in the high single-digit billion range, elevated as a result of last year's strong market performance are expected to weigh on GWM's Q2 net new assets. I would also highlight that we saw a modest pickup in lending across the wealth business with client releveraging supported by a lower rate environment. Net new loans were $2.2 billion, driven by Lombard lending in APAC. Turning to revenues. GWM's top line increased by 6%, driven by elevated client engagement, increased solution take-up by clients seeking diversification across geographies and asset classes, and higher average asset levels. Recurring net fee income increased by 8% to $3.3 billion from positive market performance and over $70 billion in net new fee-generating assets over the past 12 months. Margins continued to hold 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 capabilities and solutions. Transaction-based income increased by 15% to $1.4 billion in a market environment where our franchise's enduring advantages set us apart. Without a major shift in asset allocation during the quarter, clients nevertheless actively repositioned portfolios, benefiting from our investments in capabilities, solutions, and unified teams. This drove double-digit growth across structured products and cash equities, with wealth planning and life insurance up by more than 50%. Alternatives were up 40%, fueled by the joint unified global alternatives initiative with asset management. Regionally, we saw a continuation of transactional growth, spanning the wealth franchise, led by APAC and the Americas, where transactional revenues increased by 28% and 16%, respectively. Net interest income of $1.5 billion was down 4% year-over-year and 7% quarter-over-quarter, with the sequential trend reflecting a lower day count and headwinds from declining rates in Swiss Franc and Euro, partially offset by ongoing balance sheet optimization efforts. Of the sequential decline, 1 percentage point reflects a change to our client segmentation approach between GWM and P&C that we implemented in February but was not included in our guidance. This change led to a shift of some affluent clients from GWM to P&C, including loan balances of $8 billion. Despite the modest effect on NII, we ultimately decided not to restate our accounts for this transfer given the immaterial impact on the P&L of both divisions overall. Now to our NII outlook. For the second quarter of 2025, we expect GWM's net interest income to decrease sequentially by a low single-digit percentage despite day count helping, primarily from lower Swiss Franc and Euro rates after the March cuts. We also expect a seasonal decline in client deposits following April tax payments in the U.S. Although there could be upside, should clients maintain a more defensive posture amid ongoing market uncertainty, driving higher sweep and account balances. For full year 2025, we continue to expect GWM's net interest income to decrease by a low single-digit percentage compared to 2024. Underlying operating expenses were up by 1%, with lower personnel and support costs offset by higher variable compensation tied to revenues. Looking through variable compensation, litigation, and currency effects, costs were down 5% year-over-year. Turning to Personal and Corporate Banking on Slide 11, where my comments will refer to Swiss Francs. P&C delivered first quarter pretax profit of $597 million, down 23%, as lower interest rates led to an 18% reduction in net interest income. Recurring net fee income increased by 3%, driven by record volumes of investment products in Personal Banking, supported by strong sales momentum, including a 12% annualized growth rate in net new investment flows in the first quarter. Transaction-based revenues decreased by 2% as strong performance in Personal Banking was more than offset by the effect of lower corporate finance activity amid softer economic conditions. Sequentially, NII decreased by 7%, largely reflecting the effects of the SNB's 50 basis point rate cut announced in December and a lower day count, partly offset by the effect of the client segmentation shift between GWM and P&C that I mentioned earlier, which provided a 1 percentage point quarter-on-quarter uplift to P&C. To mitigate the effects of lower rates, we adjusted deposit pricing on select products and continued optimizing our banking book. Looking to the second quarter, we see a sequential decrease in the low single-digit percentage range for P&C's NII in Swiss Francs, which translates to a sequential mid-single-digit percentage increase in U.S. dollar terms based on current FX rates. The outlook is driven by last month's SNB 25 basis point rate cut, despite day count helping, and the latest change to the SNB's threshold factor for remunerating site deposits. For full year 2025, we continue to expect an NII decline of around 10% versus 2024 in Swiss Francs, translating to a more modest reduction on a U.S. dollar basis. Credit loss expense was $48 million, an 8 basis point cost of risk on an average loan portfolio of $245 billion. This included Stage 3 charges of $54 million, again, predominantly from Credit Suisse exposures. Reflecting on developing macroeconomic events, we currently assess that exposures to our more tariff-exposed corporate clients within our Swiss credit book are well contained. On this basis, for full-year 2025, we continue to expect P&C's CLE to be around $350 million. This said, we're closely monitoring U.S. trade policy developments and their first and second-order impacts on our Swiss loan exposures, intending to update our credit loss expectations and allowances as and when appropriate. P&C's operating expenses in the quarter were $1.1 billion, down 4%. Moving to Slide 12. Asset Management drove a pretax profit of $208 million, up 15% year-on-year, with disciplined cost management more than compensating for lower revenues. Net management fees declined by 4% as the effect of higher average invested assets was more than offset by margin compression from clients having rotated into lower-margin products over recent periods. This said, we're gaining traction in delivering differentiated and higher-margin products, including in our Credit Investments Group and in UGA, which saw strong net new commitments in the quarter and invested asset growth of 13% compared to a year ago. Performance fees were $30 million, in line with the prior year and with higher revenues from our credit capabilities. Net new money was positive at $7 billion, with strong flows in money market and active fixed income as well as sustained demand for SMAs, which saw inflows of $4.5 billion this quarter. Operating expenses were 10% lower as asset management retools for growth by continuing to make strong progress in streamlining its infrastructure and operating model. On to Slide 13 and the Investment Bank. In the IB, we delivered pretax profit of $696 million, up 72% and a return on attributed equity of 16%, all while absorbing incremental RWA from the implementation of the final Basel III FRTB rules. Revenues increased by 24% to $3 billion driven by global markets, which posted its best quarter on record. Banking revenues decreased by 4% to $564 million, broadly in line with the fee pool. While the market environment weighed on our banking results across products and regions, and despite growing economic uncertainty, our pipeline continues to build. We remain top 10 in announced M&A and saw continued momentum in our mandated deal book. In advisory, top-line growth was 17%, while capital markets revenues declined by 13%, mainly due to softer sponsor activity. In the Americas, the mix within the LCM fee pool shifted towards corporates and away from sponsors, where we are more concentrated. In ECM, although the 1% revenue decrease outperformed the fee pool, we remain focused on our pipeline build, which is expected to yield meaningful returns over the medium term. Regionally, APAC grew its overall banking revenues by over 70% compared to the prior year quarter and delivered its best first quarter on record in M&A. Revenues in markets increased by 32% to $2.5 billion. Against the market backdrop of elevated activity and volatility in equities and FX, where our IB is more concentrated, we capitalized on the enhanced capabilities acquired with Credit Suisse and our multi-year investments in technology. We saw increases across all regions, with the Americas, APAC, and Switzerland, each delivering their best quarterly performance on record. Equities revenues reached a new high, driven by equity derivatives, with increases across all regions and supported by cash equities and prime brokerage. FRC increased by 27%, primarily driven by FX. Operating expenses rose by 14%, largely reflecting increases in personnel expenses. On Slide 14, non-core and legacy's pretax loss was $200 million with $284 million in revenues. Funding costs of around $130 million were more than offset by revenues from physician exits, particularly in structured products. This included the expected gain of around $100 million from closing the sale of Credit Suisse's U.S. mortgage servicing company announced last year, which also eliminates run rate costs of around $100 million per annum. Operating expenses were down 38% year-on-year and 12% sequentially as NCL continues to make excellent progress in driving out costs. For the remainder of the year, we expect NCL to generate an underlying pretax loss, excluding litigation of around $1.7 billion, including revenues of around negative $300 million mainly from funding costs. Revenues from carry, continued exits, and remaining fair value positions are expected to net around zero, and underlying operating expenses should average around $450 million per quarter. While the current environment may slow the pace of exits, it is unlikely to materially affect the financial performance of our NCL portfolio. As examples, hedges in the macro book and the nature of our now much smaller credit book render the valuation of both portfolios less susceptible to market volatility. Now on to Slide 15. Since the second quarter of 2023, non-core legacy has freed up almost $7 billion of capital, reduced its cost base by over 60%, and closed 74% of 14,000 books they started with. As of the end of March, risk-weighted assets in NCL were $7 billion lower than in the prior quarter, as physician exits across securitized products, credit, and macro more than offset the inflationary effects of the final Basel III standards. Again, this quarter, the skillful expertise of the NCL team has kept us well ahead of our derisking schedule. Given this accelerated progress, we are upgrading our ambitions and now aim to drive NCL's credit and market risk RWA below $8 billion by the end of 2025 and to around $4 billion by the end of 2026. While we expect the reduction in balance sheet to continue to contribute to NCL's cost performance, as I've highlighted in the past, further savings from technology, real estate, and resolving ongoing litigation matters will take longer to achieve. This underpins our 2026 exit rate cost guidance I offered last quarter. With that, let's open for questions.

We will now begin the question-and-answer session for analysts and investors. The first question comes from Jeremy Sigee from BNP. Please go ahead.

Good morning. Thanks very much. Firstly, just a basic one. The fact that you're accruing the whole of the 2025 share buyback suggests that you intend to do that almost regardless of what the draft rules look like when they're published in June. Is that a fair interpretation? And then my second question is a bit broader. Could you talk about how your wealth management clients in different regions are reacting in April post the tariffs in the U.S.? Are they doing more with the bank or less with the bank, what are their risk appetite? If you could talk about that, that would be great. Thank you.

Thank you, Jeremy. No, that's not an accurate reflection of what I've said. Our stance remains unchanged. We have clearly indicated that we are making provisions based on our current understanding and observations, grounded in our strong performance and solid capital position. However, this is still contingent on our ability to continue progressing towards our financial targets and successfully integrating our operations. Additionally, any significant and immediate changes in the regulatory environment will factor into this. Regarding the activity in April, I can say that, as noted in my earlier comments, we experienced a significant surge in client activity and volatility in the first couple of weeks of April, reaching a 30% increase compared to the peak during COVID, which is quite remarkable. However, it's also evident that in the last ten days or so, there seems to be a sense of fatigue. This is reflected in our financial margins as well. Markets appear to be stabilizing around current levels across various asset classes, leading to a more cautious and wait-and-see approach, resulting in a more normalized environment.

Thank you.

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

Yes, hi. Good morning. Thank you for taking my question. So the first one, I was surprised to hear that there is re-leveraging in Asia. That's quite a positive development. And I was wondering if that has carried through also in April? Or was it only a Q1 phenomenon and then got shut down by the tariff discussion? And then the second question instead, of course, I have to ask on capital. May is the next catalyst there or at least we will learn something there? And is there any development that you can share with us in terms of what to expect, what will go under government ordinance, what would be put to parliament? Yes, any updated thoughts would be helpful. Thank you.

We pick up the second one, and Todd will pick up the first question. There are no developments other than the updated timeline for the announcement of the proposal that are now seen coming in during the first week of June. So we don't know what's the content of this proposal in terms of, also if there is any split between ordinance or legislative process. So we are in a wait-and-see mode, and we will see like everybody in 5 to 6 weeks' time.

Giulia, I'd say it's helpful to step back and look at the bigger picture here on the lending question. I mean, clearly, for GWM, one of our strategic imperatives is to grow lending, albeit selectively and profitably and as a driver of enhanced relationship revenues for clients. So we're pleased with the developments that we saw in Q1. I mean, we can't speculate on where things are going to move given the current environment for sure. But we're pleased with the Q1 performance, and that still remains a strategic focus for us.

Thank you.

The next question comes from Kian Abouhossein from JPMorgan. Please go ahead.

Yes, thanks for taking my questions. I wanted to come back to U.S. Wealth Management. If you could maybe run, you clearly have done some strategic changes around the U.S. Wealth Management business, both on compensation, but also incentives, etc. If I look on a year-end basis versus now, you have reductions in advisers. I just wanted to see where should we think adviser numbers to go to in U.S. wells? And how should we think around the net new flows, but also impact in that respect because you made some statements in the last quarter there could be a deterioration, but also in terms of improvement in pretax margin. So a bit more of a holistic approach around the changes that you've done and the impact? And then secondly, just coming back to the Federal Council report. Can we just take a step back and just give your current views around your positioning against other banks, but also potential offsets that you can think about in order to offset some kind of additional capital requirement even in big-picture terms, if you could talk about that.

Hi, Kian. Let's take a broader view of our plans and strategies regarding wealth management. While we may experience some quarter-to-quarter volatility, we remain focused on our goal of achieving a structural mid-term pretax margin, which we see as a journey of two to three years. Now, about our platforms and advisers, I can assure you that our platform is stable. We have broad support for our strategy, aimed at better aligning adviser incentives with the firm's strategic objectives, as reflected in the strong same-store net new money we've recorded, notably the best in several quarters in the first quarter. Regarding headcount, our recruiting pipeline is solid. Some level of attrition is expected, especially in light of industry trends related to market conditions in 2024 compared to early 2025, which may lead to some adviser movements across the industry, but there’s nothing concerning to report within our own platform.

Kian, before I answer the question, can you specify what you mean by positioning versus other banks?

Yes, Sergio, I left it open on purpose just to see what you can tell us and your thoughts about it because it is clearly a very open question. It's a very difficult for us to look soon...

The call is scheduled to end at 10:00 a.m. to 11:15 a.m., but I think there might not be enough time to cover everything. The regulatory framework in Switzerland is quite demanding, especially after fully implementing Basel III. I believe that we are in a comfortable position relative to this strong regulatory regime, which is a key pillar of our stability. However, we must recognize that excessive regulation can have negative effects, and this is an important consideration when discussing relative performance. Ultimately, we are not just focused on return on capital, but also on competing for capital. Therefore, maintaining an attractive and sustainable business that provides appropriate returns is crucial for evaluating any regulatory framework. Regarding specific measures, we can only make decisions and analyze their effectiveness once we understand the outcomes and assess the proposed impacts and timelines.

And so just very quickly, do you expect enough clarity to assess with that report?

I hope, I don't expect.

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

Yes, good morning. Thank you very much for taking my questions. I have two on capital, please. The first one on the parent bank, the fully loaded CET1 ratio was, I think, down by about 60 basis points during the quarter. Was there anything particular to highlight that happened during the quarter? And the second one, a bit more, let's say, strategic, the risk density given the group has come down quite a bit now a bit below 31%. I think the hope was always that Basel IV would kind of lift this risk density towards 35%, where it doesn't matter anymore whether leverage or risk-weighted assets drive your capital requirements. But now at 31%, it looks like you're quite deeply constrained by leverage, not risk-weighted assets going forward. Do you expect this to change at all from what you can see? And if not, does it have any impact on the way that you run your capital management going forward?

Thank you, Stefan, for your questions. I appreciate you raising them. Regarding the capital, the quarter-on-quarter reduction in the parent bank comes from the accrual of a dividend we expect to pay in 2026 related to the overall earnings of 2025. This dividend accrual has impacted our capital ratio within our guidance. On your second point about risk density, you're correct that we are more constrained by leverage than by risk weighting. However, we do set our CET1 capital ratio on a risk-weighted basis as our primary target, which becomes binding unless leverage becomes a constraint. In terms of addressing your question on what actions can be taken or what caused this, we have effectively driven down risk-weighted assets due to the technical aspects of our operations, including management approvals for models, methodology, data quality, and external ratings, all of which have contributed to this reduction. Unfortunately, the leverage ratio presents a simpler challenge and offers less opportunity for optimization. As mentioned, we experienced an increase in SACCR, while there were more opportunities for optimization with risk-weighted assets. Your observation is accurate. Given our intention to maintain a CET1 capital ratio around 14%, which is binding for us, we acknowledge that we have less flexibility on the leverage side compared to the risk-weighted side going forward. Our approach will remain consistent as we move ahead.

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

Two questions, please from my side. The first one on your India partnership. Maybe you can a bit more broader on the onshore-offshore dynamics we should expect in emerging markets going forward in a large market like India, you have to do a partnership? And then secondly, markets are now pricing in again negative rates in Switzerland. Just wondering short term, any impacts or below 0, there's not much of an incremental negative impact. The longer-term question is the 50% cost-to-income ratio target in the U.S. Swiss business was, I assume or based on policies rate outlook. How do you intend to achieve that more on the cost side? Thank you.

Great, hi, Benjamin. Let me address the second question. Regarding the market pricing and negative rates, as we indicate in our interest rate sensitivity and as I've commented before, we certainly see convexity in the movement of rates either down or up in the sense that whether rates move in negative territory or move up, that would be accretive to our net interest income in our P&C business. In that sense, to the extent that is priced in and actually happens, we see upside in our NII. You asked about the expectation on the cost/income ratio targets that we have by the end of 2026. I would say we're continuing to execute against that expectation, and that is our expectation at this stage, not changing that given interest rate expectations at this point in time.

Regarding India, we are observing a steady trend emerging in the domestic market. Additionally, there is an opportunity for Indian residents to book business abroad. With our current strategy, we believe that partnering with the only fully independent asset gatherer in India will be the best approach for pursuing future growth opportunities. By acquiring a stake and integrating our business into 360, we can enhance our capabilities moving forward. We are optimistic about strong prospects in terms of sharing our global best practices while also gaining insights into domestic markets. This gives us confidence in the long-term growth potential in India.

Thank you.

The next question comes from Goel Amit from Mediobanca. Please go ahead.

Hi, thank you. I have a follow-up question regarding the comments made earlier about the equity double leverage and the goal to reduce it to 110% by Q2, and then gradually returning to pre-acquisition levels in the following quarters. I'm curious about what influences the speed of this adjustment. What are the costs or consequences of maintaining leverage at 110%, especially if the group has lower leverage at the parent bank level? What would prevent the group from having slightly higher leverage? Additionally, what would be the implications of reducing that from 110% to 105% or 100%? Lastly, regarding the PCB business, I appreciate the insights about various rates, including potential negative rates and the implications of convexity. I would like to know your thoughts on volumes in light of recent exchange rate movements. Any additional information would be appreciated. Thank you.

Thanks, Amit. So on the first question about the consequence of a higher one or the benefit of a low one. For sure, the way we look at it is a lower one, which is to say, our pre-acquisition levels, the way we've historically operated. One is more prudent. It's in line with our strategy, and third, it just offers far more flexibility. If you operate at a higher level and then hit any stress, then your effectively sold your buffer. That's the reason why it's prudent to operate at levels that Sergio and I have been highlighting over the last quarter or two since I raised the topic last quarter. In terms of P&C volumes, as we look forward, I would say at this point, the outlook on lending is flattish for now in terms of volumes in ways that if that is a mitigant for sure, the balance sheet optimization that they've done on the asset side has driven profitability, return on attributed equity, and revenue over RWA accretion. I'd say that's the main focus on the lending side. Deposit outlook is also relatively flattish, maybe some short-term moderate down a bit in a very competitive market and we're not chasing where we see competitors buying deposits at much higher rates to protect their loan books. Our deposit outlook is stable, I would say. But again there, we have adjusted deposit pricing on select products to help. But at the end of the day, as I've said before, the biggest help would be rates either moving down or up from a sort of a 0 perimeter as that would really be the most accretive from an NII perspective in the P&C business.

Thank you.

The next question comes from Andrew Coombs from Citi. Please go ahead.

All right. Good morning. I have two follow-ups, please, one on capital and one on GWM NII. On capital coming your way back to Jeremy's first question. You've taken a change in approach; you've fully accrued the buyback rather than taking the capital impact as and when you execute. Can I just ask what was the rationale for doing this? And is this something you envisage doing going forward as well? Second question on GWM NII. I think at the full-year results, you talked about Q1 being down low to mid-single digits sequentially; you've ended up down 7%. You said that there was 1 percentage point of that was due to the resegmentation. But nonetheless, it looks a little bit worse in your original guidance. Perhaps you could explain why it came in slightly worse than you initially expected? More broadly, your full-year guidance for GWM NII is unchanged, that was previously predicated on the second half being flattish versus the first half. Are you now assuming a slight recovery in the second half?

Thank you, Andrew. Regarding capital, the main focus is to manage our ratio in alignment with our guidance, and by making the necessary accruals, we aim to approach around 14%. More importantly, we’ve shifted from an ambition to a clear intention. This is still dependent on our financial performance and any significant changes in the regulatory landscape. Given our results and progress in integration, we are confident in this direction. We will ensure that if there’s any transition from ambition to intention, we will accrue prudently, which we believe is a more cautious approach than simply setting aside reserves for capital return plans. To address your second question, I provided some insights on the segmentation change to clarify the difference. With that context, we anticipate moving into the mid-single-digit range as we guided for Q1 compared to Q4. Looking ahead, I am reaffirming the full-year NII guidance for GWM. I expect the loan outlook to remain positive, contingent on the rate and macroeconomic environments. As long as there are no drastic changes, the loan outlook should contribute positively to NII for the remainder of the year. Similarly, the deposit outlook remains favorable, also depending on macroeconomic trends. We are witnessing some easing of the preferential FTD headwinds. For these reasons, I am maintaining stable guidance for the full year and provided clarification as we transition into the Q1 guidance range.

Great, thank you.

The next question comes from Chris Hallam from Goldman Sachs. Please go ahead.

Yes, good morning everybody. Thank you for taking my questions. You mentioned in the prepared remarks that the LCM pool shifted towards corporates and away from sponsors. Any insights you can share on your discussions with the sponsor community more broadly how you expect them to act in the coming quarters based on the operating backdrop we see today? At what point would you consider reassessing the banking revenue ambition for 2026, I guess, in light of the slower activity levels year-to-date? And then second, I just want to come back on this risk of an immediate and material change to the regulatory regime. I appreciate the process is maybe less clear than it was. The range of outcomes has probably widened. But for risk of immediacy, it also increased; it feels as though if anything, stuff has been pushed right a little bit. Obviously, there hopefully would be still some kind of fade-in period, we would assume. Any thoughts on that? Thank you.

Generally, I believe that the decline in sponsor-related activity on a year-over-year basis has been significant. However, sponsors, like many others, are adopting a wait-and-see approach. Many transactions are currently on hold rather than being canceled outright. The new levels of funding, spreads, and conditions in the credit markets may cast doubt on some transactions. Overall, it seems that people are biding their time to see if the situation becomes clearer in the coming months, after which they will move forward with plans for add-on acquisitions, disposals, or IPOs. The key point is that the pipeline for potential transactions remains robust and continues to grow, so we do not see a halt in activity. In response to your question, we would revise our outlook and top-line ambitions only if there were significant changes in market conditions and the growth prospects for banking businesses in the industry. Our goal to be a relative winner by increasing our share of wallet remains unchanged. If we need to adjust our revenue forecasts, we will not alter our ambition to enhance market share and monetize the investments made in our platform over the past two years. Regarding the second point, we do not have control over this process and cannot predict what will emerge. We cannot dismiss any possibilities regarding the significance of changes or their timing. Therefore, you should view this language as a cautious reminder that a possibility exists, but it does not necessarily reflect our expectations.

Okay, thanks Sergio.

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

Yes, good morning. I've got two. One on FRC, so up 27% year-on-year, it's a much stronger print than a lot of your peers. I'm just wondering, is that business mix related? You've mentioned the strength of FX, or do you feel that you're still winning back market share in that business? The second question, sorry to come back on capital again, but you did say in the fourth quarter that you have further subsidiary repatriations potentially in the pipeline. I think you mentioned $5 billion from CSI and maybe something more coming out of the IHC. Can you give an update on progress on both of those fronts? Thanks.

The increase in FRC year-on-year was mainly due to foreign exchange, where we have a strong focus. It was a challenging quarter for those more involved in rates and credit, but we did not face that impact. We benefited from our strong positioning in the FRC segment. Regarding capital, you are correct that there is still more capital to be repatriated from some foreign subsidiaries, particularly from the U.K. and a bit more from the U.S. We are currently working through the usual regulatory processes to get approval for that capital release, which involves continuing to streamline non-core and legacy portfolios in those entities. As we make progress, we expect that the excess capital will be recognized by the regulators under their cautious evaluation, which will allow us to proceed with the repatriation over the next several quarters.

Sounds great, thank you.

All right. Thank you. So there are no more questions. Thank you for calling in and for your questions, and the IR team is at your disposal for any follow-ups. So have a nice day. 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 a media Q&A session at 10:45 CEST. Thank you.