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Operator: Ladies and gentlemen, welcome to the Julius Bär 2024 Full Year Results Presentation for Media and Analyst Conference Call. I'm Sandra, the Chorus Call operator. I would like to remind you that all participants have been in listen-only mode and the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] At this time, it's my pleasure to hand over to Alexander van Leeuwen, Head of Investor Relations. Please go ahead, sir.
Alexander van Leeuwen: Good morning, everyone. Welcome to the Julius Bär 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 2 of the presentation. It is now my pleasure to hand over to our CEO, Stefan Bollinger.
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 Bär, and I'm looking forward to an open and constructive collaboration with all of you. I'm joined this morning by Nic Dreckmann, COO and Deputy CEO; and Evie Kostakis, our CFO. Before Nic and Evie start with the presentation of the full year 2024 results, I would like to make a few remarks. As you know, I joined Julius Bär on January 9 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 Bär'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 swift and decisively to deliver on twofold 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 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 we 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 ExB will be reduced from a current 15 to newly 5 members, and besides myself, will be composed by Nic and Evie, who you know and are with me this morning; Oliver Bartholet, Chief Risk Officer; and Christoph Hiestand, Group General Counsel. In the new Executive Board, I'll 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 Nic 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. Nic and Evie will now take you through the 2024 result in detail. Over to Nic.
Nic Dreckmann: Thank you very much, Stefan, and a very warm welcome also to all of you from me. Stefan, thank you also for the introduction. Now let's focus on 2024. As you're all aware, Julius Bär 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 long-standing 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 CHF0.5 trillion driven by CHF14.2 billion in net inflows, of course, helped by a strong equity market and currency tailwinds. This is not only shown -- 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 U.K., Germany, Switzerland and the UAE. The work we're doing in driving performance management and on-boarding 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 CHF1.1 billion of adjusted profit before tax, outperforming our run rate of the first half, and a CHF1 billion 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 Evie 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 CET1 capital of 32%, exceeding our target of 30%. And the Board is proposing a dividend of CHF2.60 per share, stable from last year. Our CET1 capital ratio stood at 17.8% based on Basel III actual and shows the capital generative business model that we have at Julius Bär. Pro forma for Basel III final, which will come into force in 2025, our CET1 capital ratio would have been at 14.2%, primarily driven by an increase in operational RWA. Evie 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 Bär increased its target for the 2023 to 2025 cost reduction program from originally CHF120 million to CHF130 million gross. By the end of 2024, the underlying cost initiatives delivered CHF140 million gross cost savings on a run rate basis. The total cumulative program-related restructuring costs to date amount to CHF39 million, out of which CHF24 million were booked in 2024. Despite these meaningful savings, the underlying cost-income ratio of 70.9% is still 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 CHF110 million of run rate savings by the end of 2025. These savings will be achieved across gross personnel and general expenses through strategic and structural restructurings while continuing to invest in growth. The cost to achieve these target savings are currently estimated at approximately CHF55 million 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 sale 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 Evie to walk you through our results in greater detail.
Evie Kostakis: Thank you, Nic, 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 securities markets and foreign exchange. Stock markets were clearly positive in 2024, and while the U.S. 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 rates by 135 basis points to 3.15 and the Federal Reserve by 100 basis points to a range 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, 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 CHF497 billion, helped by the strong equity markets and the weaker Swiss franc and by over CHF14 billion in net new money. In May, we completed the sale of Kairos with AUM of CHF48 billion, which was the main factor within the CHF6.2 billion AUM decrease related to divestments. Please note that the recently announced sale of Julius Bär Brazil with AUM of approximately CHF9 billion is not yet reflected here. That deal is expected to close later this quarter. Monthly average assets under management important for the margin calculations grew by 7% year-on-year. And including CHF93 billion in custody assets, total client assets grew by 15% and to a new high of CHF590 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 CHF14.2 billion. In terms of regional contributions from key markets, I would highlight in Europe the U.K., 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 from 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 area -- a new era of significant re-leveraging. 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 four-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 CHF3.9 billion, the highest in our history. Net commission and fee income grew by 14% to CHF2.2 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 CHF1.3 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 CHF0.4 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 CHF5 million, CHF12 million and you may recall that this was back in H1 impacted by CHF16.5 million transaction-related loss related to the sale of Kairos, of which CHF11 million were noncash cumulative currency translation adjustments already recognized in the group's equity, i.e., not relevant for the P&L -- i.e., relevant for the P&L, but not relevant for capital. In the media release this morning, we confirmed that the sale of Julius Bär 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 CHF120 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 noncash 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 the 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 1 basis point lower than in H1, with 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 4 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-end 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 CHF77 million year-on-year to CHF2.78 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 CHF1.78 billion, slightly below the year-on-year increase in the monthly average number of full-time employees. General expenses were essentially flat at CHF767 million, helped by an CHF18 million decrease in provisions and losses. Excluding provisions and losses, general expenses went up by 3% to CHF723 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 CHF238 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 in the gross margin of minus 5 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 saving 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 CHF130 million gross. We have executed against that target, and in the meantime, we have delivered CHF140 million on a run rate basis by the end of 2024 with cumulative total cost-to-achieve of CHF39 million, including CHF15 million in 2023 and CHF24 million in 2024. We are now extending the cost program to target an additional CHF110 million of gross cost savings to be executed in 2025, bringing the total cumulative savings program to CHF250 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 CHF55 million. Slide 19 summarizes the profit development. Pretax profit came down by 4% year-on-year to just below CHF1.1 billion, and the pretax 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 CHF1.047 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 CHF2.7 billion to CHF41.6 billion. But on an FX-neutral basis, the increase in loans was just 4%. And deposits grew by 9%, plus CHF5.5 billion, to CHF68.7 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 CHF16 billion, of which 1/3 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 CHF0.8 billion at the end of 2023 to CHF0.1 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 CHF0.4 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 CHF3.6 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 CHF200 million. At the same time, risk-weighted assets decreased slightly by 1% to CHF20.2 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 CET1 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 '25, 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 Bär, 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 Bär, 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 CHF1.7 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 equivalent CET1 capital 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 CHF5.3 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 remained 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 pro forma impact on all these key ratios. Before handing it back to Stefan, allow me a brief moment on important upcoming dates. On March 17, 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 22 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.
Stefan Bollinger: Thank you, Evie. We're opening for questions.
Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jeremy Sigee from BNP. Please go ahead.
Jeremy Sigee: 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 Evie'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 adviser 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. 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?
Evie Kostakis: 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 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 3% rather than the 4% for the following reasons. Number one, we don't yet see all the necessary preconditions for releveraging 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.
Stefan Bollinger: It absolutely is. And Jeremy, I'm looking forward to finally meet you soon. Thank you.
Operator: The next question comes from Anke Reingen from RBC. Please go ahead.
Anke Reingen: Welcome, Stefan. It's basically just about the capital. I mean the Basel IV hit, it's 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?
Evie Kostakis: Thank you, Anke. On the impact of Basel III final, I essentially tried to explain it in the opening remarks. Basically, the U.S. DOJ settlement from 2015 accounts for about 100 basis points, equivalent to CHF1.7 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.
Anke Reingen: Is there any more that could be potentially reducing the impact and why the impacts are much higher than we initially thought? Is there something for the private debt matter already in there?
Evie Kostakis: Nothing for the private debt matter.
Anke Reingen: I'm sorry, I didn't hear that.
Evie Kostakis: No, this has nothing to do with the private debt matter.
Nic Dreckmann: 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 CHF60 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 the 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 these. Hence, we believe it's prudent to await the completion of the FINMA review and focus in '25 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.
Anke Reingen: But you don't have any more on timing potentially, that's unclear on when that could conclude.
Nic Dreckmann: As mentioned, I think we are collaborating with our regulators on these topics on an ongoing basis and we can't comment further.
Operator: The next question comes from Piers Brown from HSBC. Please go ahead.
Piers Brown: 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 op risk RWA towards the end of the year. So, would you completely rule out maybe an off-cycle buyback? I know this has 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 what 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?
Evie Kostakis: 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 the 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 own on the balance sheet page.
Nic Dreckmann: And 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.
Piers Brown: Okay. Could I just come back on the deposit mix? And then I -- sorry, I'm just looking at the -- this is Slide 16. I thought there that your term numbers have gone up in the second half across all currencies. Could you just correct me if I'm wrong on that?
Evie Kostakis: Yes. 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%.
Piers Brown: Okay. The numbers have moved up for dollar and euro.
Operator: The next question comes from Amit Ranjan from JPMC. Please go ahead.
Amit Ranjan: 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 and the need -- versus the need to improve efficiency? And in that context, is the 64% -- below 64% cost-income target for '25 still realistic? And the second question is around client sentiment, please. Is there a difference between geographies? Are we seeing an increased risk appetite as rates are coming down? And how do you see the impact of the geopolitical tensions currently on client sentiment?
Stefan Bollinger: Thank you. 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'll take my time to look carefully into all our businesses and then we'll communicate at a strategy update for summer. Our plan I would just say that this is a growth 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, U.K., Germany in Europe; India, in particular, as well; and Switzerland equally so. In terms of leverage or releverage, I think, as Evie mentioned, we have clearly not yet seen releveraging. We see first signs, but not to make a trend out of this at that point in time.
Operator: The next question comes from Benjamin Goy from Deutsche Bank. Please go ahead.
Benjamin Goy: Two questions from my side as well, please. So first, on the new strategy, 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 presentation? And then secondly, Evie, you mentioned the 2 basis point exit rate on the quasi NII. Would you also highlight the run rate for '25?
Stefan Bollinger: As we communicated, the Board of Directors has decided that and Romeo has announced that he will not stand for reelection in the coming AGM, and our search is underway. I will communicate with the invitation of the AGM, hopefully, a new candidate. And of course, this is a matter of the entity. 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 -- or the repercussions than what we said before that we'll have a strategy update and give you more details before the summer.
Evie Kostakis: 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.
Operator: The next question comes from Mate Nemes from UBS. Please go ahead.
Mate Nemes: And Stefan, welcome aboard. 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 fund 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 are you looking, 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 hirings. How shall we think about both gross and net hiring in 2025 given, I think, your comments regarding potential performance management and the 3% net new money expectation?
Stefan Bollinger: 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 and very much looking forward to update you on our strategy update that will take place before the summer.
Evie Kostakis: And Mate, it's Evie here on the hiring. 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.
Operator: The next question comes from Stefan Stalmann from Autonomous. Please go ahead.
Stefan Stalmann: I wanted to follow up on the operational risk-weighted assets, please. The CHF1.7 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 a compliance perspective? And a final question, just very quickly, I assume that the exit from Brazil is not part of the CHF110 million gross cost savings. Is it?
Evie Kostakis: 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?
Stefan Stalmann: That is about whether the exit from Brazil and the cost relief that, that produces is part of the CHF110 million extra cost savings. Sorry, could you hear me?
Evie Kostakis: Yes, it is not. Brazil is not.
Stefan Stalmann: It's not. Okay.
Evie Kostakis: Yes.
Operator: The next question comes from Giulia Aurora Miotto from Morgan Stanley. Please go ahead.
Giulia Aurora Miotto: And welcome, Stefan, also from me. A couple of questions left. So, the first one, cost savings, it's very helpful to have this additional plan, but I always struggle with the gross cost savings. And do you have any idea on the net side of things? And then, secondly, LCR at 292 is extremely high. Do you plan to reduce this at some point? Or is this actually driven by the 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?
Evie Kostakis: 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 or -- 80 basis points gross margin and you apply this additional CHF110 million run rate gross cost takeout that we have announced today as an extension of the existing cost program. And excluding the cost to achieve the restructuring costs, we would expect the cost/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, has nothing to do with regulatory agencies. 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.
Operator: The next question comes from Nicholas Herman from Citi. Please go ahead.
Nicholas Herman: Best wishes to Stefan as well on 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. Evie, did I just hear you say that you expect to be at the current levels pro forma for the CHF110 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. Just -- again, I appreciate you've only been in the role for a number of days. But just at a conceptual level, just what do you think of Julius Bär's compensation structure for relationship managers? We've gone from an incentive system that was based on -- previously on revenues and the net new money. So, one more reason 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 Bär? 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?
Stefan Bollinger: Why don't we let Evie start with the impact of the CHF110 million on the cost to income ratio and then we can talk about the comp structure.
Evie Kostakis: 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 CHF110 million gross cost savings, then yes, by end of the year, the cost/income ratio will be around the levels where it was -- where we ended up in 2024. But that is, of course, under the assumption that there's no upside to the gross margin.
Nic Dreckmann: I can take the other two questions. This is Nic 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 alluded to last year's very early on change where we switched, in particular, 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 I had around the cost savings, I think if you look at our cost structure between personnel expense and general expense, it's roughly 70% to 30%. And the cost measures that we announced are basically in line with this ratio as well.
Nicholas Herman: 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 are on track?
Evie Kostakis: Of course, 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 the business cases, then they leave the platform. However, we're pretty satisfied so far with the vintages '23 and '24. As I said, they're tracking around a 65% business case achievement rate and you know that we plan our numbers around 60%.
Stefan Bollinger: And Nicholas, just the 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 RMs, and I think we have amazing people covering great clients. So, I think we have all the ingredients to take us to the next level.
Operator: The next question comes from Hubert Lam from Bank of America. Please go ahead.
Hubert Lam: I'd like to welcome Stefan 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 the split in 2025? Do you expect legacy RMs to make a greater contribution? The second question is do you expect any potential write-backs from the Signa private loans? Any realistic write-backs for this? And last question is for Stefan. How do you view M&A versus organic growth? So basically, do you think Bär is big enough and has enough scale to succeed as it is today?
Evie Kostakis: 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 CHF2 billion. And as you know, in the first half of the year, it was negative. So, it was north of CHF3 billion for the second half for existing relationship managers. I already commented before on RMs that are on business case. And of course, what are 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, 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.
Stefan Bollinger: Look, we have the best of both worlds. We have scale of CHF500 billion assets under management and we have global reach yet a simple and clear strategy focusing on wealth management exclusively. So specifically on M&A, we are currently focused on growing our business organically. And again, we're looking forward to tell you more on our strategy update.
Operator: The next question comes from Krishnendra Dubey from Barclays. Please go ahead.
Krishnendra Dubey: Stefan, welcome from my side as well. I think I have a couple of questions. One is on the gross margin. I believe you talked about an exit rate of gross margin at 37 basis points. Consensus gives you a 38 basis points for '26 and '27. Could you please help us understand this strategic initiative that group is speaking to reach the ambition of 39 and make us believe that you would be there on 39 basis points? 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 Slide 10, it should have helped. What are other 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 still, what would be the range that you look at?
Evie Kostakis: 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, saved 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.
Krishnendra Dubey: I just have a small follow-up on the Brazilian business. I believe it's a CHF9 billion AUM. And have you ever talked to us about the gross margin that business earns?
Evie Kostakis: So, that is more of an EAM business model, so the gross margin is around 37 basis points.
Operator: The last question comes from Anke Reingen from RBC. Please go ahead.
Anke Reingen: I'm sorry to elaborate here again. I just wanted to follow up on Piers' 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 it's all pretty much uncertain?
Evie Kostakis: 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.
Operator: 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.
Alexander van Leeuwen: Yes. Thank you all for your questions and for listening in. There will be more opportunities to discuss with many of you as Stefan and Evie will join the IR team on our upcoming road show. We will be back with more at our IMS in May and our strategy update before the summer. Thank you, and speak soon.