UBS Group AG (UBS) 2014 Q4 法說會逐字稿

Ladies and gentlemen, good morning.

Welcome to the UBS fourth quarter results 2014 analysts' conference call.

I'm Stephanie, the Chorus Call operator.

(Operator Instructions).

The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to UBS.

Please go ahead.

Good morning.

It's Caroline Stewart here, Head of UBS Investor Relations.

Welcome to our fourth quarter results presentation.

This morning, our CEO, Sergio Ermotti, will present the highlights of our fourth quarter and full year results, and our CFO, Tom Naratil, will present the fourth quarter results in detail.

We'll take questions from analysts after our call.

Before I hand over to Sergio, I'd like to draw your attention to our cautionary statement with regard to forward-looking statements and ask that you read it carefully.

With that, I'd like to hand over to Sergio.

Thank you, Caroline, and good morning, everyone.

For the fourth quarter, we reported adjusted pretax profit of around CHF650 million.

And net profit improved to about CHF1 billion, including a CHF500 million net tax credit.

At yearend, our fully applied Basel III CET1 ratio, was 13.4%, still the best in our peer group, despite sizeable dividend accruals.

Our fully applied Swiss SRB leverage ratio was stable at 4.1%.

Wealth management reported its best fourth quarter pretax profit since 2008, and wealth management Americas delivered new records for operating income and financial advisor productivity.

Retail and corporate adjusted pretax profit remained resilient, at CHF356 million, and global asset management produced its highest quarterly operating income in four years.

Investment bank delivered an adjusted profit before tax of CHF426 million, with excellent results in equities, equity capital markets, and advisory.

In 2014, we delivered a 13% increase in Group's net profit.

In wealth management, pretax profit rose 4%, to CHF2.5 billion, as we attracted net new money, drove high quality revenues, and managed costs carefully.

2014 was another record breaking year for wealth management Americas, with operating income, gross loans, FA productivity, invested assets, and pretax profit reaching all-time highs.

Despite elevated charges for litigation, regulatory and similar matters, the business delivered $1 billion in pretax earnings for a second year.

In retail and corporate, 2014 was the best year for new Swiss retail client acquisition since the financial crisis.

The business also achieved all of its targets, growing pretax profits by 4%.

Global asset management delivered over CHF0.5 billion in pretax profit, and a substantial turnaround in net new money, attracting almost CHF23 billion, largely due to renewed levels of engagement and collaboration with our wealth management businesses.

Client focus, improved productivity and resource efficiency are important drivers of our success in the investment bank.

Our strategic efforts to grow corporate client solutions are also bearing fruit, with revenues up 8% year on year.

At the same time, we reduced corporate center costs by CHF300 million.

We also made progress in resolving issues from the past, as well as with our resolution and recovery plans, by establishing our Group holding company.

UBS is the world's largest wealth manager, and the only large scale player with a truly global wealth management franchise at the center of its strategy.

Over the past three years, we delivered double-digit profit growth, despite headwinds from interest rates, continued client risk aversion, low transaction volumes and elevated litigation expenses, in all regions.

In addition, we have experienced 10s of billions in cross border outflows in Europe.

And with profits growing faster than assets and revenues, cost control has also been good.

Our scale, unique global footprint, and our focus on high and ultra high net worth clients, underpin our superior growth prospects.

After several years of transformation in both businesses, wealth management and wealth management Americas are much more similar than many appreciate.

Both businesses have focused successfully on the fastest growing wealth segments, high net worth and ultra high net worth, delivering very strong growth.

Increasing mandate penetration and banking and lending products are common strategic goals, which benefit our clients and deliver high quality recurring revenues.

So we don't just have the world largest wealth manager operating in the largest and fastest growing markets, we also have a business which is serving its clients well and delivering very high quality returns.

Our success in 2014 mean that we have now achieved the key targets we set out in 2011 and 2012.

We have reduced risk-weighted assets by over CHF160 billion, added almost 700 basis points to our Basel III fully applied CT 1 ratio, and successfully transformed our investment bank.

When we first laid out our strategy for the investment bank we said we wanted it to be simpler, less complex and more profitable.

We have achieved all three.

Today, the investment bank business mix is more balanced, productivity is higher, cost control is stronger, and we have developed real agility in deploying resources for the benefit of our clients.

The result is not just improved profitability, but a business that has come -- has more consistent returns.

Our underlying return on attributed equity has averaged 29% over the past eight quarters, well above our target of greater than 15%.

We also delivered our original cost-savings targets, despite investing in our transformation, and higher than expected regulatory and remediation costs.

We are fully committed to CHF1 billion of further saving which we expect to deliver by the end of 2015.

Today, I would like to declare the Bank's strategic transformation complete.

As we look to the future, we will execute the strategy with the same intensity, agility and focus that we have demonstrated in the last four years.

Having achieved our target capital ratios, we are now in a position to deliver on our promise of attractive capital returns to shareholders.

We intend to propose an ordinary dividend of CHF0.50 per share for 2014, which should be viewed as the baseline for future annual returns.

It represents a 100% increase from 2013, and a 53% payout ratio.

We remain committed to a total capital payout of at least 50% of net profit attributable to UBS Group AG shareholders.

In addition, we have accrued a one-time supplementary capital return of CHF0.25 per share which, with shareholder approval, will be paid upon successful completion of the squeeze-out of remaining UBS AG shareholders, most likely after the ordinary dividend.

I've often say that there would be bumps in the road ahead and that we should focus on controlling what we can control and doing the best for our clients.

In light of the SNB's removal of the euro Swiss peg, that philosophy could not be more appropriate.

I'm pleased to say that our risk management and efforts to hedge tail risk worked well.

Our investment bank continued to serve its clients effectively and operated profitably throughout.

Our fundamental focus on prudent risk management also applies to our credit portfolio in Switzerland and elsewhere.

We believe this focus will help mitigate some of the potentially negative effects of a strong franc.

I would add that a new wave of pro-cyclical regulation, globally and including in Switzerland, may well worsen already challenging economic conditions, and this needs to be part of the discussion about any new rules.

A strong franc has a number of first and second order effects for our business which Tom will address.

From my perspective, it creates some challenges, but I believe it also creates meaningful opportunities for a strong, growing and well-capitalized bank like UBS.

So what does it mean for our strategy?

Nothing.

Wealth management and our leading universal bank in Switzerland remain at the heart of our strategy, together with a competitive and economically profitable asset manager and investment bank.

As a responsible management team, we fully intend to deliver superior returns and, therefore, we will make whatever tactical changes are necessary to protect our earnings.

We already have a number of long-term strategic initiatives to improve efficiency and build revenues.

Today, we believe a double-digit return on tangible equity would be a good result for the business this year, particularly in light of rising regulation.

From 2016, we will target a return on tangible equity of more than 15%.

So in conclusion, I want to leave you with three things.

First, we are the world largest wealth manager operating in both the largest and fastest growing markets.

Retail and corporate, global asset management, and our investment bank, all add to our wealth management franchise, providing a leading and unique proposition to our clients.

Second, we have the strongest capital position in our peer group; and third, we have an attractive capital return policy.

We have built a bank that is right for clients and shareholders, and more generally, for all our stakeholders.

We will continue to execute effectively on what we can control, and put our clients at the center of everything we do.

With that, I'd like to hand over to Tom for the Q4 results.

Thank you, Sergio.

Good morning, everyone.

In light of our evolving legal structure, my commentary will reference UBS Group AG.

Differences between the Group and UBS AG are immaterial and further details can be found on page 12 of our quarterly report.

As usual, my commentary will reference adjusted results unless otherwise stated.

This quarter, we excluded net restructuring charges of CHF208 million, an own credit gain of CHF70 million, gains on sales of real estate of CHF20 million, and a credit of CHF8 million related to changes to retiree benefit plans in the US.

Profit before tax was CHF648 million, up from a pretax loss of CHF424 million, as the quarter included CHF176 million in charges for provisions for litigation, regulatory and similar matters, compared with CHF1.8 billion in the prior quarter.

Operating expenses decreased on lower charges for provisions for litigation, regulatory and similar matters, but were up for full year 2014, despite a 6% decrease in variable compensation expenses.

In the quarter, we reported a net tax benefit of CHF493 million.

This includes the remaining 25% of this year's deferred tax asset revaluation, as highlighted last quarter, together with further upward revaluations as we completed our annual business planning process.

For 2015, we expect our tax rate to be around 25%, excluding the effect of any reassessment of deferred tax assets.

Net profit attributable to UBS Group AG shareholders was CHF963 million, up 26% in the quarter.

And our return on tangible equity was 9.6%, up from 8% in the prior quarter.

Wealth management delivered a high quality performance with strong returning income and profit before tax of CHF694 million, its best fourth quarter since 2008.

We continued to grow recurring income, which accounted for 78% of total income in the quarter.

This reflects the execution of management actions on pricing, lending and mandate sales which have more than offset the revenue impact of continued cross-border outflows.

Net new money was CHF3 billion, with a strong contribution from our ultra high net worth clients where net inflows increased to CHF7.1 billion.

Net mandate sales were CHF1.6 billion in the quarter, taking the total to CHF26.7 billion for the year.

The slight decrease in mandate penetration reflects the sharp rise in invested assets in the quarter.

Excluding FX effects, mandate penetration was up 10 basis points from the prior quarter.

Net interest income increased by 2%, mostly due to continued loan growth and improved margins, and recurring net fee income increased 1% on invested asset growth and continued growth in mandates.

These increases were more than offset by a 9% decrease in transaction-based income, largely driven by APAC.

APAC delivered net new money of CHF5 billion, finishing its best year since 2007 with net inflows of CHF26.8 billion.

In Europe, net new money from domestic onshore clients was the strongest it's been all year.

This was more than offset by expected increased cross-border net outflows resulting in total net new money of negative CHF1.5 billion.

For the full year, our net new money growth rate was 3.9%, within our target range of 3% to 5%.

Going into 2015 and beyond, we're confident that we'll continue to meet this target.

As a result of the changed interest rate environment, we'll be taking action in the first half of the year on a number of fronts, including moves to increase the pricing differential between term and overnight deposits, reviewing relationship returns versus liquidity coverage ratio and leverage ratio denominator utilization, and considering other pricing options, all of which may cause affected clients to withdraw some of their cash assets, thus impacting our net new money.

The assets in scope approach CHF30 billion and we could see outflows as a result, which we will exclude from our net new money growth KPI calculation.

Counterintuitively, these outflows could have substantial benefits to us, such as an LCR benefit on lower outflow assumptions, lower leverage ratio denominator usage, and reduced high quality liquid asset buffer requirements, and improved future profitability.

Wealth management Americas delivered a profit before tax of $233 million on record income and invested assets.

Operating income increased [on] higher net interest income as the business pursued continued loan growth.

This was partially offset by lower recurring net fee income as lower mutual fund fees were only partially offset by higher managed account fees.

Transaction-based income increased 2% to $448 million on slightly higher client activity.

Expenses were up 2%, as charges for litigation, regulatory and similar matters remained elevated, and as FA compensation rose on higher compensable revenues.

Net new money was strong at $5.5 billion, the highest in seven quarters.

Our FAs continued to be the most productive in the industry as, once again, we had a record-breaking quarter with annualized revenue per advisor of $1.1 million and invested assets per FA increasing to a record $147 million.

We continued to grow lending balances, with mortgages up 4% to $7.7 billion and credit lines up 3%, to $33 billion.

Retail and corporate delivered a pretax profit of CHF356 million, down from an extremely strong third quarter.

For the full year, retail and corporate delivered on all of its targets.

Operating income was down 5%, mostly reflecting higher credit loss expenses.

Margins on our loan products improved as we continue to benefit from our pricing measures and strategic focus on quality loan growth.

But this was more than offset by lower margins on our deposits, due to persistently low interest rates.

Net credit loss expenses were CHF66 million, up from CHF33 in the prior quarter, with the majority related to two corporate clients.

In global asset management, profit before tax was down 18% to CHF124 million on higher expenses as the quarter included CHF21 million in charges for litigation, regulatory and similar matters.

Operating income was up 2%, mainly from higher performance fees, with increases in traditional investment in global real estate.

Net new money, excluding money markets, was negative CHF5.8 billion.

Continued net inflows from our wealth management businesses were more than offset by net outflows from third parties.

We don't believe this quarter is indicative of the future net new money performance of this business, which delivered CHF22.6 billion in net new money in 2014.

Despite weaker short-term investment performance versus benchmarks, our long-term performance and performance versus peers, remains strong.

The investment bank delivered solid fourth quarter results with strong performances from equities, and our advisory and ECM businesses in CCS.

The investment bank met all of its targets while operating within its resource limits.

It generated a pretax profit of CHF426 million, up from a loss in the prior quarter, which included substantial charges for provisions for litigation, regulatory and similar matters.

On a year-over-year basis, profit before tax was up 10%.

Operating income was up 4% year over year with increases in all regions.

In corporate client solutions, revenues increased year over year, mainly driven by increases in advisory as we saw healthy participation in M&A activity and on increases in ECM.

These were largely offset by lower revenues in DCM.

In investor client solutions, equity generated its highest fourth quarter result since the implementation of our strategy two years ago, with particularly strong performances in cash and derivatives.

Revenues in FX rates and credit were down as client activity was offset by a challenging trading environment, particularly in credit.

Despite a seasonally slower quarter, the business delivered a return on attributed equity of 23%.

Corporate center core functions reported a pretax loss of CHF387 billion.

Net treasury income remaining in corporate center core included CHF219 million in retained funding costs which increased partly due to new debt issuances throughout the year.

Reported operating expenses after service allocations were CHF269 million, up CHF75 million, including an increase of CHF50 million from the difference between actual costs incurred for internal services and the associated guaranteed cost allocations to the business divisions and non-core and legacy portfolio.

NCL reported a pretax loss of CHF725 million.

Operating income was negative CHF361 million and included loses of CHF118 in the non-core rates portfolio from unwind and novation activity, a net loss of CHF108 million from the termination of CDS contracts, and valuation losses of CHF53 million in the legacy portfolio.

Our team continued to reduce RWA, which was down CHF6 billion to CHF36 billion, ahead of our 2015 yearend target of CHF40 billion, and with LRD down CHF13 billion to CHF93 billion.

Within non-core and legacy portfolio operational risk RWAs were CHF19 billion, and there is around CHF8 billion in RWA-related OTC positions in non-core which will decay naturally, leaving less than CHF10 billion of remaining RWA in NCL which need to be actively reduced.

Reported operating expenses increased by CHF84 million to CHF364 million and include charges of CHF52 million for the annual UK bank levy as well as the net charge of CHF42 million related to certain disputed receivables.

From the first quarter, we'll amend the reporting of corporate center to reflect changes in its structure.

Going forward, corporate center will be comprised of three segments; corporate center services, which includes logistical and support functions that are utilized by our business divisions to support our franchise; corporate center group asset and liability management, which focuses on retaining and enhancing the economics from UBS's structural positions; and finally, non-core and legacy portfolio, which will continue to manage the rundown of these assets.

This reporting change will create additional transparency on the performance of Group asset and liability management while we maintain detailed reporting on NCL.

With headwinds related to the SNB's recent announcements, our ongoing efficiency measures are even more critical to support profitability.

We remain committed to our targeted net cost reductions of CHF1 billion in corporate center core functions and CHF400 million in corporate center non-core and legacy portfolio by the end of this year.

For 2014, corporate center cost reductions stood at CHF300 million with CHF100 million in core functions and CHF200 million in non-core and legacy portfolio.

In NCL, continued reduction of our assets has allowed us to reduce the size of our front office.

This is further supported by lower costs and allocations from core functions as demand on our back office decreases with balance sheet reductions.

The annual costs related to regulatory demand has increased to around CHF900 million in 2014 and CHF400 million of this is permanent, and we must overcome these increases to achieve our cost reduction targets.

We remain committed to maintaining a Basel III fully applied CET1 ratio of at least 13% and at least 10% post-stress.

We recently announced that our deferred contingent capital plan awards from 2014 onwards will qualify as additional Tier 1 capital under Basel III.

We recognize CHF467 million at yearend and we intend to build the total of approximately CHF2.5 billion over the next five years through our compensation programs, which will eventually replace the initial CHF946 million of loss-absorbing capital already built through our deferred contingent capital program which is recognized as Tier 2 capital.

This underlines our view that AT1 is an important component of our future capital structure, and we intend to build additional AT1 through external issuance at the UBS Group AG level in the near future as we seek to optimize our capital structure to meet regulatory requirements, while ensuring optimal shareholder returns.

During the quarter, we reduced RWA slightly to CHF216 billion, just above our 2015 yearend target of less than CHF215 billion.

Our fully applied CET1 ratio decreased to 13.4% as we accrued the supplementary capital return in the fourth quarter, which reduced our CET1 capital by approximately CHF1 billion.

Our fully applied Swiss SRB leverage ratio denominator increased by CHF17 billion, driven largely by US dollar appreciation.

This was partially offset by continued reductions in the non-core and legacy portfolio.

As a result, our Swiss SRB leverage ratio decreased marginally to 4.1%.

Based on our LRD target of CHF900 billion, our targeted capital bill from our DCCP would further increase our leverage ratio by around 10 basis points.

Our leverage ratio will increase further as we build AT1 through external issuances, and as we continue to reduce our exposure in NCL.

In light of the recent SNB announcements, and the resulting currency and interest rate movements, we've provided additional disclosure on the potential effects on UBS.

Looking only at the immediate FX translation impact of a stronger Swiss franc, we see a benefit to our capital ratios.

Using FX spot rates as at the end of January, our pro forma 2014 yearend CET1 ratio would have been 13.6% with a Swiss SRB leverage ratio of 4.2%.

This reflects the CHF9.2 billion reduction in RWA and a CHF71.4 billion decrease in LRD, which would more than offset the decrease to our regulatory capital.

While the immediate FX translation effect of a strong Swiss franc would benefit our capital ratios, other impacts of the SNB's recent announcements would more than offset this effect.

Despite having the attributes of a defined contribution plan, the Swiss legislated minimum return causes our Swiss pension plan to be classified under IFRS as a defined benefit plan.

As a reminder, under IAS 19R, changes in values of our defined benefit obligations are reflected in other comprehensive income.

The Basel III treatment is asymmetric as pension surpluses are not eligible for CET1 capital, while deficits are fully captured in CET1.

Our Swiss pension plan had a technical funding ratio above 120% at yearend under Swiss GAAP, but for IFRS accounting purposes it has reached a deficit position.

Any further increases in our IFRS net defined benefit obligation would immediately reduce our fully applied CET1 capital.

Accordingly, the reduction in the applicable discount rates during January has reduced our IFRS equity [and] fully applied CET1 capital by around CHF1 billion.

As CET1 capital decreases due to the FX translation effect, so will the 10% cap for temporary difference deferred tax assets.

As such, any decrease in CET1 capital is further impacted by less temporary difference deferred tax assets being included in CET1 capital.

Decreasing interest rates can also result in higher positive replacement values with consequent increases in RWA on greater exposure at default on derivatives, and higher market volatility.

A higher default risk for Swiss counterparties would increase RWA further.

In addition to increased RWA, greater PRVs will lead to increased LRD as a result of changes to netting benefits and increased collateral balances.

Any reduction in projected earnings may lead to a downward revaluation of Swiss deferred tax assets, which would impact our capital accounts through P&L.

Our Swiss deferred tax assets have an average remaining life of around two years and, as such, their value is derived from near-term profitability.

As a result of our global footprint, UBS generates revenues and incurs expenses in a number of currencies and is exposed to fluctuations in exchange rates against the Swiss franc.

Here, we've provided an updated disclosure on the currency breakdown of our earnings, as well as an estimate of the P&L under various currency scenarios based on the Street's most recent earnings estimates.

In addition to immediate FX translation effects, there are a number of other impacts on our P&L in both the short and medium term.

A lower interest rate environment will create further pressure on our net interest income in retail and corporate, wealth management, and wealth management Americas, and we'll look to reflect this in the pricing on both the asset and liability side of our balance sheet.

Also, an appreciation franc may have a negative impact on the Swiss economy which could lead to an increase in credit loss expenses, particularly in our Swiss corporate lending portfolio.

Tax expenses may increase due to net downward revaluations of Swiss deferred tax assets on lower projected earnings we just mentioned, and from a lower benefit from future potential upward revaluations of foreign currency deferred tax assets.

While our strategy remains unchanged, we've amended our target and KPI framework after assessing interest rate and FX rate movements triggered by the SNB's recent announcements.

Should Swiss exchange rates and interest rates remain at current levels, it's clear that our performance will be challenged in a number of areas, at least in the short term.

As Sergio already mentioned, we'll now target an adjusted return on tangible equity of around 10% in 2015, and above 15% from 2016, rather than a return on equity of greater than 15%.

In our wealth management businesses, our objective is profitable growth and, to that end, these businesses will target combined adjusted annual pretax profit growth of 10% to 15% over the cycle.

Our wealth management businesses in global asset management will report net margin and continue to report gross margin as KPIs rather than as targets.

Our net margin in the fourth quarter was around 28 basis points in wealth management, 9 basis points in wealth management Americas, and 8 basis points in global asset management.

In retail and corporate, we'll retain the net interest margin target range of 140 to 180 basis points and, if the current rate environment in Switzerland persists, results towards the lower end of the range are more likely.

As we've said many times before, our strategy works in a variety of market environments and we're well prepared for the current one.

We've had a solid start to the year across our businesses and we'll continue to execute on our strategy with the focus on growing our core businesses profitably and delivering attractive returns to our shareholders.

Thank you.

Sergio and I will now your questions.

Huw Van Steenis, Morgan Stanley.

Two quick questions.

You've been very helpful in laying out that you're going to do some more cost cuts.

Could you just maybe give us a little bit more color on what the tactical cost cuts would be and the magnitude of those tactical cost cuts so we can just get a sense of what offsetting actions would be?

And then secondly, as you look to capital return for future years, have you've got any first thoughts on the Brunetti Commission and to what extent that might -- does that reinforce your view of 50-plus-% ordinary dividends, going forward?

Thanks.

I'll take the first question here, thank you.

In terms of the tactical cost cuts, I think the most important factor is that, one, we're not moving from a standing start.

We've got a running start, so we already have our structural cost reduction programs in place and we'll be taking out CHF1.1 billion in costs through the remainder of 2015, based on our yearend exit rate.

So first, we've got programs in place.

In terms of tactically the way we've looked to execute that, Huw, what we're going to do is, as you know, a lot of the moves that we've been doing have to focus on our outsourcing, nearshoring and offshoring initiatives.

Clearly, what we'll try to do there is to try to see if we can accelerate some of those moves.

I think that's going to be a bit more challenging because you've got transition periods that you still need to maintain and make sure that you're meeting the effectiveness standards that you want.

I think tactically, the best way to think about it is, it's a first do no harm approach.

So clearly, we'll be taking a very focused look at any replacement hires that we're making as we make our way through the year.

I would also say, we're doing the standard hygienic things that you'd expect from us, which include focusing on tougher discussions with our vendors, looking at third-party spend and also our T&E expenses.

Yes, Huw, on the Brunetti, I think it's -- we basically have already expressed ourselves in respect of the outcome.

We are welcoming the fact that it's recognized at Swiss banks; have made a substantial progress in terms of becoming more resolvable and more solid.

I think that it's well recognized that, together with Japan, Switzerland is at the forefront of implementation of Basel III, and that now the discussion will go into more of the details of what it means, adapting to [bid to sale].

Don't expect dramatically different outcomes than the one that will be proposed by the FSD.

And for sure, we will contribute to the discussion in making clear to all the stakeholders, policymakers, but also politicians, and the economy in general, that there is no time at this stage to introduce pro-cyclical measures that will further deteriorate the conditions in Switzerland and the ability of large Swiss banks to compete globally.

So I don't expect any major outcome of that.

But we are vigilant and we will make sure all the facts are fairly represented when making a comparison with the Swiss banks and other banks globally.

Thank you.

Andrew Stimpson, Bank of America.

On the 2016 targets, I know it's a cut in the ROE, but maybe we can talk about some of the key assumptions that you've got in there.

Maybe you can talk us through the gross margin expectations, or at least the interest rates that are embedded in that target.

And then things like litigation and even the tax rate are implied in that number might just help us get our numbers nearer to your vision there.

And then on the balance sheet size, in the comments there, Tom, you're saying you're going to look to reprice and might even see balance sheet allocation reduction in those clients who are using the LCR or leverage.

But because the liquidity buffer is kept in the corporate center both wealth management and the IB, are you going to be doing similar to the IB clients?

Otherwise it sounds like you might be shifting the balance sheet back towards the IB away from wealth, which I'm sure isn't happening.

But I just wanted to clarify what was happening on the IB side of the LCI utilization as well.

Thanks.

Thanks, Andy.

I'll actually start with the second question first.

The first thing is, I think the IB has already done a very good job over the course of the past couple of years in terms of looking at pricing and allocation of balance sheet for client needs.

I think what we're doing is extending that focused look into the wealth management businesses.

So it's not that it's going to shift from one to the other.

It's about more efficient utilization in wealth management, retail and corporate, and wealth management Americas.

In particular, the initiative that I mentioned is one specifically for wealth management where they are going to be looking at pricing for LCR utilization, and pricing for LRD utilization.

And as I mentioned, that could result in outflows, but to the extent that we do have them, that actually has some counterintuitive benefits for us, most specifically in improved profitability.

Looking at the key assumptions, what we've done, first tax rate 25% for 2015, structurally beyond that roughly around 22%.

When we look at the rate scenario, we've mark to market on implied rates at the end of January, implied forward, sorry, at the end of January.

Okay.

And obviously, you can't really say anything on litigation, just to clarify.

I would say we've accounted for some litigation in our (multiple speakers).

Okay, that's great.

Thank you.

Kinner Lakhani, Citi.

Just coming back to the return assumptions for 2015/2016, in particular pointing to the non-core division, it appeared that maybe the deleveraging was less efficient in Q4 than the track record from previous years.

So I just wanted to get a sense of what your outlook was for the deleveraging of the remaining non-core assets and RWAs.

In terms of the retained funding cost as well, we had, I think, close to an CHF800 million drag in 2014.

I just wanted to get a better sense for your guidance for 2015 and 2016; I know your previous guidance Q1 results was CHF100 million drag in 2015, and flat in 2016.

And finally, on the risks of rising regulation, trying to understand what your sense is in terms of the leverage requirements and how the extent of external AT1 issuance plays into that.

So can you maybe quantify the external AT1 issuance and how that ties in to where you think leverage ratio requirements might be going?

Thank you.

I'll start with the last question.

I would say that, of course, the AT1, as Tom mentioned during his remarks, in the near future we will start to issue AT1 to address, first of all, the expected new regulation coming into force.

But also, as we mentioned before, to manage in an optimal way our capital return policy and our total capital situation.

I think that it's premature to talk about size.

As I mentioned before, in the near future, we will take actions.

And I think we will be able to explain more at that point in time.

Tom.

Thanks, Sergio.

So, Kinner, I'm the first one in terms of return assumptions on non-core and legacy reductions in 2015 and 2016.

The first thing to note, the Q4 exit costs that we had weren't different from the ones that we've had in our plans.

In 4Q had a number of things that we had in our calendar that we were looking to close out, which we did.

I think that we'll be benefiting from lower than our normal cost assumptions earlier in the year.

So in 2015 and 2016 I did mention, if you look at the rates, in my remarks, if you look at the rates portfolio, sorry, the rates and credit over the counter portfolio, we do have a portion that can just roll off, on an amortizing basis, probably at about 10% to 15% per year.

It was roughly about CHF10 billion in RWA associated with that.

For the remaining portion, we'll continue to do what we've done in the past, which is to take a look at the economic profit impacts of reducing positions versus just letting them amortize out, over time.

But we don't expect that we saw a spike in the fourth quarter that wasn't anticipated in terms of exit costs.

On your second question, it just broke up a little bit, I didn't quite hear.

You mentioned something about a drag; I just wanted to know what the category was.

Just the retained funding costs, which I think was close to CHF800 million.

And then the previous guidance was CHF100 million drag in 2015 and flat in 2016.

Just seeing if there's a revised guidance on that.

I think in 2015 we're looking for about CHF600 million retained, still moving towards flat in 2016.

I think one of the things that's changed our profile has been, one, as you know, we've been conservative in some of our views regarding the environment, and you've seen that reflected in our LCR ratio.

We have carried a fair amount of extra funding.

As a result of that, our non-core and legacy asset reductions have been executed faster than planned.

We do use term funding against longer term assets, so that's also a factor that's there.

And also, as Sergio mentioned before, talking about our AT1 plans to issue, to some extent if we get ahead of our funding plan profile, we do have a little extra drag on that.

And that's why we've guided that in 2015 -- we previously guided that too by the way, that's not going to be the year in which we get that back to flat.

You'll see that in closer to 2016.

Great.

Thank you.

Fiona Swaffield, RBC Capital Markets.

I'm sorry we lost connection with Mrs.

Swaffield.

Kian Abouhossein, JPMorgan.

Yes a few questions.

First of all on leverage ratio.

Could you tell me what the Basel III leverage assets are?

And in that context, on the CoCo issuance, I understand you cannot tell us how much you issue, or going to issue, but the CHF2.5 billion and the current CoCos that you're issuing to employees, could you tell me what costs you're assuming for those CoCos?

The second question related to the wealth management margins on APAC.

Just trying to understand the volatility in your APAC margins and, in that context, what we should read out of the fourth quarter.

Is there some structural issues or anything else that we should learn from the fourth quarter results here?

And the third issue is related to your corporate center.

I think it's the hardest division to forecast and it really is all over the place.

I'm just trying to understand, in particular, the cost allocation between guaranteed [and] usage that you discuss in your reports.

And secondly, the funding cost and in particular liquidity -- I mean liquidity rather than funding costs.

How should we think about the liquidity cost, going forward?

And are you changing your liquidity profile considering interest rate levels?

Thanks.

Thanks, Kian.

So starting at the top in terms of what we look like under BIS versus the Swiss SRB leverage ratio.

We'd expect the differences there on the adoption of the new BIS rules to be minimal, post mitigation.

So I wouldn't anticipate anything different from your projections that you have currently on the SRB structures.

In terms of the issuance for employees of the CHF2.5 billion, what type of costs do we assume; we look at similar AT1 issues for competitors with a similar credit profile to ours.

I think there's been enough issuance out there for you to be able to grab a hold onto that.

And obviously, as we issue ourselves, that will, of course, provide better information on the topic.

In terms of wealth management gross margins, and thinking about the APAC effect in particular on the transaction activity, because that seems to be highly correlated to what you would need to determine the deltas quarter to quarter.

I think there's a combination of sentiment that's running through the general trend down in transaction gross margin, plus the increasing desire for discretionary or non-discretionary mandates.

So you're essentially shifting revenue from the transaction line into the recurring fee line.

And then finally, there do tend to be certain seasonals that you can see in the patterns over the course of the past few years.

That can also help you to get a better prediction of the quarters that have the bigger swings up and down.

Finally, on your comment about what makes your job very interesting, which is that the corporate center is the hardest division to forecast.

I think that's one of the reasons why we're changing the segmentation of the corporate center 1Q 2015.

We'll clearly separate the services, which are the services and logistics from Group ALM, which is where we retain other funding costs and manage the risks associated with the structural positions that we have in our balance sheet.

And then we'll continue to provide the same level of detail that we have in non-core and legacy.

I would note we do have in the corporate center noise around litigation expenses, quarter to quarter, which certainly affects non-core and legacy.

You've got the exit costs which are hard for you to predict, because they are very lumpy.

If we decide to take certain actions on some larger positions you can see a lumpy effect there.

In terms of the retained funding costs profile related to the structural funding that Kinner asked me about, we gave that indication CHF600-ish-million this year, moving towards flattish in 2016.

On the liquidity costs, we do allocate the liquidity costs to the division.

I think another point which provides some additional color on a previous question I answered, we are this year in the wealth management, retail and corporate and wealth management divisions, targeting or placing LCR outflow limits on the divisions.

So they'll be focusing on managing that down.

And the costs with outperformance versus those targets are beneficial for them directly as failure to achieve those targets also has some negative consequences.

But those are not retained, those go directly to divisional P&L.

And just to follow up briefly on the corporate center.

Of the roughly 24,000 people, how many are actually outsourced and how many do you think will be outsourced after your restructuring?

In terms of the stats on the numbers that you see in the headcount that we have, our employee count, not including staff from third parties to whom we outsource services, they would include, for example, our employees that we have in higher value locations, like Cracow or Nashville or Shanghai.

So I would say our overall initiatives around outsourcing nearshoring and offshoring, due focus on better balancing or labor mix across the globe.

You'll see a better time dimension across that.

And the cost profile that we have reflects a better balance between our core locations and the higher value locations.

But we haven't stated a target around headcount because we actually don't measure the headcount.

What we're more concerned is the cost component of that, and that's how we're measuring the performance of the different service functions.

Okay.

Thank you very much, Tom.

Fiona Swaffield, RBC Capital Markets.

Just two questions.

Firstly on the outflows for offshore Europe, should it be given that you're talking about the range still, that we should expect those to continue in 2015/2016?

And would you have any comments on Italy particularly?

And then secondly, I just wanted to check my understanding on the tactical measures on pricing in wealth management.

I think you mentioned CHF30 billion of cash deposits?

Is that something you're wanting those to go down to zero?

Could you talk about the -- you mentioned potential pretax, I'm trying to understand what negative margin they are today and how positive that could be.

And also, how does that interact with your current repricing strategy, because I think you've got ongoing measure going on?

And then can I just ask a third on the mandates?

I was quite surprised at how low the net sales were in Q4; could you talk about that a bit more?

Thanks.

Fiona, in terms of the outflows from offshore Europe, one thing I'd bring up is that, as we completed our targeted move to 100% voluntary compliance in Germany, obviously, the German outflows associated with cross-border diminished to zero in the new year.

And what we've said is that any outflows as they occur are totally contained in our 3% to 5% range; I think that that's sufficient guidance.

I would also note that we did have the strongest onshore inflows that we had all year in the fourth quarter and that's certainly a very positive sign for us.

In terms of the tactical measures, it's a continuation and I think that that's in the same way that our structural cost reduction program puts us in a great position to deal with some of the challenges that have come up, post the SNB move, because we're not starting from a standing start, we've got a running start, the same thing is true on the things that we're doing on pricing.

I think that our businesses were able to respond very quickly to very substantial market changes because they didn't have to create a new pricing committee or a new venue for the discussion.

Our Group asset and liability committee as well as our regional asset/liability committees and our business division asset and liability committees had already discussed negative rate scenarios and what we'd do over the course of the year.

So we're well prepared and able to move very quickly, and I think you're seeing the same thing in terms of this initiative that I described.

It's a continuation of our pricing initiatives which is looking to ensure that, as the costs of running our business, the increased costs of equity attributed to the businesses as a result of increase in regulatory requirements, that we're properly pricing our businesses to account for that.

And in this case, the way you phrase your question, you asked about the negative returns.

It's not that we have negative returns; it's that we have suboptimal returns versus what we think we should be achieving relative to some of the increased economic costs surrounding LCR and LRD requirements.

So we do have about CHF30 billion in assets at risk.

Obviously, we'd like to see the pricing improvements and retention of the volume.

But in some cases, that may not be achievable.

And, if the assets leave, it will certainly be because we didn't achieve the return profile that we wanted and we'll regret it, but it will have the better profit profile for us.

Finally, on the mandates piece, I don't think we were as disappointed as you were on the performance in the fourth quarter.

Fourth quarter certainly does have a block of time that's related to the holidays that you have to strip out from the performance where clients aren't available and some employees are taking well-deserved holidays.

So I would say that we see no reason to believe that we're not on the same pace overall in terms of our mandate initiative that we were prior to that.

Thanks.

Jeremy Sigee, Barclays.

Three questions following up on things you already touched on please, actually.

The first one is on the emerging markets businesses; I just wondered if you could talk a bit more.

You flagged the outflows that you experienced there and also, you lost quite a number of RMs in the quarter.

So I just wondered if you could talk a bit more about what you're experiencing there and how that plays out.

Secondly, you touched earlier on the Brunetti Commission and the new likely Swiss leverage requirements.

What do you see as the timeline for getting quantification around the new requirements?

Do we expect anything in the spring, or are we waiting for the parliamentary debates on that topic?

And then the third and final question, just briefly, I saw a comment about solid January conditions.

I just wondered if you could expand on that as well, what you're experiencing, particularly in terms of client activity.

So putting aside the rates, what are you seeing about client activity in wealth management and investment banking businesses?

Let me tackle again the Brunetti question.

I would say that, in the next few weeks, we do expect the Federal Council to issue some preliminary position on the Brunetti Commission paper.

Then all the discussion will go on in the parliament.

I have my doubts that Switzerland will go ahead before seeing what the finalized standards on the FSB will be, which we are expecting, if I remember correctly, for November of this year.

So I would say that during the year, we will have, for sure, various interaction and discussion at parliament level, but I do not expect any final decision in Switzerland to come before yearend.

Going back, Jeremy, to your question one on the emerging markets region for our wealth management, we did see a slight outflow in the quarter of CHF200 million.

On client advisor count, I would just say I wouldn't read too much into quarter-to-quarter moves.

We continue to be hiring client advisors in our targeted regions.

We still think EM has better than average growth prospects, but let's also not forget that, from time to time, we may be reducing at the lower end of the performance levels in advance of hiring more experienced advisors.

I'd also say that, as you know, there's certainly been a fair amount of news flow in some of the areas that are covered in emerging markets, so I don't consider our performance to be necessarily off pace in any way and we're still very positive about our growth prospects there.

On your question about what does a solid start to the quarter mean; it means we had a solid start.

I would say that we shouldn't be straight-lining [at] January certainly in terms of doing that.

I think we need to see how the rest of the quarter develops.

I would note we do have in the report note 15, events after the reporting period and various details on things that have happened during the quarter surrounding the SNB, but we also noted that we did sell a building in Geneva in January that will be included in our first quarter results where we generated a profit that you will see of about CHF380 million.

Okay.

Thank you.

Alevizakos Alevizos, KBW.

Three questions from me.

First of all, on slide 26, you give a very nice sensitivity on the FX translation impact.

What I wanted to know is if this sensitivity includes, or doesn't include, any kind of mitigation that you're going to perform in the next few periods.

My second question is, I don't see any kind of specific slide on the restructuring costs for the future years.

So I was wondering whether the FX translation on the restructuring costs could be positive.

So are you going to reduce your targets for the next few years?

And thirdly, I didn't really get the explanation regarding the pension deficit.

Is it that in January, we should take an assumption that the CET was reduced by another CHF1 billion and maybe there is also going to be an equal effect because now the DTA is going to have to be reduced as well?

Those are my three questions.

Thanks.

Al, I'll take your questions in order.

The table is just pure translation effect; no management action, no management mitigation, and it's off the consensus which is the center point in the grid.

Next on the restructuring costs, we effectively have in our planning FX adjusted the restructuring costs in looking at the target, so there's no incremental benefit that you should expect to the extent that restructuring costs are denominated in currencies other than the Swiss franc.

In terms of the pension deficit and impact on CET 1 capital, again if I refer you to note 15 in the report, you are interpreting correctly that, as of the end of January, there would be CHF1 billion deduction in CET1 capital, primarily based on the reduction, or the decline in the discount rates applied to the plan.

But the comment that you made about the DTA, if we think about the foreign currency DTA, so let's talk primarily about the US, the revaluation of the US DTAs run through OCI, and do not affect CET1 capital at all.

My comments that I made before, there are really two potential impacts on CET1 and DTAs.

The first one is a relatively minor one, it's just a technical one, which is on temporary difference DTAs, to the extent our CET1 capital falls, since your capped threshold of 10% of CET1 capital falls and the threshold's also falling, so you have some minor adjustments, so it's a highly technical item and relatively small.

The other comment that I made was, to the extent that we've had a compression in the markets, reflected that just through the change in consensus for example, post the SNB, to the extent that we have lower profits in general that would be booked in Switzerland.

If we look at the current value of the Swiss DTAs that we have, because they have a short life of only two years, they're subject to more frequent and faster revaluation, and so you would see that coming through.

Now that's not capital relevant, but it's impact on capital generation is.

Okay.

Thank you very much, Tom.

Andrew Lim, Societe Generale.

I've got a few questions on current operating trends and then a few on the business, going forward.

I'd really like to get to the bottom on what's going on in wealth management and wealth management Americas.

You quote seasonality for the trading margin decline.

Can you give a bit more color on the extent to which that's affected by, say, Russian volatility in the fourth quarter?

Or are you seeing general weaker economic conditions driving lower trading margins in APAC?

And then in wealth management Americas, looking at slide 14, you've got increasing revenues over time, but decreasing profits.

And this quarter around, you're saying they're higher personnel expenses, so your cost income ratio at 88% is worse than it's been for quite a while now.

And I'm just wondering why this is happening.

You're giving away your revenue increases, and then some, to your employees.

And I know you've got to compensate them for good performance, but it is a bit too aggressive in that sense.

So what's the color on that, please?

And then on your leverage ratio denominator, you've got a steep decline there, because of the peg removal, to CHF926 billion.

Your target, however, remains unchanged at CHF900 billion.

So implicitly you're looking at a lower leverage ratio target than you would have beforehand.

So I'm just wondering in my mind, with change in regulations, whether actually you're thinking this is up for a change in this particular target, and that really you should be looking at quite a lot lower than CHF900 billion for your LRD, so that you can punch higher on your leverage ratio.

And then the fourth and final question, we've got obviously low rates now, negative deposit rates in Switzerland, to what extent does that change your wealth management client behavior?

Are they [disincentivized] on keeping their assets in cash and are more willing to invest more in credit and equity and, therefore, changing your margin outlook there?

Many thanks.

Andrew, thanks.

I'll go through those.

If I miss one of the list, just to grab me at the end, and then I'll go back to it.

You asked questions about what's going in wealth management, what's going on in wealth management Americas, seasonality, structural, and is there a Russia factor?

The one thing I would say is, certainly you see from our outlook statement, our clients are certainly impacted by the macroeconomic environment, and world events.

And in the fourth quarter, it didn't get any friendlier.

So most certainly, that had an impact.

I think it would be overweighting it to pick any one particular issue, like Russia, and say that was the driver.

It's the overall climate, and there are more than enough things to worry clients in this environment.

There are more than enough things out there to also make clients want to approach us to get advice, which is a good thing, which is a good thing for our business.

But as I mentioned to Fiona, there certainly is a seasonality in fourth quarter businesses, in particular in wealth management businesses, number one.

And you do see that reflected in the gross margin, for example, that we saw in APAC, in transaction activity in particular.

On the WMA side, I think there are couple of things that maybe are details about the compensation plan that are important to know.

As we've strategically looked to drive more of our income, and you clearly see it in the slide that Sergio showed earlier in his remarks, about our movement into increasing our mandate penetration in our fee-based business, in wealth management America.

We've had a slightly higher grid payout ratio on the mandate and recurring fee-based businesses than we do on transaction businesses.

So as advisors execute against things are both good for their clients and in line with our strategic objectives, there has been a higher percentage of pay that has been accrued and paid out to them.

We have made some slight changes in the compensation plan for 2015, where we normalize those revenue differences, which I think will start to counteract the trend that you described.

And so we'll start to see more of the gearing coming through, as we continue to increase our net interest and fee-based businesses.

On the leverage ratio denominator, I think what you were describing what some would say, is there a potential windfall effect that you have from this change in FX?

And shouldn't you look to reduce your targets as a result of that?

I didn't really notice anyone really bringing up, as the dollar was appreciating, the fact that maybe we needed higher targets, although we did mention it occasionally, to say this could be something we need to consider.

If you go back to 2012, I think the plan rates that we used around the time that we announced the acceleration of our strategy and the CHF900 billion leverage ratio denominator target, I think the plan rate was around [CHF94 billion].

So I don't think there is a windfall when you look at it over a longer period of time.

In fact, I would say that, at this point in time, we still feel that that target is the appropriate one, the appropriate one for us.

As I mentioned, wealth management and the other divisions are looking at any initiatives they can't actually get more productivity out of their LRD.

Yes, maybe I could add a few things have changed since 2012, I would say.

So I think that directionally, we still want to be at CHF900 billion, but I think there has to be some flexibility in there.

Regulations also changing and, as we say, not only through capital, but also through AT1 we will address our leverage targets.

Now then last, I think you had a question about negative rates, pricing, behaviors around that, I think that there's a -- we certainly moved very quickly immediately following the SNB's moves to change pricing on mortgages, loans, deposits, [or] different categories, as Sergio said; in particular, our corporate (inaudible) is greater than CHF100 million.

And we'll continue to assess pricing in the context of not just product pricing, but also to take a look at relationship pricing.

And I think that wealth management initiative I described is very specifically focused at that topic.

The other thing, going back to your wealth management Americas question, one thing I forgot to mention, in the course of a quarter, which is reflective of the year, we have had somewhat higher litigation expenses that we wouldn't expect in a normalized environment.

And that's also been a drag on the cost-to-income ratio.

Can you quantify what those litigation costs were for WMA in the fourth quarter?

Yes, if you look in note 12, which is on page 131 of the report, in wealth management Americas we recognized a net of CHF36 million in the income statement.

Right, that's great.

Thank you.

Jon Peace, Nomura.

First question is on the gross margin target in wealth management.

When you dropped that 95 to 105, did you perceive something long-term structural in terms of a change in customer behavior?

Or was it just that it's going to be so long until we see normalized interest rates that it was becoming a bit of a distraction to hold that target?

And then, I had two questions on costs.

The first one is you mentioned CHF400 million higher permanent regulatory costs, so I just wondered if you could outline what that was for.

Secondly, on litigation, I notice in your note on potential loss in capital under the AMA method, you'd upped it a little bit from CHF3.1 billion to CHF3.4 billion; I just wondered what had driven that increase.

Thank you.

Yes, on the target, as you can see, we are dropping it as a target for the short term, but we are still keeping the KPI quite transparently.

I think medium to long term, when market condition changes, not only interest rates, but also client risk appetite change, I think that it's still feasible to see that range coming back.

But when we look at short term, our main target remains the one we always declare, profit growth.

And by giving the corridor 10%, 15%, we are indicating that the biggest priority for us is quality of growth of earnings, rather than just top line.

Jon, talking about the regulatory costs, what I noted was, if we look at 2014, we pretty much say CHF900 million in what we'd call costs related to increased regulation.

Some of those are temporary; that's about CHF500 million.

Those are things related to things like setting up the Group holding company, or setting up our [systemically] relevant subsidiary, the work that we're doing to set up the IHC in United States.

So all that setup work, clearly, is a temporary cost.

When we look at the permanent costs, for example, I'll do this one as a prospective one, just to give you an example, if there's a requirement that we calculate the quantity of differences between what would happen if you use a standardized model for credit risk RWA versus the advanced model, well, we'd have to build a brand new system to calculate on that standardized basis, since we don't, number one, so that's temporary.

But then it's permanent when you actually have to maintain that system and do the enhancements and the tune-ups along the way, and have people to actually run it.

So I think the point that I was trying to make, included in that net of taking out another, from where we are, CHF1.1 billion in costs in this year, is we're absorbing the incremental costs of regulation as we're going through that.

And that also is a fair amount of exercise that you don't necessarily see reflected in the net results.

But there's a lot of activity associated with improving our effectiveness and efficiency that our teams are executing on, and we wanted to make sure that was clear to you.

On the capital numbers and the AMA methodology that we use to generate the potential capital outflow numbers, we had a change in -- just to describe the way that method works; if you go through the litigation note, we assign items in the litigation note to taxonomies in the AMA model.

If there is an item that exists in the taxonomy, we run the model for that particular taxonomy.

And until you eliminate an item from the litigation note, it remains.

Now, we did have increased experience in some matters, historical experience, that changed some of the base cases that we use in running the statistical analysis, and that increased experience resulted in a higher number.

It was not due to the fact that any new taxonomies were added to the litigation, though.

And would you be able to say what that was for, RMBS, or FX, or --?

It was related to market conduct, which is (multiple speakers).

Okay.

Thanks very much.

Stefan Stalmann, Autonomous Research.

A couple of remaining questions, please.

The first one, and apologies if I have missed that answer already, but what triggered the change in your ROE target, moving to a return on tangible book value, both in terms of the level of the target, but also the conceptual driver?

Why are you moving to a tangible book value now, as opposed to a shareholders' equity?

And maybe related to that, if you are going to make adjustments to your earnings to calculate this adjusted return, will you consider lumpy litigation charges, and also deferred tax asset capitalizations, in making these adjustments?

The second question goes back to AT1; I appreciate that you cannot talk about volumes yet, but maybe could you talk a little bit more about the strategy behind this?

Are you willing, going forward, to have a higher component of high trigger CoCos in your capital mix?

And maybe also more specifically, the AT1 that you're going to intend to issue, will that be high trigger or low trigger instruments?

And finally, the cost and revenue mix by currency on slide 26 is very helpful.

Just for me to understand, the mix that you show there for income and expenses, is that the actual mix in your 2014 numbers?

If so, how have you reflected, for instance, the lumpy litigation items in your cost base there?

Thank you very much.

Thanks, Stefan.

So if I can take them in order and Sergio may want to add to what I say.

First, on the change between return on equity and return on tangible equity; first, in terms of the outlook and general level that we set, it had to do with our reassessment of the conditions post the market reactions to the SNB action; and most importantly, due to the changes in net interest rates, which I think is one of the ones that, perhaps, the second order effect some might not have fully factored in.

I think FX translation's been fairly well discussed.

In terms of the concept, you're asking why switch to return on tangible equity, in terms of ROTE, our performance triggers for compensation awards for employees are tied to return on tangible equity.

So we thought it was a chance for us to synchronize our external targets to the way we actually had the deferred compensation figures set.

We also saw, across a group of your peers, some central tendency around ROTE, although practices are pretty diverse.

But we think that's more the developing target, so that was why we ended up choosing ROTE.

On AT1, obviously, in terms of size, it will certainly depend on what develops in the regulatory landscape.

I would say that it's appropriate for us now, and as Sergio has said, in particular, since we've completed our strategic transformation, which was built as a foundation on having a superior capital ratio, we've done everything that we said we were going to do on capital ratios, which is to build our CET1 ratio to 13%, and 10% CET1 ratio post stress.

And we now feel we have the flexibility to begin to add in some AT1 into our capital structure.

In terms of trigger, high trigger, low trigger, some of that will depend on the regulatory debates; some of that will depend on what type of pricing efficiency we think we can achieve for different types of structures, and different types of currencies.

So we'll see how that develops, over time.

Finally, in terms of your question on the cost-to-income ratio mix, it's based on our projected 2015 mix of earnings and expenses.

And we've stripped out any litigation charges from that analysis.

Okay.

Thank you very much.

I guess it looks like there is no more questions.

Many thanks for attending the fourth quarter and 2014 results, and looking forward to see you in few months.

Thank you.

If there are any journalists on the call, please join us at 11 o'clock for our press conference.

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