UBS Group AG (UBS) 2016 Q4 法說會逐字稿

Ladies and gentlemen, good morning.

Welcome to the UBS fourth-quarter results 2016 conference call.

(Operator Instructions).

The conference is being recorded.

(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, everyone.

It's Martin Osinga from investor relations.

Welcome to our fourth-quarter results presentation.

Our CEO, Sergio Ermotti, will provide you with an overview of fourth-quarter and full-year results; and our CFO, Kirt Gardner, will take you through the rest of the presentation.

For the analyst Q&A, we kindly ask that you limit your questions to a maximum of two questions per analyst; and we will answer each analyst's first two questions.

Before I hand over to Sergio, I'd like to remind you that today's call may include forward-looking statements.

These statements represent the Firm's belief regarding future events that, by their very nature, may be uncertain and outside of the Firm's control and our actual results and financial conditions may vary materially from this belief.

Please see the cautionary statements included in today's presentation and the discussion of risk factors in our annual report 2015 for a description of some of the factors that may affect our future results and financial condition.

Now, I hand over to Sergio.

Thank you, Martin.

Good morning, everyone.

Last year a variety of factors, including macroeconomic uncertainty, geopolitical tensions, and divisive politics, combined to make 2016 a challenging year for the industry.

In the fourth quarter, while we saw more positive trends in the US, this did not translate globally and transaction volumes with our wealth management clients remained muted.

That said, for the quarter we delivered another solid performance with adjusted pre-tax profit of CHF1.1 billion, up 47% year on year, and net profit attributable to shareholders of CHF738 million.

In wealth management, the cost reduction actions we took earlier in the year more than offset revenue headwinds, enabling the business to deliver slightly higher year-on-year profits.

Net new money was negative, as a result of cross-border outflows, mainly in emerging market, as well as seasonal factors.

With respect to net new money, we remain disciplined and focused on the profitability outlook of new assets.

Wealth management Americas posted very strong profits and our financial advisers maintained their industry-leading productivity levels.

As we do every quarter, we recently asked our clients and other investors in the US about their sentiment towards the economy.

The survey shows that, after being highly defensive prior to the election by moving to cash and more [conservating] asset allocation, they became significantly more optimistic about the economy and markets after the election.

This said, business owners had a demanding first 100-day list for the new administration and will need to see concrete actions to support their optimism.

Personal and corporate had a solid quarter with robust net new business volumes.

Asset management grew profit, and our investment bank substantially increased profits on its highest Q4 revenues since 2012.

During 2016 we took decisive actions to protect our profitability and, as a result, we reported a solid financial performance.

Notwithstanding strong revenue headwinds, our ability to control and reduce costs resulted in adjusted pre-tax profit declining by just 3% to CHF5.4 billion.

Net profit attributable to shareholders was CHF3.3 billion.

Let me quickly reconcile the gap between last year results, 2015 results, and 2016 results.

First, we had a CHF1.7 billion changes in tax; then, we had a CHF550 million in different methodology in accounting and CHF250 million in lower gain from disposals of real estate, just to cite few examples.

Adjusted return on tangible equity was 9.2%.

Also here, I would highlight that excluding the significant effect of deferred tax assets our return increases to 11.4%

I am also pleased that we generated over CHF42 billion of net new money in our wealth management businesses, while absorbing CHF14 billion of cross-border outflows.

We made good progress in our ambitious cost targets, increasing our net cost savings by CHF500 million to CHF1.6 billion, despite elevated regulatory costs.

We remain confident we will achieve our CHF2.1 billion net cost reduction target by the end of this year, and are focused on continuously making ourselves even more effective and efficient.

As I have mentioned in the past, these efforts are not just about cost reduction; we are also making substantial investments in our front-to-back infrastructure in order to be more efficient and to better serve our clients.

In 2016, once again, we demonstrated that our balanced business mix and geographic diversification are important differentiators for UBS.

We are the world's largest and only truly global wealth manager with a strong presence in mature and high-growth regions.

We are the number one bank in Switzerland, and we have competitive and specialized investment bank and asset management divisions; all of which have been, and will continue to be, critical to our success and ability to deliver solid performance in a variety of market conditions.

2016 was a great example of the power of our business model as strong results in the US and Switzerland partially offset headwinds in Asia and the rest of Europe.

From a capital perspective, we ended the year with a strong fully applied CET1 ratio of 13.8%, despite regulatory risk-weighted assets inflation.

I am also pleased that we reached the minimum CET1 leverage ratio of 3.5% three years earlier.

However, in the short term, we may fluctuate around these thresholds; for example, due to effects and other market movements, or an increase in balance sheet usage to accommodate client activity.

In addition, we made strong progress towards our 2020 capital requirements by issuing CHF2.5 billion of AT1, and CHF11.5 billion of TLAC.

We talk a lot about ratios in our industry, but I want to highlight two facts.

First, since the financial crisis we have reduced our balance sheet from CHF2.5 trillion to about around CHF900 billion, of which about CHF200 billion is high-quality liquid assets, such as treasuries and cash.

Secondly, we have brought our absolute total loss-absorbing capacity to over CHF73 billion.

For those who prefer to talk about ratios, this equates to approximately 10% leverage ratio on non-cash balance sheet items.

We also reached major milestones in improving our resolvability, establishing our US intermediate holding company and our Group service company structure.

Although implementing regulatory requirements is critical to improving the stability of the system, and we absolutely support effective and reasonable regulation, it does come at a substantial cost.

I want to take this opportunity to thank all of our employees; without their hard work and dedication, none of these achievements would have been possible.

Despite the challenges we and the industry faced in 2016, our solid results and disciplined execution, together with our strong capital position, have allowed us to maintain our ordinary dividend at 2015 levels and reconfirm our dividend policy.

As such, we intend to propose an ordinary dividend of CHF0.60 per share for approval at our next AGM.

Looking to the year ahead, while we have begun to observe improvements in investor confidence, primarily in the US, the factors that impacted client sentiment in 2016 remain relevant.

Therefore, our focus remains on disciplined execution and delivering sustainable performance, while, as I say, we continue to explore opportunities for growth.

Of course, in order to prudently plan for long-term growth we need to have more stability and clarity on the regulatory framework under which we operate.

Nevertheless, we welcome the decision to postpone Basel IV, and the recognition by some stakeholders that the risk of unintended consequences outweighs the benefit of a quick resolution.

To be sure, UBS remains positively [levered] to a normalization of macroeconomic conditions.

Regardless, one thing that will not change is our utmost focus on executing our strategy and creating sustainable value for our clients and shareholders.

With that, I will turn it over to Kirt.

Thank you, Sergio.

Good morning, everyone.

My commentary references adjusted results and comparisons are with the fourth quarter of 2015, unless otherwise stated.

For the fourth quarter, our results were adjusted for CHF372 million in net restructuring expenses, CHF27 million of net foreign exchange translations gains, and CHF88 million of gains on sales of financial assets available for sale.

Wealth management PBT was up slightly year over year at CHF511 million, as lower expenses more than offset continued revenue headwinds.

Transaction-based income decreased by 2% to the lowest level on record, excluding the CHF45 million fee received from P&C for the shift of clients in Q4 2015.

These very low activity levels reflect seasonality and continued client risk aversion due to macro and political uncertainty.

Recurring net fee income decreased as a result of the effects of shifts to retrocession-free products, ongoing client asset shifts to lower margin investment, and cross-border outflows.

These declines were partly offset by higher average invested assets, improved mandate penetration, and pricing.

Net interest income decreased by 2%, as higher deposit margins and volumes were than more than offset by lower treasury-related revenues.

Expenses were reduced by 9% to CHF1.3 billion, with a reduction in all expense lines, as substantially all the savings from the actions we announced in July have already been realized, earlier than anticipated.

Net new money for the full year was CHF27 billion, despite CHF14 billion in cross-border outflows, which we include in our headline net new money figure.

Excluding these outflows, the full-year net new money growth rate would have been 4.3%.

The decrease in mandate penetration in the fourth quarter reflects seasonally lower net mandate sales, as well as cross-border outflows.

Throughout 2016, growth in net margin erosion was caused by cross-border outflows; low client activity; deleveraging; an increase in assets from ultra-high net worth clients; and shifts out of higher margin investments.

These were partially offset by our actions on pricing, an increase in mandate penetration, and structural cost reductions.

We have launched a series of new revenue-related initiatives.

In addition, we continue to invest in our business, including our APAC client advisers, launching new digital platforms, like SmartWealth in the UK, and migrating to one global platform to better serve our clients.

These initiatives, along with the typical uptick we expect to see in client activity in the first quarter, should have a positive impact on our results.

We also expect net interest income tailwinds from rising interest rates to help mitigate increased funding cost.

Net new money was negative CHF4 billion in the fourth quarter, principally as a result of over CHF7 billion in cross-border outflows, mainly in emerging markets, and, to a lesser extent, in Asia Pacific.

As clients participate in voluntary tax compliance programs and automated exchange of information becomes effective we expect wealth management's net new money growth rate to remain around the lower end of our 3% to 5% target range for 2017.

In APAC, the gross margin drop to 65 basis points quarter on quarter was driven by a pronounced seasonal decline in transaction-based revenues.

During the year, APAC and ultra-high net worth segment posted strong net growth in net new money at 8% and 5% respectively, further consolidating our leadership position in these strategic areas.

With a PBT of $358 million, wealth management Americas delivered a very strong result, up significantly year on year.

Operating income surpassed $2 billion, for the first time, on higher recurring net fee and net interest income.

Managed account fees grew on increased invested assets, leading to improved recurring net fee income, while net interest income rose to higher short-term interest rates and continued growth in loan/deposit balances.

For the quarter, there are two fewer calendar days in the fourth quarter than in fourth quarter, which will affect all income lines.

Operating expenses decreased to $1.7 billion as expenses for litigation provisions declined.

This was partially offset by higher performance-based FA compensation on increased compensable revenues.

Net new money outflows were $1.3 billion as net inflows from FAs employed with UBS for more than one year were more than offset by net outflows from net recruiting.

Our financial advisers remain the most productive among their peers with both invested assets and revenues per FA increasing quarter on quarter.

Lending balances increased 1% in the quarter, and were up 6% year on year, on higher securities-backed lending and mortgage balances.

From 2013 to 2016, WMA grew its PBT by an 8% compounded annual growth rate to a record $1.3 billion, and we've seen improvement across all the metrics that underpin sustainable profitable growth.

A stronger US economy and higher interest rates, combined with a positive client sentiment, highlighted by Sergio, and the continued execution of our strategy, should help maintain momentum in this business.

Personal and corporate posted a solid PBT of CHF395 million.

Operating income increased by 3% on higher transaction-based income, mainly as 4Q 2015 included a fee paid to wealth management clients for client shifts.

This was partially offset by lower net interest income and recurring net fees.

We have seen four consecutive quarters of declining net interest income and, as previously highlighted, we expect this trend to continue.

As you can see from our interest-rate sensitivity slide in the appendix, negative-implied forwards indicate an increasing drag on our interest income, starting with a roughly CHF100 million decrease compared with 2016.

In addition, we expect a substantial increase in funding costs, related to achieving our TLAC requirements.

Operating expenses increased by 5% to CHF546 million, reflecting higher capital-related levies in Switzerland, expenses for litigation provisions, and marketing costs.

Annualized net business volume growth for our personal banking business was 1.1%; the highest for a fourth quarter since 2011.

For the full year, P&C delivered its best profit before tax and lowest cost-to-income ratio since 2008.

The business also achieved its highest net client acquisition in personal banking.

Both income growth and declining operating expenses drove the 5% compound growth in PBT since 2013.

We're pleased with the performance on our home market, although we recognize the revenue headwinds this business faces.

Asset management delivered a profit before tax of CHF156 million, up 2%.

Net management fees were flat at CHF468 million as fee true-ups, totaling CHF17 million, were largely offset by lower revenues following the sale of the alternative fund services business in 4Q 2015.

Performance fees were down, driven by equities, multi-asset, and O'Connor.

Expenses were down year over year, driven by lower personnel expenses.

Net new money, excluding money markets, was negative CHF9.8 billion, largely driven -- due to net outflows from UBS's wealth management clients, driven by a combination of factors, including changes in asset allocation.

2016 was a challenging year for active managers with accelerated shifts out of active into passive funds, and unfavorable market conditions for many hedge funds.

These conditions were exacerbated by client risk aversion.

That said, we continue to value asset management's highly cash flow-generative and capital-light characteristics, as well as the synergies across our platform.

Market conditions and broader macroeconomic trends over the last year did not favor our investment bank's business and geographic mix.

However, steps taken over the last few years to invest in our US business, proactive actions on cost, and balance sheet management, helped us deliver a 20% return on attributed equity for 2016.

Turning to the quarter, the IB posted a profit before tax of CHF344 million, up 54% year on year, as equities and corporate client solutions both delivered improved performance.

CCS revenues increased 9% year over year, largely due to DCM.

In ICS, equities revenues were up 22% against a weak fourth quarter in 2015.

Importantly, and partly due to our investments, the Americas region recorded its best performance for a fourth quarter in five years, driven by cash equities.

Financing services globally delivered its best fourth quarter since 2011.

FX rates and credit revenues were down 12%, driven by weaker revenues in emerging markets, as well as foreign exchange and interest-rate options, as we did not benefit from the heightened volatility in volumes following the US election.

Our client-centric, inventory-light, and more selective FRC platform provides less upside than others may see in a market where increasing interest rates and volatility, absent an uptick in client activity.

Costs, excluding variable compensation accruals, were down 7% year on year, or 5% on a full-year basis, from actions taken early in the year, as well as currency benefits.

From year-end 2015, headcount was down 10%, and 4% from Q3 2016.

The IB has been very disciplined and diligent in managing its activities to absorb headwinds and drive returns.

It enforces strict hurdle rate standards, which are aligned with its cost to capital, when deploying financial resources.

Despite a CHF7 billion increase in RWA from the prior year due to regulatory inflation and changes in our operational risk allocation, the IB has maintained lower RWA levels, driving a very attractive return on RWA at 12% for the quarter.

LRD, which is currently the IB's binding constraint, was reduced by 14%, or CHF37 billion, through effective management, including netting and balance sheet reduction.

Corporate center loss before tax was CHF662 million.

Corporate center services costs before allocations were down, due to our cost reduction program.

Group ALM's profit before tax was negative CHF171 million, mostly due to accounting asymmetries related to economic hedges.

Total risk management net income after allocations was negative CHF57 million this quarter, and less than CHF200 million for the year, compared with our guidance of around negative CHF50 million per quarter.

Non-core and legacy portfolio posted a loss of CHF215 million, an improvement from 4Q 2015, mainly due to lower expenses, including for litigation provision.

LRD was down CHF3 billion from the prior quarter, and CHF16 billion year on year, to CHF22 billion.

During the quarter, we increased our net cost reduction run rate by CHF100 million to CHF1.6 billion.

When comparing cost reduction programs across the industries there are a few important factors to note.

At UBS, non-structural reductions in front-office variable compensation, which were material in 2016, are not included in the CHF1.6 billion net savings achieved thus far.

Also, apart from non-core and legacy portfolio, we expect de minimis cost reduction contribution from business exits.

We expect restructuring expenses to taper from 2018 onwards as our cost reduction program comes to an end, providing further benefit to our reported result.

Our capital position remains strong with a fully applied CET1 ratio of 13.8%.

The decrease from prior quarter mostly relates to a CHF7 billion increase in market risk RWA from exceptionally low levels.

Our fully applied CET1 leverage ratio increased to 3.53% as LRD was down CHF7 billion and CET1 capital increased.

As previously mentioned, the replacement of UBS AG senior in tier 2 instruments with TLAC-eligible instruments to comply with requirements will lead to higher funding cost.

For 2017, we expect funding costs for the Group to increase by over CHF100 million compared to 2016.

Our equity attribution framework reflects regulatory requirements, along with the core equity that underpins each division's business activities.

As regulatory requirements have evolved, we have updated the framework to reflect these changes, while maintaining a consistent and transparent approach.

During our 2016 planning process, we modified the framework to reflect recent regulatory changes, most notably LCR in the Swiss too-big-to-fail capital regime.

Under the new allocation, which is effective as of January 1, 2017, we will further increase external transparency on the resources consumed by our business divisions directly and indirectly.

Our revised framework captures a number of improvements.

We will move from one-third RWA LRD risk-based capital, or RBC, to 50% each RWA and LRD with an RBC floor if the CET1 equivalent of RBC exceeds the RWA-LRD calculation.

We will continue to use 11% RWA and 3.75% LRD conversion factor to CET1, both of which are higher than the 2020 regulatory requirements.

We will now allocate equity directly associated with activity managed centrally by Group ALM on behalf of the business divisions.

The majority is due to high-quality liquid assets held against our divisions' liquidity requirements, based on 110% LCR.

Approximately 60% of the Group's ALM's LRD will be attributable to the business divisions as a result.

Group ALM RWA related to the HQLA book will also be allocated, although this is a less material amount, given the low risk weighting of these assets.

Starting in 1Q 2017, we will disclose the attributable portion of RWA and LRD by business division.

Equity related to excess funding in liquidity, in other words, amounts above the 110% LCR for liquidity, will be retained in Group ALM.

Under the new framework, 100% of equity related to goodwill and intangibles will be allocated to the relevant business divisions.

And finally, we will allocate 100% of shareholders' equity with corporate center retaining all other Basel III deduction items, such as DTAs; dividend accruals; unrealized gains from cash flow hedges; and treasury share components.

With these changes, we believe our equity attribution framework fully allocates capital required by our businesses under currently known regulatory requirements.

It also has the flexibility to accommodate further regulatory developments, including the finalization of Basel III and NSFR.

As a consequence of the increase in CET1 capital attributable to the business divisions, and including the CHF100 million-plus headwind from Group funding costs I just mentioned, we expect to see a headwind to net interest income allocated to the business divisions by around CHF300 million in 2017 versus 2016.

This change will principally affect the IB, P&C, and WM.

The CET1 capital attributable to the IB would equate to an applied CET1 capital ratio of more than 13% for 4Q 2016.

On a total going and gone concern basis, its implied capital ratio would be over 30%.

Despite an increase in the IB's attributed equity by around a quarter, we are maintaining its target return on attributed equity of greater than 15% over the cycle, based on the current regulatory regime.

Using the new framework, the IB's return on attributed equity would have been around 15% over the last four years, and nearly 20% excluding expenses for litigation provisions.

Despite the increase in allocation of resources as a result of the revised equity allocation framework, we expect the IB to continue to operate within our short- to medium-term expectations of CHF85 billion RWA, and CHF325 billion LRD.

We will assess our targets and expectations for all business divisions, once the Basel III rules have been finalized.

The adoption of a revised attributed equity framework has not provided any new insight that would lead us to change our strategy or manage our positions differently.

In closing, as Sergio said, 2016 was a solid year, especially considering the very challenging environment.

We believe our strategy and balanced business mix, combined with our focus on execution, positions us well to continue to deliver for our clients and shareholders in 2017.

With that, Sergio and I will now take your questions.

(Operator Instructions).

Kinner Lakhani, Deutsche Bank.

Couple of questions.

Firstly, on your excellent slide 25, we appreciate the disclosure, actually, just wanted to clarify one thing.

I thought I heard you say there would be a CHF300 million headwind in 2017 on the business divisions, so just want to check because that says CHF0.1 billion, so maybe I missed that.

But also, within this slide, I just wanted to understand what your assumptions are in relation to the deposit beta, especially as it relates to the US dollar; and also, what the increase in funding cost you would expect from TLAC by 2019.

Here, you show the increase in funding cost by 2017.

That's the first question.

The second question is on the French cross-border tax issue.

Obviously, recently, I think UBS has lost the appeal to the European Court of Human Rights.

I'm sure you can't tell me too much, but just wanted to understand what the next steps are from here; and also, which other countries have asked UBS for information.

Thank you.

Thank you, Kinner.

I'm glad you liked our disclosures.

And I like the way you actually are able to get three questions in one; it was very clever.

Just to address your questions on page 25, the CHF300 million headwind that I highlighted, it breaks down to, firstly, the CHF100 million of increased funding cost that we show here on page 25.

In addition to that, there's another CHF100 million headwind related to the investment of our equities that gets allocated out to the business divisions as our hedges rollover on that investment of equity.

And that actually is reflected in the chart that you see.

It's embedded in implied forwards because we consider that part of our banking book as well.

And then finally, there's an incremental CHF100 million of allocation out to the business divisions that results from the increased level of allocation of financial resources from Group ALM to the business divisions.

So that leads to the total year on year CHF300 million headwind that I highlighted.

Now, your second question's on beta assumption, obviously, we have embedded beta assumptions into what we show here in terms of the impact of net interest income, so some of that is built in.

And we are not -- we have not disclosed what our beta factors are across our different businesses.

What I would highlight is what you see, is the interest rates go from very, very low levels and they begin to build.

The first -- the initial increases as you progress towards, for example, 50 basis points and up to towards 1%, you actually don't see the beta factors kick in as significantly as you do as you start to get steepening into higher levels of interest rates.

So there is some of that built into, of course, the analysis.

Now finally, in terms of your question on TLAC for 2019, we haven't disclosed what that cost is.

But as you can imagine, as we continue to build our TLAC throughout this year, and also into 2018 to achieve our overall requirements, clearly, there'll be a commensurate increase in our overall funding cost related to those issues.

I would highlight, though, if you think about the issuance that we need to make to achieve our targets, that they will start to taper as we get into the back half of 2018, and into 2019.

On the French matter, I think that you've made a reference to the European Court of Human Rights' decision.

I have to say that we do see the fact that the court has indeed took the case and analyzed the case already as a big victory, because there was a sense that there is some things that should have been addressed.

And if you look at the reason why they rejected our appeal I think that, to some extent, also confirms our theories.

In any case, we move forward.

We are, like we have said in the past, always keen to try to find a solution that is based on facts and take responsibility, if and when those responsibilities are demonstrated to be valid.

We do think that this kind of ruling is not changing the facts.

We are really focused on managing in the best interests of our shareholders.

And it's not just the financial consideration, it's also reputational one.

And we will continue to exploit these kind of discussions.

I think that, as you know, it's very difficult to make comments about timing and outcome on a matter that is now dragging on for, probably, more around three years at this stage.

So we will see.

Thank you.

Magdalena Stoklosa, Morgan Stanley.

I've got two questions.

One, about your recurring net income, net fee income in wealth management.

[In the] (inaudible) you've talked about three things, effectively, retrocessions, changes in client asset allocation, and cross-border outflows, to explain the pressures.

Now, what interests me is your outlook going forward.

When you look at those three underlying trends, which ones are you still worried about and expect them to continue in a similar way?

And would you, for example, think that the changes in client asset allocation may actually decelerate from the perspective of your margin impact?

So that's my first question.

My second question is about the investment banking.

Because you have significantly outperformed on year-on-year numbers in advisory, and in equities as well, particularly if we look at the comparison with the US peers that have already reported.

My question is what were the sources of the success in the fourth quarter, and how you look at it going forward, but also your allocation of extra -- and what is your risk appetite from here?

Of course, we're still operating at about CHF70 billion of the balance sheet in the investment bank.

You have the CHF85 billion medium target.

How quickly do you think you are likely to ramp that up?

Thank you.

Thank you, Magdalena, for your two questions.

On the first one, if you look at our recurring net fee income and the factors that I highlighted, if you reflect on our outlook, we continue to expect cross-border outflows particularly as we go through 2017.

And we previously have highlighted that as we continue to progress our way through completely regularizing our portfolio, in advance of the full phase-in of automated exchange of information, obviously that will continue to have an adverse impact on our overall recurring margin.

Now, in terms of asset allocation, that really is completely dependent on our clients' risk appetite.

Obviously, we've seen substantial risk aversion throughout 2016 and we've seen our clients move very defensively into cash and into lower-risk products.

And we've also seen substantial movement out of active into passive, as has been the trend throughout the industry.

In order for those trends to revert, it really requires that our clients adopt a greater level of confidence regarding their investments and they start to express that in terms of moving out of cash into higher-risk products.

And we'll have to see how the year evolves as we get into 2017; see if we get some stability, and, hopefully, eventually, we get some greater confidence across our clients.

In terms of the IB performance, on the CCS side, we just had a good quarter.

We had built up a pipeline throughout the year.

And we saw the actual execution on that pipeline, and we had a successful execution of that pipeline that drove quite a strong quarter for us in CCS.

And you might recall, we had a less strong quarter in the third quarter.

And, as you know, CCS is a volatile business that is very driven by episodic fees.

In terms of our equities business, the comparison year on year, in particular, last year we had a very poor quarter in equities, particularly in our equities derivatives division.

It was driven by very, very low client demand.

As well as in our correlation book we saw the traded products, actually, we hit the floors in many of those books and so we suffered some trading losses.

We've actually seen that reverse in the fourth quarter, so we're no longer suffering those trading losses, and that's turned a bit positive for us, particularly in Europe and Asia Pacific.

That, along with the investments made in the US, where we've seen improvement in our flow and listed products, and we saw that build up in the year as we have been rebalancing and improving our presence in the US market, where we've been underrepresented historically.

I might just add, the final comment is we just had a particularly strong quarter in our financing business, where, as I highlighted in my speech, globally, it's the best fourth quarter that we've seen since 2011.

Perfect.

And the deployment of --?

The deployment of balance sheet, thank you.

Yes, so as we've highlighted before, the medium-term expectations we have really depend on more normal market conditions.

And where we've see what we've seen in 2016 with lower client activities, and also with higher levels of risk aversion, then, naturally, our investment bank has not built up inventory and has reduced the level of risk that they've taken in that business.

What you've seen in terms of the increase in RWA are the regulatory multipliers that we highlighted previously.

We're going to continue to see those regulatory multipliers increase our RWA in this year, in 2017, and 2018, to the amount of about CHF6 billion to CHF7 billion per year.

As market conditions improve, our investment bank, and also as they see higher levels of client activities, you can expect that our investment bank will actually take on more risk related to that client activity.

And we should see, as conditions improve, increases both in RWA, as well as LRD.

And the other important point, of course, is that you will also see greater utilization related to the new attributed equity framework that we're pushing out from Group ALM.

And despite that greater allocation, we have not changed our medium-term expectations for overall resource usage for the investment bank.

Thank you very much.

Andrew Stimpson, Bank of America.

The capital allocation framework that you presented today goes some way towards addressing those concerns on how capital is allocated across the Group, but it still looks like about 44% of Group capital will still be allocated to the center.

Is that something that will continue to evolve?

Because I know they've changed slightly last year as well.

Or is it just because the Basel III deductions are in the center and, actually, the equity number we see in the divisions, you feel that's a closer representation of CET1?

So just how you're thinking about that, please.

And then secondly, on client confidence, especially in wealth management, what do you think they're really waiting for to get more confident?

Because it seems like the market in general has certainly got more confident, but that private clients have perhaps lagged a little.

What events or things do you really think are going to be the catalyst?

Because a few quarters ago we were talking about better rate outlook, maybe some more activity, which seems to have happened in the wider market but isn't coming through in this quarter, just yet at least.

So what you think we should look for as a catalyst for better transaction revenues, please.

Thank you.

Andrew, your first question on our attributed equity framework, first of all, we've always been confident in the framework and the transparency we've had regarding that framework; and we also felt that it reflects all of the relevant regulatory items and the level of capital required by those businesses.

And you see, as we've updated this, it's based on, of course, recent crystallization of some of those regulatory issues.

In terms of the equity that we're holding centrally, one of the things that we did is we've now allocated 100% of our shareholders' equity.

The majority of that is related to Basel III deduction items.

And if you look at page 47 in our report, you see that they're clearly laid out, so items like DTA, or dividend accrual, or accounting for our hedges.

And those are really shareholder components that are not directly related to the funding in the equity requirements of our business, and we would not expect to push those out to our business divisions and we really don't think it makes sense.

No one does that.

It's very consistent with how others allocate their capital to business divisions.

In terms of your second question, what will it take in order for our clients to have a greater level of confidence, I really think it's just the abatement of the addressing of a number of the geopolitical issues and the economic issues that we still see playing out, particularly in Asia and Europe.

If you look at Asia, it is related to China, and China beginning to show some stability and some return to growth.

And I think you have the added concern of the political nationalism and how Trump is actually going to deal with China, going forward.

In Europe, it's the concerns around Brexit and the concerns around the development of the EU.

I think once there's clarity around some of those issues we actually, hopefully, will see a return of some level of confidence amongst our clients.

Yes, maybe just to add on.

I think if you look at -- the good news is that client seems to have -- particularly in the US, I think there is a big difference between US clients' confidence level and the rest of the world.

That's quite clear.

But at least in the US there are concrete plans how to potentially invest, and they have also a clear indication that they would be willing to increase by around 30% their equity allocation.

The real issue here is to say if this optimist is then coupled with their willingness -- because those clients are entrepreneurs.

So I think that we are banking with high-end clients, and they are also owner of businesses.

And the real issue is that they are waiting for results to understand how potential reforms are then going to translate in a higher degree of confidence in investing in underlying businesses in the economy.

So there is a -- the real transmission that will allow people to gear into more risk is macroeconomic indicators that leads into better outlook for the US economy and the global economy.

It's not going to be just the financial marketplace.

If it's that case, we have been seeing the last few years some false starts.

The momentum is there.

But as I mentioned in my remarks, investors have a quite comprehensive list of things they expect the new administration to do in the next 90 days or so now, since a few days have already gone.

And in that sense, you will see that maybe this optimism moving over to Europe, although it's going to be challenging, and to Asia.

Brilliant.

Thank you.

Al Alevizakos, HSBC.

Thanks for taking my two questions.

First question is you gave a very nice outlook on the US by providing some data from the US survey that showing increasing optimism.

However, I would like to know more about your Asia Pacific outlook, on the back of higher US dollar rates, both in terms of asset quality, but overall in terms of risk appetite for other businesses, including your DCM business.

We're trying to understand what is happening is Asia Pacific and why people do not transact more along with the rest of the market.

My second question is on net new money outlook.

Just trying to understand whether the [CHF50 billion] suggested by Sergio last month is still an active comment.

And I would like some commentary, particularly wealth management Americas, and also on the asset management, because, from the numbers, I do understand that the asset management outflows relate to some wealth management clients pushing out their money.

Thank you.

Al, I think I can take on this question about Asia.

Of course, when you look -- first of all, you are raising an interesting point about is there an indication of higher dollars and tensions on credit quality in Asia.

As you know, we are not really lending to -- on a cash flow basis; we are lending on a secure basis, so Lombard.

And the quality of our asset base is pretty strong.

So we don't really have any imminent or any indication that we should be concerned about the credit quality in Asia.

Of course, our Asian business has a strong component of US dollars; and to the extent that it's implied forward, that we see are materializing, we will see some positive momentum on our P&L and, therefore, we will get some benefits.

In respect of a capital market's activity, I think that the situation hasn't really changed a lot compared to the last few months.

There is a little bit better dialog and potential pipeline developing, but, of course, we are not talking about the first stuff of 2016 environment in that respect.

In respect of the outflows in the asset management business, those are clearly, unfortunately, in line with everything you see happening in the asset management industry.

They are outflows mainly related to people moving from active to passive.

There is an element of the wealth management regularization, but I wouldn't point out, to be honest, only to that point, because is an element but is not the main driver.

The main driver is a combination; in wealth management, is more coming from different asset allocation.

For example, our chief investment officer went into recommendations on -- going into treasury TIPS, and that asset allocation translation was then executed not necessarily through funds or asset management funds, but many investors or many of our portfolio managers may have chosen to buy directly treasury TIPS instead of for fund.

So there is a combination of industry wide and asset allocation, and there is a little element also of the outflows you mentioned.

Maybe I'll just comment on the rest of your question on net new money.

If you look at the full year, as Sergio highlighted, we had CHF42 billion of total net new money inflows for our wealth management business globally.

And if you add back in the CHF14 billion of cross-border outflows, that gets us at around CHF56 billion.

Also, as I highlighted in my speech, as we continue to see the regularization of our portfolio, and we continue to see our clients respond to voluntary compliance programs, as well as the full implementation of automated exchange of information, we do expect to experience cross-border outflows.

However, we -- I reiterated that we expect to still operate at the lower end of the 3% to 5% range for our wealth management business.

Our wealth management Americas business also -- as we have reoriented that business, much more focused on retention, to limit the reliance on recruiting and to have the related benefits we do expect that our wealth management Americas business will continue to operate in that 2% to 4% range.

And so overall that should, trending forward, leads us to have confidence that we can generate around the CHF50 billion level for both businesses globally.

Yes.

Maybe, Kirt, the point is that if US investors' confidence gets translated into investment we will -- usually, they bring cash with us when they want to invest.

And we are not necessarily the place where they [hold] cash.

And, by the way, it's not like we want a lot of cash; that is not productive.

So it's very important that as the correlation goes up in their -- between optimism and willingness to really implement investment decisions we should be a beneficiary in seeing inflows.

Great.

Thank you very much.

Andrew Coombs, Citigroup.

Thanks for taking my questions: one on net new money and wealth management, and one on fixed income in the investment bank.

Firstly, on the wealth management net new money, even if we add back the CHF7.4 billion of cross-border outflows the underlying net new money, at CHF3.3 billion, or 1.5% run rate annualized, still looks relatively weak, so I just wanted to get a bit more color on what was driving that.

How much do you think that is just down to seasonal factors versus underlying trends?

And then the second question on the fixed income result.

If you strip out the gain on market it looks like your fixed income result was down 12% year on year.

I understand you're running with a lower level of inventory compared to some of your peers, but, nonetheless, that is a very weak result compared to the US investment bank, so perhaps you could elaborate on what drove that decline year on year.

Thank you.

Yes, Andrew, thank you for your questions.

Just in terms of your first question, if you look at our fourth quarter, and if you look at slide 6, you see a couple of trends in the fourth quarter.

Firstly, there tends to be a spike in overall cross-border outflows.

And I've highlighted before that our clients, when they address some their tax requirements they tend to do it towards the end of the year.

And then secondly, there are seasonal effects.

We generally just see fewer inflows and we see clients making less movement in their investments in the fourth quarter.

And if you look across years previously, you'll see that trend in our fourth quarter.

So that 1.5% adjusted is really within expectations.

Now, in terms of our fixed income performance, a couple of points.

Firstly, I think if you look at the fourth-quarter 2014 to fourth-quarter 2015 trend you'll see that our fourth-quarter 2015 held up a bit better than US firms, on average.

Therefore, the comparison year on year is not a complete apple-to-apples comparison.

But nevertheless, we were down 12%, and we were down more, of course, than the trends that you saw across the US businesses.

I think the main driver is the characteristics of the quarter that drove some of the strong fixed income performance really related to the steepening of curves, and also the narrowing of credit spreads.

And that benefited players that had strong presence in credit markets, as well as rates; and, in particular, structure credit products.

And those are two asset classes that we really don't participate in, in a very meaningful way.

Our business is much more macro and much more FX focused.

The final comment would be we weren't as well positioned as we, obviously, ideally, would have liked to have been to have benefited from the trends and the volatility following the US election.

We have very low inventory.

Okay, that's clear.

Thank you.

And then perhaps if I could just follow up on the seasonality on the cross-border flows.

I think all banks show some evidence to seasonality, but yours seems to be even more pronounced than your peers, so, perhaps, is there any particular reason why you would be more impacted?

And also, would you assume a similar trajectory in 2017 as well, with a spike in the fourth quarter?

Yes, a couple of comments.

First of all, we present 100% of our cross-border outflows in our headline numbers for our business, and others don't consistently do that.

That's the first point.

Secondly, we have been very, very proactive in our approach to voluntary compliance.

And we do believe that we've been leading the industry and leading others in terms of how proactive we've been across our portfolio globally.

Okay.

Thank you very much.

Stefan Stalmann, Autonomous Research.

I have two questions, please.

First one, going back to the equity attribution change.

You're basically increasing the equity attribution across your business divisions by almost 60% and one would think that, that would trigger some management action, because that must lead to a revised view of some of your businesses.

Is there something that you can add to this?

Are you considering strategic changes in some of your businesses?

The second, and somewhat related point, are you thinking about rolling the non-core and legacy business back into the investment bank at some point?

There's not a lot of balance sheet left, but there's still quite a lot of cost left in the non-core and legacy business.

And so, the performance of the investment bank would obviously depend very much not only on the increased equity attribution, but also on whether or not it inherits some of the costs back from the non-core and legacy business at some point, and some of the balance sheet.

Could you maybe elaborate on that as well?

Thank you very much.

Stefan, as we mentioned several times in the last few years, we were always 100% comfortable about the transparency and the economic rationale on our strategic direction in assessing capital allocations.

So, while we were clearly using a different methodology because of the transformation process that we were going through and the lack of clarity on regulatory developments, we decided to offset this potential perceived or real lower capital allocation with higher thresholds of expected returns in the businesses.

As Kirt pointed out in his remarks, this capital allocation exercise has not changed our view on the strategic mix of our portfolio.

And I can comfortably say that in the last four years we have been demonstrating that in a variety of market conditions our business mix and our geographical mix is a huge benefit to the Firm.

If I look at the kind of pro forma, looking backwards and looking forward, of this new capital allocation it's confirming that all businesses are comfortably achieving paying for their cost of capital, even in difficult market conditions.

This is an exercise that was done in order to reflect the changes.

I would say that the only timing which we may have to, or we will have to, seriously re-look at matters in respect of capital allocation and business mix and strategic direction is the finalization of Basel III, which we do expect could have a material change in terms of, for example, risk-weighted assets.

By the way, we would expect these changes to affect more our Swiss mortgage business and corporate business than it is affecting other parts of our organization.

In respect of non-core and legacy, again, I think that we -- I hope you recognize that we have been quite upfront and disciplined in segregating what we have been considering non-core and legacy to the rest of the organization with a clear governance to segregate any in and out of those businesses from and to the investment bank.

We have been taking down those resources at the very low levels.

As you pointed out, it's now de minimis.

There are still costs that are there to support the wind down of the business.

There is no reason whatsoever to reintegrate it, because this is going to die down.

And our commitment is to eliminate those costs of non-core and legacy as a function of executing our CHF2.1 billion savings.

So I think that we are pretty comfortable that this is the right way to operate and to manage the firm, in the interests of everybody.

Maybe, Stefan, just to add two points, firstly, on the equity attribution, as Sergio highlighted, our businesses have been covering well above their cost of equity.

As I indicated in my speech, if you take the current allocation approach and you apply a pro forma to the IB its return on attributed costs of equity would have been 15% over the last four years, and 20% excluding litigation, so well above its cost to capital.

Also just to highlight, in terms of NCL, apart from what you see is positions that have been moved through businesses that we have exited there also are some of our legacy litigation matters, including RMBS.

A lot of the costs that you see there are related to expense for provisions, or legal costs related to those matters.

Great.

Thank you very much.

Kian Abouhossein, JPMorgan.

Two questions: one is related to page 7, again.

In that respect, if I look at Asia, and I look at gross margins, they have gone from 73 basis points in 2014 at the end of the fourth quarter; we had 70 basis points in 2015; we had 65 basis points in 2016.

I'm just trying to understand what is cyclical, and, as a result, seasonal as well, and what is really structurally potentially impacting your top-line margins?

If you can talk a little bit about the mix.

And in that respect, you mentioned that there's been a profound decline in the fourth quarter in Asia in margins.

Does that mean we should also think about first quarter having started significantly better?

And if you could maybe make a comment how first quarter has started in Asia Pacific, in particular.

In that respect, also on net new money and cross-border outflow, can you tell us actually a timeframe when you expect outflows to stop, or become very immaterial, impacting your net new money number?

On page 27 -- 25, could you give us, on the interest rate sensitivity, more of a split of the importance between short rates and long rates that drive your improvement in NII?

So what is more material, and why?

Thank you.

Thank you, Kian, for those five or six questions.

Just quickly on APAC, first of all, as you can see clearly on page 7, APAC is our most volatile region in terms of margin.

And that is because there's a much higher proportion of transaction revenue in our revenue mix in Asia Pacific, and so if we have heightened seasonality and extreme levels of risk aversion with clients on the sidelines that's going to show up in Asia Pacific.

And conversely, if we actually see a big pickup of activity and we see clients becoming much more active that's going to show up much more in Asia Pacific.

And so what you see with the drop off from 73 basis points to the fourth quarter to 65 basis points, it is heightened seasonality, as I mentioned.

If you look at fourth quarter 2015, 70 basis points, so fourth quarter is always a low point for Asia Pacific.

We're not going to make a comment on any kind of outlook for the region.

But as I said in my speech, typically, we see more positive seasonality that's present in our businesses in the first quarter.

In terms of the net new money cross-border outflows, (multiple speakers).

Sorry to interrupt, but you didn't answer my question.

I asked you specifically are you seeing structural or just seasonal issues that are impacting your margins declining on a continuous basis?

Well, it's a combination of structural and seasonal, as I highlighted.

The structural issues are the cross-border outflows, that is a fundamental change in the business and the industry, and we've been seeing that now for nearly four years.

I'm talking specifically on top-line margins in Asia Pacific?

Well, that's top-line margins.

Kian, just listen, that's top-line margin.

The cross-border outflows fundamentally drives a reduction in top-line margin because the clients that actually are in play for cross-border outflows tend to have higher margins discretionary mandates.

So that is a permanent drag on our margins, particularly for the Europe offshore business.

Also, if you look at emerging markets, where we're seeing cross-border outflows, those are highest margin clients, period.

The second structural change that we've highlighted before is the increase in penetration of ultra-high net worth clients.

And you see that this year.

Look at ultra-high net worth: positive CHF27 billion net new money for the year, greater than 5% growth.

So as we continue to have a higher concentration of ultra-high net worth, structurally, that's going to change our margins.

Gross margins.

Gross margin, yes.

Not net margin, because those clients actually have higher efficiency and better pre-tax margin than our high net worth clients.

The cyclical ones are clients being risk averse and moving out of higher-risk to lower-risk products, and there is some potential that, that actually could bounce back, and also moving into cash.

Moving to your net new money from a cross-border perspective, again, as we have said before, we think the majority of the rest of the outflows are likely to materialize and take place during 2017; and then, clearly, we'll see some tapering as we go into 2018.

And on interest rate sensitivity?

Interest rate sensitivity, we are impacted much more by movements in the short curve, particularly for our wealth management Americas business.

Our wealth management international business is a bit more structural and they get impacted more on the longer end of the curve, as we roll over our hedges.

Okay.

Thank you.

Fiona Swaffield, RBC.

The questions was, firstly, on the regional performance, on slide 29, particularly in the investment bank in Asia Pac, whether you could talk to the extent to which you feel you've lost market share; whether there's something unusual in the 2016 numbers; and what the outlook is, because that's obviously very low pre-tax number versus history.

That was the first question.

The second question was on the leverage exposure at a Group level.

You've discussed the scope for the investment bank to go up, but how should we feel or look at the overall number going out?

Because you've had some quite significant efficiencies, I think, in the fourth quarter.

Is there scope for more of that?

Or should we see the impact of the investment bank number, even though there's some offsets with divisions, I think?

How should that feed into the whole Group?

Thank you.

Fiona, in terms of our investment bank in Asia Pacific, the traditional strength that we've had in the Asia region has been in China, in Northern Asia.

In particular, we've been very well positioned and have had quite significant -- significantly high market share in the public side of the China marketplace.

And so, as you have seen, China, really over the last five quarters now, go through their market transition there's been a huge decline overall in issuance levels.

So there's been a decline in IPLs, a decline in ECM, and a decline in DCM by China clients.

In addition, there has been a significant drop off in overall traded -- trading volumes across China.

And that's what's impacting the significant reduction in pre-tax profit that you're seeing in our IB in Asia.

If China were to pick up, you would actually see that we would pick up quite quickly and those results would flow through.

Conversely, we continue to maintain very strong share in Australia, where we are market leader, and that's kind of part of our Asian franchise.

From a leverage perspective, what we have seen, and what I highlighted, is that there has been very substantial improvement in efficiency through actions that we've taken proactively, through netting and through other client related activity.

We've managed to bring down our leverage ratio usage and that helps us deliver the improvement in our leverage ratio that you saw.

Going forward, the balance sheet requirements by the business divisions, we expect to continue to see growth in our loan book in WMA; in addition, we expect to see some reversion back to some loan growth in WM, as well as balance sheet requirements through the cash that they take in on the liability side.

And then, in addition, we would expect to see much more modest growth in our Swiss business, just given the maturity of that market.

Thank you.

Amit Goel, Exane.

Two questions from me: the first, actually, on dividends, and the second relating to the wealth management business.

The first one on the dividends, just want to check on the dividend policy.

Obviously now, with this new equity attribution framework, you've introduced the leverage ratio at 3.75, how are you now thinking about payouts?

Obviously, Group is not quite at 3.75 yet, so how should we think about that?

And then secondly, in terms of the wealth management business, also just wanted to check, it seemed as though mandate penetration has stalled a bit in recent quarters; it was flat QonQ in Q3, down a bit in Q4, along with lower lending volumes.

I just wanted to check whether the lending volumes was a bit by design, or whether that's a function of just client demand, and whether mandate penetration is reaching a bit of a plateau.

Thank you.

Amit, in terms of our dividend policy, as we've been very consistent in communicating, it's reliant on our RWA ratio not our leverage ratio, so there's no impact in terms of any movement in our leverage ratio.

And as Sergio reiterated in his speech, our dividend policy has not changed as we go into 2017.

And internal capital allocation (multiple speakers).

Has nothing to do with our dividend.

Yes, no-one --

Group leverage ratio, so there is -- it's not [applicable].

No change at all.

And in terms of our wealth management business, I'm sorry, what was your question again on wealth management?

It was related to the levels of mandate penetration, which seems to have plateaued a bit in recent quarters.

Yes, our mandate penetration is up 50 basis points year on year, and down 20 basis points quarter on quarter.

As I highlighted, it's due to two factors.

One, it's seasonally lower mandate sales; and then secondly, it is impacted by cross-border outflows.

There's a high percentage of cross-border outflows (multiple speakers) with mandates.

We would expect to see that penetration to revert back to continuing as we go into 2017.

Okay, thank you.

If I'm allowed just that one follow up, although it's slightly unrelated.

But I just want to check as well, just on wealth management Americas, given the change in administration, the better outlook, are you looking to do things differently in that business?

Are you going to look to do a bit more hiring?

Or is there any changes that you're making at present, or you're still in a wait-and-see approach?

Look, yes.

But if you look back into the last few years, we have been quite consistent in saying that the quality of assets and financial advisor was our focus and not the quantity.

If you look at our financial advisors, they have been quite stable, around the 7,000 level.

We do continue to believe that, basically, continuity and retention of our current staff is the better way forward.

I think that our focus in the business is to expand our banking products, and also capture any potential way to gain market share.

I don't think that there are really a close relationship between a change in the administration and our strategic direction in wealth management, per se.

Of course, a change in the macro picture, as we mentioned before, and optimism, may change the outlook for the business that has performed pretty well for the year with a CHF1.25 billion adjusted pre-tax profit.

It's best numbers in history.

So I think that we do see still a lot of potential there, but not really as a function of a change in the administration.

Okay.

Thank you.

Chirantan Barua, Bernstein.

Sorry for the questions at the end of a long call.

Two quick questions.

One was on cross-border emerging market flows.

Obviously, we've had lots of discussion.

Can you give us a bit of color by geographies, because some of the -- India, for example, a treaty just came into force end of November, if I'm correct, so I don't think you'd have seen outflows from that.

It would be great, just by geography, if you could give some color on which are the geographies that are driving it.

The second is in UBS Americas.

I'm quite surprised, because we saw massive inflow into equities out of bonds in November and December in the market now, and Sergio's comment that clients say that they have been more invested in equities.

But it's already happened in the market.

Why is it not happening in your investor base?

Is that something to do with mass affluent, as opposed to ultra-high net worth?

It would be lovely if you can give some color on that.

Yes, just on your first question, if you look at the cross-border outflows that we saw in the fourth quarter -- and, as we've highlighted before, of course, it is very concentrated in emerging markets.

The main markets where we saw conversion of some of the amnesty programs included Indonesia, Russia, Argentina, and Brazil.

And, obviously, there are more countries to come.

You highlighted India.

India is not a particularly market for us, so we'd have some impact from India, but not that significant.

In respect of the asset allocation, I would say that you saw big inflows in passives.

But again, if you look at from an industry standpoint of view, this was offset by a reduction in the active side of the equation.

So, net-net, we didn't really see that kind of increase asset allocation.

As I said before, the real issue, when you look at the survey, is that I remember around 50% or 55% of our clients in the US have concrete plan to invest and to change their asset allocation; and 30%, they are willing to invest more in equities, but, as I mentioned before, or other more risky assets.

Now, this is just plan, and they are prepared to; it doesn't mean yet that they are doing it to the extent that -- so they will -- they are planning to.

So they need to see more concrete actions, as I mentioned before.

Probably, people are a little [burnt] about the false re-start that we saw in the last few years.

They want to make sure that there is momentum, this short-term momentum, positive momentum, that we are seeing is confirmed over the next few weeks as the new administration implements some of its declared restructure -- reforms, sorry.

Just a quick follow on that.

Last year, I remember you saying that lots of asset classes, which looked quite [expensive], and now, obviously, a lot of this enthusiasm is [only been] the price, if you look at different sectors, including ours.

Is -- when you asked investors this question, did you also about valuation?

Is that a constraint as well in terms of them putting cash to work?

Absolutely.

Because at the end of the day, if rates go up a little bit you would argue that, from a fair value standpoint of view, equity markets are getting close to the expensive end of the equation.

The only way to sustain a more -- this positive momentum and investment is to see the underlying profitability of firms coming through growth due to business activities, core business activity, and not financial dynamics, like share buyback, or efficient use of balance sheet, and issuing debt.

There has to be a momentum in which investors do see their comfort in investing in single stock or the broader market as a function of the economy picking up and seeing real growth in the businesses.

It's not going to go on forever with de facto financial -- only financial consideration.

There is a limited amount of appetite.

And if it's there, it's very short term, and opportunistic.

Thanks for your comments.

Jon Peace, Credit Suisse.

I just wondered whether you could comment on your advisor count in wealth management, I see it's down quarter on quarter across all geographies, and whether that was having any impact on your net new money.

And then secondly, just on the outlook for RWAs and leverage, I know you've not changed your guidance there, pending Basel IV.

But I guess, given your opening comments and the trends we're seeing, presumably, the upward pressure which you talk about in the short to medium term is now rather medium term, if at all.

Thank you.

In terms of our advisor headcount, it really didn't have an impact on our performance at all during the year and in the fourth quarter.

As always, we naturally, when we, in particular, are going through more challenging market conditions, do look at our advisors and we do make moves on the least productive advisors, and we constantly are upgrading as we re-hire.

Also, as I commented in my speech, we actually have had a net increase, if you adjust for the [exit] of Australia, of our CAs, our advisors in Asia Pacific.

But that really hasn't fed in at all to the performance that you've seen during the year.

Jon, I haven't really got fully the question.

Can you repeat the second question?

Yes.

The second question was just on your outlook for risk-weighted assets and leverage assets.

I know you said you hadn't changed your outlook pending more visibility on Basel IV, but I think, given the trend of regulation, you talk about it hitting these numbers in the short to medium term.

Presumably, that's really rather medium term, if, indeed, we do go as high as that.

Thanks.

Thanks.

Very clear.

Well, I guess it depends what we intend for short, medium term nowadays.

I do think that, for the time being, if Basel IV, or Basel III finalization, whatever, gets implemented in its current proposal there is a relevant substantial increase of risk-weighted assets, and to the extent that you could argue that it could become a binding constraint.

So, I think it's too early to determine what it is.

Now, the reason I'm talking about short versus medium term is that, as you know, we were, at the end of the year, a few weeks away from clarity on this point.

And now we are waiting.

Now, the next deadline is March.

We will see how this will translate, if there is a resolution of this matter.

Remember that then every single country will have to go through its own interpretation in how to adapt it.

But at the current stage, we do expect a substantial increase in risk-weighted assets.

It's not clear yet if this is going to become enough to become a binding constraint versus the leverage ratio.

And, maybe, just a further comment.

Away from the impact of Basel III, so if we exclude that, what we expect on the RWA side, as I mentioned, is about CHF7 billion per year of impact increase due to the regulatory multipliers that FINMA has already imposed.

So we know we have that inflation.

Away from that, unless we see substantial improvement in market conditions, you wouldn't expect us to show, beyond the regulatory multipliers, significant incremental growth.

Although, if we do see better conditions then you would expect us to accelerate towards the expectation levels that we communicated.

But along with that would come improved revenue and improved free cash profit.

Understood.

Thanks.

Nicholas Watts, Redburn.

I had one question; it's around the Department of Labor fiduciary ruling and its impact on your wealth management Americas business.

I appreciate the incoming US administration, and some of what it said around this may change.

But two of your biggest competitors are following slightly divergent routes at the moment in respect of the ruling and it'd be useful to get any color on how UBS is thinking about adapting its US business to the ruling.

Thank you.

Yes, Nicholas, what we said in the past is, first of all, we didn't expect the rule as it came out, with a big caveat that there still is a lot of detail that needs to be filled in, to have a substantial impact on our business, apart from the cost to comply.

Also, we would comment that, as you said, the Trump administration, of course, will step back and take a look at the DOL rules.

And there is some indication that they will, at a minimum, be delayed; and then, potentially, not implemented at all.

And so we're a little bit in a wait-and-see mode.

Because of that, we actually delayed our announcement of our approach to the DOL, and I think that's proved to be fairly effective, given the commitment that some of our competitors have made.

And so, we're still in this wait-and-see mode.

The one positive that's come out of the DOL ruling, even though it hasn't been fully implemented, is the exclusion of ability to pay for brokerage accounts.

That's actually brought down the total cost of recruiting in the industry, and that's something we would hope to see continue as we go forward.

Thanks very much.

Ladies and gentlemen, the Q&A session for analysts and investors is over.

Analysts and investors may now disconnect their lines.

In a few moments, we will start the media Q&A session.

Thank you.