UBS Group AG (UBS) 2019 Q4 法說會逐字稿

Ladies and gentlemen, good morning. Welcome to the UBS Fourth Quarter 2019 Presentation. The conference must not be recorded for publication or broadcast. (Operator Instructions)

At this time, it's my pleasure to hand over to Mr. Martin Osinga, UBS Investor Relations. Please go ahead, sir.

Hi. Thank you. Good morning, and welcome to our full year 2019 results and investor update call.

I would like to draw your attention to our slide regarding forward-looking statements at the end of our presentation. It refers to cautionary statements, including in our discussion of risk factors in our latest annual report. Some of these factors may affect our future results and financial condition.

Today, Sergio will take you through our highlights for 2019, strategic priorities and targets. Kirt will then cover our fourth quarter results, followed by the Q&A.

Now over to Sergio.

Thank you, Martin. Good morning, everyone, and thank you for joining us. Let me start with a brief summary of last year's performance. We closed 2019 on a high note with $1.2 billion in adjusted PBT, the best fourth quarter since 2010. For the year, our net profit reached $4.3 billion, and return on CET1 capital was 12.4%.

Clients continue to turn to UBS for high-quality advice and solutions to help them achieve their goals. Today, we manage over $3.6 trillion of their assets, up nearly $1 trillion in 4 years. Last year, we further improved the resource usage and progressed on our strategic initiatives, cut operating expenses by 4%, optimized over $30 billion in LRD and invested in people and technology. Also, we signed strategic partnerships in Brazil and Japan to further enhance our scale. And as you saw this morning, we announced a strategic combination of our funds platform with Clearstream.

Our capital position is very strong. With an 80% total payout, we again delivered very attractive returns on our -- to our shareholders. Obviously, the initial verdict in the French cross-border matter was very disappointing to us and to our shareholders. As you know, we have appealed the ruling and are preparing for the trial scheduled in late Q2. Overall, we had solid performance in mixed market conditions and continue to see room for further growth and higher returns going forward.

In contrast to consensus expectations from late 2018, we and our clients were impacted by sharp changes in macroeconomic and market conditions during the year. In 2019, interest headwinds intensified, global growth slowed and geopolitical concerns persisted, pushing many of our institutional and private clients to derisk and stay on the market sidelines. Volatility, a key driver of revenues, particularly for our institutional business, remain muted and ended the year near historic lows.

There were some positives. Late in the year, recession concerns in the U.S. abated and investor sentiment improved, supported by progress on global trade discussions and Brexit, while U.S. equity markets reached all-time highs. As we start the year, while the macroeconomic and geopolitical situation remains uncertain, positive market sentiment persists. We also see higher activity from our clients, supporting the typical first quarter seasonality.

Our aspiration is to deliver returns in line with the best global peers. Our last year's performance was not far off, and we are intensifying efforts to improve it going forward by balancing growth, cost and capital efficiency. For every bank, CET1 is the metric which best reflects the equity it controls and deploys in the business, and it is a binding constraint for capital returns. As you can see, we have, by far, the biggest gap between tangible equity and CET1. For both these reasons, we choose to measure ourselves on return on CET1 capital.

Our clients expect to get the best from UBS every day. Our integrated business model is at the core of our strategy, and it is how we best deliver to clients. Each of the businesses derives significant value from being part of the group and none of them would be as successful on their own. While we have been very successful in delivering our integrated model, we are further intensifying our one firm approach for the benefit of our clients and shareholders.

Our priority for 2020 to 2022 is to drive higher, superior -- and superior returns by growing each of our businesses, leveraging our unique, integrated and complementary business portfolio and geographic footprint. We are responding to changing business and competitive conditions and, last but not least, our clients' needs. We know what we have to do. We have the talent, tools and reach to elevate UBS to the next level. For 2020-2022, it will be all about executing on these priorities, starting with Global Wealth Management.

We are a world-leading and the only truly global wealth manager with $2.6 trillion in invested assets across the entire world spectrum. We are well positioned for future growth. In 2019, we made progress on some of our strategic initiatives, but clearly, we have more to do.

As I mentioned before, clients have very high expectations about UBS' quality of services, products and the way they interact with us. All of those needs are constantly evolving, in some cases, even changing rapidly, driven by technology as well as competitive and social developments. I believe UBS is and always will at the forefront of best-in-class services to clients. For example, our leadership position in the sustainable space is affirmed by the $6 billion increase in our fully sustainable multi-assets mandate. What we continue to make a fundamental difference is the value of advice. As you can see, advice is a top priority for over 80% of our clients of all generations.

In response to these developments, Iqbal and Tom have been and are actively implementing a series of actions that are aimed to further strengthen our leading position. First, we are amplifying our tailored coverage and offering across our entire client spectrum. We are expanding our Global Family Office coverage, which caters to clients who require the most bespoke, holistic and institutional-style coverage. For clients at the lower end of the high net worth and affluent segment, we are developing solutions tailored to their specific needs.

Second, we will be closer to clients. To do so, we are empowering local business units to accelerate decision-making, processes and time to market. We are also delayering and simplifying our organization to better capture opportunities within our geographic footprint.

Third, we are expanding our product offering and increasing efficiency. We will continue to invest in tech solutions and platforms, optimizing processes supporting our advisers and increasing their productivity.

Many of our richest clients have wealth in illiquid assets and require help to unlock its potential through lending and liquidity management products. To better cater to their needs and offer more sophisticated solutions, we are expanding acceptable collateral types by using the IB's capabilities to manage risks. These actions will allow us to deliver on our existing goal of growing loan volumes by around $20 billion a year from 2020 to 2022 without compromising on our risk management and risk/reward standards. All these actions will support us in delivering 10% to 15% PBT growth per annum in 2020-2022, which expand our pretax profit margins.

Another element helping us to achieve our target will be our approach to net new money growth. We have always believed that in this regard, quality beats quantity. Now we manage the trade-off between net new money growth, and our PBT will be even more important considering the outlook for euro and Swiss franc interest rates. So as I said in the past, we are not chasing net new money at the expense of our shareholders. Kirt will expand on this later on.

Our Investment Bank brings essential value and expertise to clients requiring more sophisticated solution and first-class execution. We have a leading position in many areas where we choose to compete, and we will continue to invest in our digital, research and banking capabilities to better advise and serve our clients.

In terms of profitability, clearly, we cannot be satisfied with our performance in 2019. We took actions and are working hard to improve revenues and profitability. For 2020, we expect to deliver returns of around 11% with further improvement in '21 and '22. Over the next 3 years, we expect the IB to consume up to 1/3 of the group's risk-weighted assets and LRD.

The IB's cooperation with Global Wealth Management is essential to delivering a truly differentiated client offering, particularly to our GFO and ultra clients with more sophisticated needs. In the GFO areas, we are leveraging both capital markets and wealth management capabilities to offer unmatched services. And in return, they do more business with us, on average, 15% growth in revenues. For that reason, we are expanding the GFO coverage following the re-segmentation I mentioned before. We are more than doubling the number of clients in this area, solidifying our position as the house bank for these clients. That makes GFO a meaningful contributor to our profit growth objectives.

In addition, we are increasing our collaboration around lending by leveraging the IB's risk management capabilities. And on the execution side, we are combining capabilities across the group to enhance our client offering in the middle market segment, which includes large family offices and small hedge funds.

I'm very pleased with the progress we made in Asset Management last year as our investments and efforts are starting to pay off. Going forward, we will continue to build on our areas of strength, particularly in sustainable offerings where we are a clear leader with nearly $40 billion in sustainability-focused invested assets. Also, we are investing and developing our capability in fast-growing markets by expanding on our partnerships in the wholesale space and leveraging our expertise in private markets and alternatives.

Let me provide an example of the value for both clients and shareholders from deploying Asset Management capabilities to our U.S. Wealth Management business. Separately managed accounts are one of the fastest-growing areas in Wealth Management in the U.S. In order to capture this opportunity, we have eliminated a separate management fees for SMAs managed by Asset Management. This decision will help us to increase mandate penetration for GWM, generate higher share of wallet and lead to significant inflows for Asset Management. We have already seen a very positive reaction from our clients and advisers, and we expect this initiative to be accretive to shareholders in a few quarters.

Our P&C business has generated growth and attractive returns despite severe interest rate headwinds. Yet, we are determined to grow revenues and further improve profitability going forward. Technology plays a key role in this effort, particularly in responding to new market entrants and evolving clients' preferences. We will continue to roll out mobile and platform solutions to improve both individual and corporate clients' experience. Enhancements to our digital capabilities are already driving increased engagement and attracting new customers. Technology also helps us streamline and simplify processes and optimize our branch network, reducing them in numbers and evolving their format to better serve clients.

On negative interest rates, we will continue to manage the impact to protect our profitability. Our universal bank in Switzerland with P&C at its core is a great example for the rest of the group, showcasing the power of close collaboration, creating value for clients and shareholders. It is also the reason why UBS is the #1 bank in Switzerland.

Shifting gears to expenses. We have consistently driven our cost base down, reducing cost by $900 million in 2019 alone. Since 2015, overall operating expenses were reduced by $2.7 billion. We generated significant sales to lower our cost base while funding investments in growth-oriented projects and absorbing higher regulatory requirements. Last year, we spent $3.4 billion on technology, which included our investment in transformation to make us more efficient and effective. A few examples are moving processes to the cloud, decommissioning over 400 legacy applications and deploying 1,100 robots. In Global Wealth Management, we invested over $100 million in our strategic initiatives, including development of ultra high net worth capabilities and increasing our presence in APAC.

We remain committed to improving efficiency and productivity in 2020, keeping net cost, excluding variable compensation and litigation, flat. Maintaining investments in technology and platform is crucial for growth of our franchise and for generating attractive returns in the future. This means that in order to fund all the necessary investments, we have to deliver $1 billion in gross sales during the year.

I already touched on many efficiency initiatives across our business division. This includes, for example, the continued insources of workforce and development of our nearshore centers. We are determined to deliver positive operating leverage and bring our reported cost/income ratio within the 75%, 78% range.

In the past, I have always underlined our need to realize the scale by seeking partnerships with other firms in attractive geographies, markets and services. In 2019, we made very good progress in this area. Our joint venture with SuMi TRUST went live earlier this month. While in November, we agreed with Banco do Brasil to create the biggest investment bank in South America.

On the technology side, our partnership with Broadridge, a global fintech leader, has started to deliver initial releases which will continue over the next couple of years. This will help support our growth ambitions by building a market-leading integrated platform for our adviser that is focused on improving our efficiency and ease of doing business. And finally, today, we announced our partnership with Clearstream to combine our B2B fund distribution platforms to create the world's second-largest player with a presence in Europe, Switzerland and Asia.

Now let's talk about returns. A testament to the strength of our business model is the amount of capital we generated, $28 billion since 2011, including $5 billion last year. We achieved that while absorbing over $10 billion of mostly legacy litigation charges. During this period and adjusting for dividends, we have grown our tangible book value per share by 6% annually. This puts us in line with the average of American firms and higher than the average of our European peers.

Capital strength is one of the pillars of our strategy. We are committed to maintaining a strong position going forward while funding growth initiatives, accruing capital in anticipation of Basel III finalization and delivering attractive capital returns. For 2019 financial year, we intend to propose a dividend of USD 0.73 per share, up 6% year-on-year. Going forward, we intend to grow our dividend per share by $0.01 per year. This will give us greater capacity to return more capital through buybacks. Considering our high cash percentage payout and the fact that our stock trades below book value, for me, this is a no-brainer.

In the first half of 2020, we expect to buy back around $450 million worth of shares, completing our CHF 2 billion program. In the second part of the year, we will assess further buybacks depending on business outlook and any idiosyncratic developments.

So tying all of this together, you can see on the slide our target framework for 2020-2022. We target between 12% and 15% return on CET1 capital and expect to deliver positive operating leverage as we work towards a target cost/income range of 75% to 78%. We have stress test these goals, and we are confident they are achievable across a wide variety of macro and market outcomes. Of course, the updated targets do not mean we are any less ambitious, and we are working hard to maximize returns.

So to briefly summarize our key points for today. Our integrated business model is at the core of our strategy, and it is how we deliver our best to clients. We want to grow by leveraging our unique, integrated and complementary business portfolio and geographic footprint. We have a clear set of initiatives, and 2020 is all about execution. My goal for this year is clear: deliver on our targets and position UBS for an even greater future.

Now Kirt will take you through the fourth quarter results.

Thank you, Sergio. Good morning, everyone. As usual, my comments will compare year-on-year quarters and reference adjusted results in U.S. dollars, unless otherwise stated.

Given 4Q '19 is the last quarter for which we have restructuring expenses related to our legacy cost program, we will no longer disclose adjusted results. From the first quarter of 2020 onwards, we will refer to reported results while still highlighting items that are not representative of underlying business performance. We expect to incur around $200 million in restructuring, mainly in the first half of 2020 related to additional cost actions across the group, including the changes we announced in Global Wealth Management.

This was our best fourth quarter adjusted PBT since 2010. Revenues increased by 4%, and expenses decreased by 7% as 4Q '18 included large litigation provisions and the market backdrop at the end of '18 was extremely challenging. PBT more than doubled and was up 30% excluding litigation. Net profit also increased significantly to $722 million.

Moving to our businesses. In Global Wealth Management, excluding litigation from both quarters, PBT was up 3%. We also saw healthy volumes of net new loans, while invested assets and mandate balances both reached new highs, providing good momentum into 1Q '20. Excluding a fee from P&C, operating income increased by 1% on higher transaction-based income, offsetting lower recurring fees and net interest income. I'll cover revenues in more detail in a moment.

Expenses increased by 3%, excluding litigation, mainly driven by higher tech and regulatory costs, partly offset by our savings initiatives. Costs would have been broadly flat, excluding litigation, in the rise in various regulatory expenses in several nonrecurring items. As part of our cost management actions, we generated $270 million run rate saves, exceeding the $220 million we previously guided to.

In addition, in response to the environment this year, we have been very disciplined on the hiring front with total head count down 4%, resulting in a reduction in personnel expenses, excluding FA and variable compensation, while still funding strategic priorities.

In terms of net new money, we had $5 billion net outflows globally, with APAC and Switzerland reporting net inflows. In the Americas, there were 2 large outflows which contributed to the negative net new money result, although these were very low margin. Full year net new money was particularly strong in APAC with $31 billion of net inflows or an annualized growth rate of nearly 9%, further highlighting UBS' attractiveness to our clients.

We remain confident in our ability to generate net new money growth. However, as Sergio highlighted, we will continue to focus on quality and more specifically on the profitability and resource efficiency of existing invested assets and net flows. With euro and Swiss franc rates remaining persistently negative in 2019 and the prospect of rates recovering off the table for the foreseeable future, we will launch a program focused on selected clients with high concentrations of deposits in euro and Swiss franc cash.

Specifically, we will offer these clients the option to consolidate their assets with us, invest, reprice or reduce their cash balances. $1 billion reduction of such balances has a positive revenue impact of up to $5 million and reduces HQLA frame-up (sic) [freeing up] capital. This will, of course, create headwinds to net new money. You may recall that we successfully implemented similar programs in 2015 and 2017. Sequentially, we had $2 billion net new loans gaining momentum after the deleveraging in 4Q '18 and muted inflows in the first half of 2019.

Back to revenues. Recurring fees were down 1%. Fees were impacted by margin pressure from client preferences for mandates and other investments with lower fees which we noted throughout the year. Recurring fee margin had been stable over the previous 3 quarters but declined in 4Q '19, mostly as we bill our clients and book fees in arrears. We, therefore, have not yet fully captured the rise in invested assets that we saw during the quarter. But the record invested asset base entering the new year gives us good recurring fee momentum into 1Q '20.

Net interest income was down 3% driven by lower revenues from both deposits and loans, partly offset by higher investment of equity income and reduced interest paid to central banks. Transaction-based income was up 26%, or 14% excluding a $75 million fee paid by P&C for the shift in business volume following a segmentation review. The 14% increase reflects higher client activity levels in all regions. We saw particularly strong engagement in structured products with clients turning to us for yield enhancements and protection in response to the persistently low and negative rate environment and to lock in gains from the strong market rally in 2019.

Performance in P&C was strong with PBT up 2% in Swiss francs despite the fee paid to Global Wealth Management I mentioned earlier. Excluding this and litigation costs in 4Q '18, PBT would have been up 11%. Full year PBT would have been up 5% on the same basis. For the quarter, net interest income was down 4%, as lower investment of equity and higher TLAC funding costs were partly offset by reduced interest paid to central banks.

NII was flat sequentially. Noninterest income was up 5%, excluding the fee paid to GWM, mostly as transaction revenues rose on increased foreign exchange, brokerage and credit card activity and reached a record level for the full year. Credit loss expense improved by 24 million as we saw a net release in 4Q '19 versus a build in 4Q '18.

Business momentum remains very strong with 2.8% annualized net new business volume growth in personal banking for the quarter and a record 4.7% for the full year. We also onboarded 37,000 net new clients in personal banking during the year and over 1,000 net new clients on our digital corporate bank. Cost decreased 9% or 3% excluding litigation.

Asset Management had an exceptionally strong quarter, capping off a strong year. 4Q PBT was up nearly 50% to $187 million. For the full year, PBT was up 17% to the highest level since 2015. 4Q operating income was up 18% driven by performance fees, which increased by 240%. The significant increase resulted from strong investment performance in Equities and Hedge Fund businesses in a constructive market environment in recognition of full year performance on certain larger mandates under IFRS 15. Management fees were up 4%, reflecting higher average invested assets.

Costs rose by 7% due to higher variable compensation related to the increase in revenues. Invested assets were up 5% during the quarter to the highest dollar level we've had. Full year net new money of $18 billion was led by Equities in the Wealth Management channel and has come in at higher margins in aggregate than our average book of business margins.

Our IB PBT was around $250 million, excluding litigation, rebounding from a very weak 4Q '18 on 11% revenue growth and lower costs. Overall, our revenue results were largely in line with our U.S. competitors. CCS revenues were up 18%, outperforming fee pools globally, with increases in all regions and most products. Advisory revenue increased 25% versus a 25% decline in the M&A fee pool with outperformance in EMEA and APAC. ECM was up 18% in the cash ECM fee pool.

In debt capital markets, investment-grade revenues were up more than the market at 58%, while LCM was down 5% against a higher fee pool. Our Equities revenues were up 2%, driven by 8% increase in Derivatives. Cash was down 6% as client activity was depressed and volatility remained at low levels. FRC was up 41%, excluding the $53 million revenues for rebalancing the group balance sheet to dollars in 4Q '18, driven by significant increases in rates and credit. FX was down 12%, excluding the aforementioned fee for the currency repositioning due to extremely low volatility.

In research, we retained our #1 position in the 2019 institutional investors' global equity research ranking for the third year in a row. IB costs were down 7%, excluding litigation, benefiting from lower personnel expenses. In 4Q '19, we took a goodwill impairment of $110 million in the IB which we adjusted for. Risk-weighted assets and LRD were both down from the prior quarter and remained below 1/3 of the group's resources.

I would like to provide further details on our approach to managing efficiency that Sergio commented on earlier. Over the next 3 years, we expect our operating income to grow, supported by the business division and group actions Sergio highlighted. Under an operating income growth scenario, we will manage to flat overall cost to drive positive operating leverage. If we see the environment deteriorating, we will assess and take further actions to reduce our cost to mitigate the impact on the current year as we did in 2019.

The combination of these tactical actions with our strategic initiatives allowed us to take cost down by about $1 billion on an adjusted basis or 4% compared with a 4% reduction in operating income. One area where we've been active in driving efficiency is insourcing technology head count. IT and other services outsourcing costs are down more than $250 million or 19%, partly offset by higher personnel expenses. And we are reducing risk and improving effectiveness. Other areas we brought down during the year are professional fees, marketing and PR costs and travel and entertainment expenses, down $230 million in aggregate or 13%.

In 2020, we expect revenue growth to be supported by positive alpha momentum, offsetting the anticipated more challenging beta environment. From a cost perspective, we're planning to invest around $1 billion, including, for example, progressing our Broadridge partnership in the U.S., continuing with our various digital initiatives across all businesses and investing in our China strategy, along with regulatory and compliance priorities.

We will fund these investments with $1 billion in planned saves to maintain flat costs, excluding litigation and variable compensation, mostly across our support services, back- and middle-office function. This includes continuing to insource our technology, operation and finance head count, integrating our execution platforms across the IB and GWM, deploying robotics and digitizing our front-to-back processes, along with the reorganization we announced in GWM and the IB.

Over the past 2 years, we have been progressively aligning our support functions, such as tech, ops, finance and risk, with the business divisions. We now operate the group with the majority of these functions either fully aligned or shared among business divisions where they have full management responsibility. Only a small residual set of activities are related to group, in line with peers. Later this year, we intend to adopt our reporting to better reflect how we manage the group.

Our capital and leverage ratios rose to 13.7% and 3.9% at the end of the year, but our current guidance of approximately 13% and 3.7% CET1 capital and leverage ratio still holds. RWA was down 2% sequentially. The annual recalibration of the AMA model brought up op risk by $3 billion -- brought down op risk by $3 billion, and market risk RWA declined partly as a result of the very low prevailing market volatility.

In the first quarter of 2020, we anticipate a roughly $3 billion regulatory-related increase in our credit risk RWA, mainly from the implementation of a standardized approach for counterparty credit risk, which became effective on 1 Jan 2020. We have previously guided on the approximate impact of Basel III finalization on RWA. As the implementation has now been extended by at least a year, the day 1 impact could be lower than our original guidance, but it's still -- but there's still too much uncertainty for us to provide an update.

To close on the quarter's results, this was the best 4Q adjusted PBT we've had since 2010, capping off a solid 2019 given the mixed market environment. We remain focused on executing our strategy, pivoting to growth, scale and efficiency. Sergio outlined our 7 priorities across our businesses, individually and in partnership as one firm, and we're already hard at work using these to benefit our clients and drive higher return on capital.

With that, we'll open up to questions.

Our first question comes from the line of Jernej Omahen from Goldman Sachs.

I just have one question, in a sense, no? So correct me if I'm wrong, but I think this is the third time in 3 years that UBS has reduced the return target. So I think in 2017, we went from a return on tangible equity target of 15% to a return on tangible less deferred tax assets of 15%. So that was a reduction. Then in '18, we went to a return on core Tier 1 target of 15%, so that was a reduction. And now we've got to 12% to 15%.

And I was just wondering, I mean how sure are you that this is now the right target range, right? So when you speak to investors and you say, we've changed our return target for the third time in 3 years, but this time, it's for real, it's staying, I was just wondering how -- what gives you the confidence that this doesn't shift again?

Thank you, Jernej, for the question. So I think that the first change you mentioned is not -- was not necessarily a change of targets, but a definition how we measure ourselves, return on tangible equity, excluding DTA, versus moving to a return on CET1 ratio which we announced in October '18. So in that sense, your assessment is half right because the first change was mainly due to that. So the methodology in October '18, we announced the targets for the 3 years to come with a clear, completely -- you remember, September, October, completely different expectations on the macroeconomic outlook and the outlook for interest rates and also that are factors that are, for sure, determining part of how we drive growth and business, not necessarily just that, but also very important.

So if I look at today, the methodology that we announced today is still the same. What we did this year in the planning cycle was to look at those external factor -- macroeconomic factors reflect those factors into our 3-year plan, which the factors you can see are translated into a reduction from 17% and to the 15% top of the range.

Now the question you're asking about, how confident we are, for sure, as we -- as I outlined in my remarks, the 12% to 15% target is a range that has been stressed under different and a variety of market condition assumptions. So you can see the 12% as being the bottom that we believe is achievable even in stressed market condition. While in a more normalized environment, over the next 3 years, our goal is to get closer to the 15%. So the range has to be interpreted as a range that takes in consideration different market conditions. So de facto, what I'm saying, in other words, we took down our targets by 2 points on return on CET1 to reflect the change in market conditions.

The next question comes from Adam Terelak with Mediobanca.

I wanted to get a bit of a read on your cost guidance. You're saying that it's $1 billion of saves, $1 billion of investment, so flat underlying. Is that on a reported basis? And if so, does that mean that the adjusted cost base that many of us look at is actually trending up by the maybe 400 million of adjustments that we've had in the 2019 print?

And then secondly, on fee margins in GWM, I know what you're saying in terms of the delayed pricing on the U.S. AUM. But on a -- in my numbers, I still have it down 1 basis point Q-on-Q, which is fairly material pressure. Clearly, you flagged the shift into lower-margin mandates. Now is this, say, a long-term trend? Should we expect it to come through the numbers in the following quarters and years? And where could we really see fee margins going from here?

Yes. Thank you, Adam. In terms of our cost guidance, as I outlined in my speech, we're going to stop reporting adjusted results given the fact that we concluded adjusting for our 2.1 billion legacy program. So going forward, we'll queue off of reported results, all of our targets on a reported basis. And so therefore, our flat overall total direct cost, excluding litigation and variable, is on a reported basis as our -- we talked about the sales and the investment that, that all is related to reported results.

In terms of your second -- excuse me?

Just to clarify, the $1 billion of savings has lower restructuring charges and the goodwill impairment in it.

That's correct. But at the same time, for example, if you look at the $1 billion in investment, that includes -- I already announced the $200 million in restructuring. So there are trade-offs on both sides. But overall, naturally, of course, what you care about and we care about are the reported results and the net profit that we deliver, and that drives our returns and our ability, of course, to return capital.

I would also note that if you think about the 75% to 78% cost/income ratio, that's also reported. And just to highlight, we -- our cost/income ratio was 80.5%. So that already indicates that we intend to drive positive operating leverage to get to the upper end of the range and then continue to drive positive operating leverage towards that 75%.

Now on the margin side, the vast majority of the quarter-on-quarter reduction, the 1 basis point you highlight, which is exactly spot on, does relate to technically how we bill for our invested assets. We bill in arrears, and so the 5% increase that you saw in invested assets during the quarter mostly has not showed up in our recurring revenue.

Now in addition to that, we did continue to see a bit of impositioning -- or repositioning into lower-risk investments, particularly in the non-contracted book where we saw quite a bit of shift out of equities into fixed income, which shouldn't be surprising, and therefore, we saw lower trailing fees. And I think that dynamic is something that will evolve as risk attitudes and risk-taking views by our clients also evolves as we go forward.

The next question comes from Magdalena Stoklosa with Morgan Stanley.

I've got 2 questions: one, about your revenue performance in wealth; and the second one, about the share buybacks. So to follow up from the previous question, your revenue performance in the fourth quarter was actually quite robust. And I thought it was quite encouraging to see your NII and your transactional business also holding up. And of course, given that in the U.S., you can charge differently, you will have that 1Q uplift you've just talked about.

But if we look kind of further out into 2020 and we think about the NII side, of course, the rate against loan volume, we think about your transactional business, you've been quite positive about kind of 1Q trends overall. How do you see the overall revenue progression in wealth given the building blocks of NII transactions and, of course, the recurring fees that you've talked about a little bit? Because I kind of wonder how you see, particularly the 2020 PBT growth of the 10% to 15%, where is it really coming from, revenues versus costs? And of course, it would be very useful for -- if you could give us any kind of details of the GWM portion of the $200 million restructuring charge kind of within that 2020 context?

And my second question is really, how should we think about the assessment of the share buybacks in the second half of 2020? And kind of in particular, what would you like the market to appreciate as the kind of French courts consider your appeal in June?

Thank you, Magdalena. We -- so let me take the second question, and Kirt will take the first one. So on the share buyback, as we announced, we intend, de facto, to do half of what we did last year in the first half of the year. And of course, what I think that your question specifically, what I believe has to be well understood, is our intention is clearly to -- depending on -- mainly on the outcome of the idiosyncratic events, of course, we are referring to the French matter, we believe it's only prudent and pragmatic not to go into any aggressive capital return policy while the finalization of and the verdict of the appeal is likely to come towards the end of Q3 or early part of Q4.

In that respect, maybe what I would like the market to understand is once everybody can make their own risk-based assessment about the outcome of this trial in different scenarios is, first of all, the entry point on January 1 of our capital position. And considering that, as I mentioned and Kirt reiterated, we are still confirming that we see our CET1 ratio being towards the 13% and the 3.7% on leverage ratio.

Number two, take into consideration -- well, other than business performance as we continue to generate capital as we did in 2019, our ability to absorb any extraordinary event within a normalized range has to be taken into consideration. Number three, what we announced this morning with the combination of our Fondcenter capabilities with Clearstream creates capital tailwind. I guess I answered the question.

Everybody can assess, including the fact that we always say that we will retain extra capital only if it's necessary to grow our business, fulfill incoming and expecting regulatory requirements at Basel III finalization and, again, as I mentioned before, an idiosyncratic event. So I'm pretty confident that we will continue to deliver over time a very strong capital return to our shareholders.

Well, Magda, on your first question, first of all, that was quite a first question. Let me try to take it in the different revenue components. In terms of recurring fees, first of all, naturally, that's going to be a function of invested assets. So the growth that we saw towards the end of the year will help us in the first quarter. And naturally, we'll also have some impact overall on the relative mix risk. So it comes down to our clients' attitudes, geopolitical attitudes. And of course, importantly, it's a continued mandate penetration. And that remains a clear focus for both Tom and Iqbal.

We would still view that, compared to competitors in the U.S., for example, we're relatively lower penetrated under contract, and we see good opportunities for increasing our penetration. Related to that as well, thematic investing is something we highlighted. We think there's significant opportunities and there's tremendous demand around thematic investing, for example, around aging, health, genetics and the like, along with sustainability. And we're leaders in all of those areas.

Now in terms of NII, clearly, if we do nothing else, we will see our NII come down just because of the headwinds that are already built into the forward rates. That's clear. So naturally, lending becomes the most important way for us to continue to offset those headwinds. And we talked about the lending momentum we saw in the second quarter, the focus on expanding collateral classes, increasing the level of lending we're doing across single stocks. Moving into commercial lending, we're looking at business lending. So there's quite a bit of activity around that lending. And that, of course, importantly, leverages the IB capability in terms of how they risk manage the book.

Now finally, around transaction revenue. First of all, we're pretty pleased with the momentum we see. We do believe, going forward, as clients are currently more active, and you saw that in our outlook statement for the first quarter, we do think structured products continues to be an opportunity in this environment, continued yield enhancement, locking in gains. We've combined our capital markets teams between the IB and Wealth Management, and we're deploying those to be closer to clients.

And I would mention just one other area of growth opportunity, and that's GFO. So if you look at Slide 13, the fact that we're increasing our GFO clients to 1,500, and you see the compounded annual growth when we onboard a GFO client at 15% a year, so that is one of our highest growth opportunities for Wealth Management.

The next question comes from Jeremy Sigee from Exane.

Two questions, please. One is on Wealth Management. The cost base, ex litigation and ex restructuring, so the sort of underlying ex everything, was a bit higher in 4Q. It was sort of $3.3 billion compared to sort of $3.1 billion, $3.2 billion in previous quarters. So I just wondered if you could talk about that increase and whether that's a new sort of run rate going into next year.

And then second question, on the Investment Bank, I know you've sort of touched on some of this, but could you be a bit more specific about what specific items you see that will get the return on equity from sort of 6% reported, 8.6% underlying up to the 11% that you envisage for 2020? What are the specific revenue or cost things that change that will get you there?

Yes. Thank you, Jeremy. Just on -- so on the wealth cost side, I mentioned in my speech that if you exclude in the quarter some areas of spend related to regulatory requirements, for example, we've been building up costs, a portion of which are onetime in order to address the higher bar, the higher regulatory bar for AML/KYC requirements, some of that costs will come down. As we get in, in particular, to the second quarter, they'll still remain a little bit elevated in the first quarter. And then outside of that, we also had a number of onetime items, including some impairment for property and some other related costs that will not repeat themselves. So in aggregate, that total bucket is around $45 million to $50 million. We'll see, as I said, a portion of that in the first quarter, but that should come down over time. So it's really not representative of the ongoing cost structure of the Wealth Management business.

Now in terms of the IB, if you look at the reorganization that we announced, that will allow us to deploy capital and technology in a much more agile way across, for example, the different asset classes within the markets businesses, which we think will give us a return upside. In addition to that, the way we've reorganized our global bank, and we talked about this to be able to create much more focused teams on the industry globally rather than organizing ourselves on a regional basis, we think that also will give us upside. Plus, as well, where we've announced that the Private Markets group which we launched, we already see very good momentum there. And very importantly for us, it is the Investment Bank, the partnership and the relationship with GWM. That GFO initiative that we highlighted, a portion of that one bank revenue will also benefit the IB. And so we think with all of that, we're already starting to see some good momentum. In addition to harvesting the investments we made in the Americas where, as you know, we did have a more challenging year in 2019, this should help to give us a better return momentum in the IB.

Well, look, maybe let me just complement here. I mean first of all, I would say that, de facto, what we need is another $500 million, $600 million of revenues in the IB. And to bring us back into that kind of territory, I think that we're going to continue to look at the cost, all the costs in a very challenging -- and the capital consumption as well. So the allocated capital of the IB will always be further scrutinized and enhanced and improved.

So in a sense, what we are saying is that 2019, as I mentioned before, it's not an acceptable outcome. I do believe that we will go back more into the last few years' historical pattern. I think that you saw that in 7, 8 years, we were on average 13.7%. I think that we had 11% in '17 -- '16 and '17 around. So we are quite confident that we can go back into that double-digits number and from there to start to go for higher returns. So it's not that we are happy with that 11% return, by the way. So I think that while the IB is crucial to make sure that many parts of the organization, not only GFO and Wealth Management but also the Corporate business in Switzerland remains competitive, the IB has to deliver better results on its allocated capital. That's for sure.

The next question comes from Andrew Coombs, Citi.

If I could just drill down a bit further into the capital ratios and capital targets and capital return prospects. I guess kind of 3 components to that, the first of which is your RWA density as a function of your leverage exposure, is it 28.5% or 28.5%? Your closest peer, Credit Suisse, had obviously talked about moving towards 35% pro forma for RWA inflation, and that's why they felt comfortable reducing their core Tier 1 ratio target to 12%. You're obviously still guiding to 13%. So just a bit more clarity on future RWA inflation risk and also your expectation for the core tier 1 target in that event.

Second question, I just wanted to clarify the comments on the buybacks. Obviously, second half of 2020, up for review. You actually go into 2020 with a very strong capital position, 13.7%. You've got Fondcenter coming through in second half of 2020. So when you talk about it being up for review, potentially adds up for review, not just continuation of buybacks, but potentially to add to the buybacks relative to the first half, dependent upon the French tax case outcome.

And I guess the final point on that French outcome, could you just comment on the latest upper court ruling that the lower courts need to factor fines and penalties based on the tax evaded or avoided rather than an enormous sum of undeclared money? Does that change how you perceive the case?

Thank you, Andy. I'll take the second and third question, and Kirt will take the first one. So I think that the answer in the second question, it's very difficult to brought it up. So I think exactly what you described is what will happen. We will assess the capital situation, and we are entering with a very strong position. We are completing the SIX 2 billion programs, so buying back half of what we bought back in the first half. So if -- which I believe our capital position will continue to strengthen into the second half of the year for all the reasons you mentioned, we will then assess the situation. And I'm confident that we will continue to have very attractive capital returns in the future. So difficult to say more.

In respect of the French matter, as you may have seen this morning, we published on the web a stakeholder update, basically, in preparation for the AGM. We are addressing what I would call the frequently asked questions that we got from many stakeholders, particularly from you, shareholders, in general, analysts, clients and also employees that are relevant to do the French matter. I think that it's not really appropriate for us at this stage to go into any assessment publicly of what we believe the outcome and the interpretation of any legal precedents that may impact our situation. So -- but I invite you maybe to read our position paper in terms of stakeholder update that is available on the website.

Yes. If you're looking for it, the Q&A is on ubs.com/investors, and then you click Shareholder Information, and you see it on the right-hand side.

Yes. Andrew, in terms of your first question, as you mentioned, our current risk density is 28.5%, which if you look at our guidance around 3.7% and 13%, it exactly says that we're relatively, if we're going to stick to that, equally bound by both, and we've reiterated that guidance. Also, if you reflect on what we guided on previously in terms of our expected Basel III finalization impact, we said it could be around 33 billion before any optimization. If you just take that 33 billion and you overlay it on our current RWA, that would suggest that we would drift off to 32%.

So naturally, our view and our risk profile is going to drive what our risk density is. And so that would certainly indicate that, that would likely be a ceiling, that 32%. And importantly, of course, with the postponement by 1 year, I mentioned that our assessment of the impact has come down from that 33 billion. Once we have more information, we will try to guide further, but it's certainly lower than that. So that would be indicative of our view that we think our natural risk density will come down below that 32% once we see a final Basel III framework.

I would finally note that the natural growth tendency of our business is for risk density to decrease because our risk, of course, is driven by our Wealth Management business, our asset-gathering businesses, and they have much lower risk density than our Investment Bank.

And if I could just follow up on that. The core Tier 1 target of 13% plus/minus 30 basis points, is that set in stone? Or is the case of the RWA density moves up with these new regulatory additions that could potentially come under review as well?

So we've guided just like all of our targets and guidances for 2020 to 2022. And since Basel III has already been pushed out a year, we'll update our guidance once we know more for anything further beyond that.

The next question comes from Andrew Stimpson, Bank of America Merrill Lynch.

So firstly, just more of a clarification. We saw in the press a couple of weeks ago, there were some job and cost cuts expected in GWM, but there wasn't any mention of the additional net cost saves here today. So I just want to check your comments here, Kirt, that the restructuring charges you're taking will give you gross cost saves, but that will all be reinvested? And then if revenues do disappoint, then you'd slow some of those investments, and that would give a bit of protection for shareholders and profits? I just want to check if I've understood that kind of philosophy correctly.

And maybe connected to that, you could give some comments around how the gross investments from 2018 and '19 have performed and when there might be a payback on those?

And then secondly, you mentioned the recurring fee margin pressure. I understand the averaging of the AUM and the delayed charging on the start of the quarter, particularly in the U.S., but you did mention margin pressure as well. Is it right to think of that as all as being cyclical, i.e., it was client risk aversion within the fourth quarter, which you're now highlighting in your outlook statement is beginning to change around this quarter? Or is it that you're actually seeing some clients come to you and tell you they've been giving better pricing elsewhere that you're then having to match? So I just want to understand what kind of margin pressure you're seeing there.

Yes. Andrew, thank you for the questions. In terms of the first one, you got it exactly right, that as we look at 2020, our anticipation is that we'll generate $1 billion in saves and that we'll use that to fund $1 billion in investments that -- across a range of business priorities, digitization, what we're doing with Broadridge as well as some additional regulatory and risk requirements that addresses the new requirements that we have with our legal entity structure and the like.

Also, as you rightly summarized, if we do see softening of the environment, just as we did in 2019, we'll look at tactical measures which would include postponing some of the investments, slowing down our hiring, getting, of course, much more ruthless around other cost areas of the bank and being leaner for some time. I think Sergio referred to that as a fuel-saving mode. And we would bring our costs down rather than just flat, and that would help to offset some of the top line impact of softer environment. So that's all correct.

In terms of investments and where they're paying off, I mean I think you see it very clearly, for example, in Asset Management where we had outstanding performance. You see it in P&C. The investments in digital are solidifying our position as the leading digital bank in Switzerland and certainly have contributed to the growth well above of GDP that we've seen for that business. You're seeing it in some of the structural saves. Sergio mentioned moving to cloud, deploying 1,100 robots. The -- so the gross saves that we delivered, which are far higher than what we outlined on the $2.7 billion over the last 4 years, are from some of our investments and are structural in nature and, therefore, required investments, and we're seeing that. So without those investments, our cost structure would have been higher.

And now on the recurring fee margin, I think you are right. It's mostly reflective of some of the change in preference that we've seen in mandates, so move from discretionary mandates to advisory mandates, and that's partly due to the risk environment. Also, I mentioned that in the non-contracted book, we saw some shift out of equity funds into fixed income. I mean that was a big market structural change that we saw in the fourth quarter. And all of that, we would view as cyclical with the potential to revert if we see changes in attitudes going forward.

The next question comes from Benjamin Goy, Deutsche Bank.

Two questions from my side. First, in ultra high net worth, you had a cost/income ratio of about 78% in 2019, which is pretty much in line with the whole division. So I was wondering the general perception that, yes, it has a better pretax margin and better efficiency, this business. So when will we see that coming through? Is it already this year? And what is the benefit you can see out of the investments you have taken over the last years?

And then secondly, you talked a lot about collaboration across divisions. And I was wondering whether you could speak a bit more about the incentive structures to actually foster these collaborations and drive results.

Yes. So on the ultra-high net worth side, first of all, the margin of the reported global ultra high net worth segment does not reflect a portion of ultra that still sits in the regions. And if you were to aggregate that, then you would actually see a slightly better efficiency ratio than the group overall.

And then secondly, 2019 was not our best year for ultra. They were impacted, as you would expect, they're more sophisticated clients, by the lower volatility. So we did see slightly less activity. And we also saw quite a bit of deleveraging. So that also impacted a bit the performance of ultra. I think just in general, going forward, we would still expect the ultra segment to have a better efficiency ratio than the average of Wealth Management overall.

So on the second question on how to foster further collaboration, first of all, I have to say that, really, collaboration, we are already quite advanced and is already part of our DNA in the way the firm works. So of course, now we are moving to a further level up in that sense. But first of all, what we do is that we have collaboration targets somehow embedded in the performance metrics and the goals in the year to business divisions. We have a so-called group franchise awards where people can submit their request for credit recognition in respect of their involvement in any transaction or any opportunities that was created, like net new money inflows from a client, referrals or a specific transaction with the other counterparty, the receiving counterparty accepting in the system the credit requested.

We are also moving into recognizing business division levels, the so-called double-counting of revenues. Then of course, my colleagues and I in the Group Executive Board under -- with Kirt, we're going to then, of course, eliminate and normalize this issue. But we want to make it clear to the front offices that when they are involved in creating value for clients and shareholders, they do get recognized, and this is also reflected in the compensation accrual process.

And last but not least, all my colleagues on the Executive Board, the vast majority of -- or the big chunk of their objectives, financial objectives is driven by the outcome of the bank results and not just their divisional one. So the weighting is far superior there. So top-down and going down to group managing directors, everybody is aligned, first of all, how to create better value for clients and shareholders as a group. And then, of course, they are accountable and responsible for what they do day to day. That's the mechanism. But at the end of the day, it's also a cultural approach because you don't want to be able to measure every single interaction with dollars. People have to work together and collaborate as a cultural principle and not only because there is a short-term reward available to them.

The next question comes from Stefan Stalmann, Autonomous Research.

I have 2, please. The first one on GWM and some of the changes that are taking place there. Could you maybe talk a little bit around the solution of IPS as a unit and how that is being replaced and how that is actually making GWM a better business?

And potentially related to this, the ambition to originate a lot more loans, will we see these loans and the revenue and the risk provisions potentially related to these loans and the capital consumption of these loans in the Wealth Management business? Or will there be some sharing with the Investment Bank? Or is the Investment Bank just receiving basically a management fee on these loans? And what kind of risk density would you assume to see on these additional loans given that they will be more structured and then tailor-made and possibly a bit more risky?

Yes. Thank you, Stefan. Just in terms of your first question. So what Iqbal and Tom have been working quite closely with the IB and with Piero and Rob, what they've agreed is, whereas previously, we had some duplication between our execution in our access platforms across IPS and the IB, we're now with the investment in technology that we've made, we can actually look to consolidate that to have one platform that supports the IB's execution capabilities and also the GWM's execution capabilities or requirements. And also, the IB is looking to leverage that platform to better serve the middle market where they think there's a growth opportunity.

And so that's what you saw as part of this. We collapsed the platform, so the IB now will fully serve GWM across all access and execution needs. In addition to that, we've taken the capital markets teams that used to sit in IPS and we've also integrated them into the IB. So the IB will deploy capital markets team to provide them with support and advisory around those resources. As well as, if you look at some of the other areas of advice, we've collapsed that into our CIO. So it's really -- it's streamlining. It's providing a much stronger IB, more sophisticated overall capability that we'll deploy directly to our clients across segments. We think with that, we both will have revenue as well as cost-efficiency opportunities.

Now in terms of your second question, which was around...

Loans.

Yes, the loans.

The loans, maybe I'll take it on and then you can complement, Kirt. So first of all, as I mentioned in my remarks, the growth of the loans is something that we flagged as a priority back in '18. So there is not really new in respect of our desire and to protect or increase NII or in this environment, I will say now protect NII through expanding our loan portfolio. So very important, first of all, we will do that by leveraging the IB risk engines.

And secondly, yes, while I don't think that structured business is necessarily more risky, actually, we will not really make a lot of compromises in respect of return -- risk/return profile. So the density should not be far off in the aggregate numbers, of course, maybe a little bit going up. But if you take the current stock and you add up $20 billion a year, $20 billion is not all going to be structured. So you're going to have also Lombard plain vanilla in it and mortgages.

So I mean at the end of the day, don't expect a meaningful increase of the risk density out of this exercise. I think that it's just more natural, and we see it how the transmission mechanism of a slightly better investor sentiment makes to leverage. I mean, particularly in Asia, as soon as they become a little bit more constructive, they take on leverage. And so I think as a very -- all the changes that Kirt described, together with the ambition really and the determination to capture this opportunity, will translate in a more diversified and growing NII or at least neutralizing the negative effects without compromising on our risk/reward profile.

But Stefan, just in terms of specifically your question around balance sheet and full economics, all of that will sit in GWM, so RWA, LRD, full P&L, including any CLE implications.

The next question comes from Kian Abouhossein, JPMorgan.

First of all, on the targets and guidelines on the numbers, do you include Fondcenter in the numbers, both in the cost/income and ROE targets? That's the first question.

The second question is on U.S. Wealth Management. Clearly, there are a lot of structural changes happening in the U.S. from the players like Morgan Stanley going more up -- growing faster, gaining market share, looks like, i.e., the large players, and then you can see that in the new pretax margin guidance that I'm sure you're aware of and on the electronics side as well as the money-centered banks, which are consolidating and changing. I wanted to see where you stand because you're kind of in the middle. And I'm wondering, strategically, what does that mean for your business, not over the next year or 2, but even longer term out, as the structure of the U.S. market seems to be changing.

And secondly, I have a question regarding the ROE of 12%. You mentioned it is stress tested for different macro scenarios. I'm just wondering if you could tell me what is your 12% macro scenario, i.e., is it stress tested at the bottom of the ROE guideline or guidance in order to realize of what is assumed in this number?

Thank you, Kian. I guess the second question really is very complementary to the first one or vice versa. So I guess, so first of all, of course, we include -- the target 12% to 15% is not a 2020 target. It's a multiyear target. And the 12%, I reiterate, as you just pointed out, is the -- I would call the low end of a stress scenario, which I will not discuss definitely in public. Okay, so that's quite normal. I appreciate that you asked the question. But I'm sure you appreciate that we don't really go through that. But you can expect this to be not a rosy picture on what would happen in financial markets or the economy when you look at the 12%.

Now of course, because we are -- we say that we're going to highlight any extraordinary item, but also during the 3 years in our reported numbers, Fondcenter will be part of this year results. You can extrapolate what it means for this year results.

What I like to also underline is that the definition will -- of what we believe is extraordinary versus the outcome of a process where we invest over time and then we are able to realize value is also something to be considered because in order to grow and maintain Fondcenter over the years, we have been recurring expenses that were going through the operating line of expenses. And now that we realize value, while continuing to create value for shareholders and clients, we will also need to look at what it means, from a management standpoint of view, taking actions to optimize our resource allocation. But in any case, to answer your question, 12% to 15% is reported and includes any of those items, and the 12% is not a target. 12% is what we believe is an outcome if we have certain more stressed market conditions.

So I would say, and Kirt, I'm sure, can step in with more data points, that if you look at our growth trajectory in terms of invested assets in the U.S., they are very similar to the best in the U.S. you are indicating. So of course, they have a better pretax profit margin. And we know that, to some extent, we will -- are working on making sure, like we did in the last 7, 8 years where we were losing a couple of hundred millions in 2010, 2011, not 7, 8 years, a little bit before, we were losing $150 million a year in our Wealth Management business in the U.S., we got similar questions, by now, we are around $1.5 billion. We believe this business will drive higher returns going forward because of higher mandate penetration, because we believe we have room to improve penetration of lending. We believe we have the space to grow in the ultra space. And what I mentioned and Kirt reiterated, the Broadridge technology capabilities that we are rolling out is going to offset some of the scale issues that meant some of our investors -- some of our competitors, sorry, are enjoying.

Now -- and last but not least, the quality of the earnings in the U.S., I cannot stop stressing, the quality of the earnings in the U.S. from a post-tax standpoint of view are absolutely critical and had added value. Through our U.S. capabilities, we will continue to leverage our franchise as a global -- as the leading global player; and number two, creating significant shareholder value over the years to come.

The next question comes from Andrew Lim, Societe Generale.

I appreciate your comments for the past quarter. But if we look to the past few years for GWM, despite rising AUM and maybe a slight rise in revenues, pretax profit hasn't really gone anywhere. So it's difficult to see how you can reach your target for GWM pretax for growth going forward.

And I'm just wondering, in my mind, what you think are the main key pressure points for why you can't seem to get that growth in pretax profit, whether it's like the change in asset mix being the primary issue here or net interest margin pressure. It seems to be an issue across all your regions, not just in the U.S. And what seriously are you going to do about it going forward to try and get the same kind of momentum that we see in U.S. peers, such as Morgan Stanley and Bank of America? So that's my first question.

And then my second question is a bit more technical in nature. I noticed that you've enjoyed a reduction in your RWAs, in part related to investment banking equities having a risk reduction there. Could you give a bit more color as to what's actually driven that? And is there potential to see that reverse in coming quarters?

Yes. Thank you, Andrew. So if you look at our Wealth Management business, first of all, if you look at the history in the last number of years, obviously, the largest headwind that we had was regularizing the business and the very significant effort that we went through to address just the cross-border compliance of our business. And that resulted in several billion of total top line that would have been very accretive to our bottom line dilution over that period of time.

If you look at just the last couple of years, as we saw that overall program tapering, there was a combination. Actually, our U.S. business has grown quite well. In fact, it's grown very consistently aligned with U.S. competitors. If you compare us to Bank of America or Morgan Stanley over the last couple of years. The international business has been a bit more challenged, and I think that's just in general because of the environment. The U.S. market has performed better. Conversely, we see negative rates in Europe as well as in Switzerland, of course. And then on top of that, Asia Pacific has been very volatile. And you've seen the drops overall in economic growth in China, and that we've seen deleveraging. And we've seen, therefore, that part of our business perform a bit less well. And I think that's very consistent with what we've seen in the overall market environment.

Now we still have great confidence in that business, in our GWM's business ability to generate the 10% to 15% growth that we've outlined. We see very good momentum in the first quarter already. And we've highlighted, really, all the actions and why we feel that confidence. And we can always emphasize that that’s for us -- that’s very much consistent with our strategy and what we expect to deliver over the next couple of years.

Now on the RWA question, there were two factors that led to the reduction. One, it's -- we did our AMA model, I highlighted this in my speech, we did our yearly update with FINMA, that resulted in a 3 billion reduction in op risk RWA. Now we also had a reduction overall in market risk, which I highlighted, and that’s really due to the very, very low volatility that we see. And our VaR is extremely low, particularly our stress VaR. And I think that would come -- we would see actually an increase in market risk RWA in part if we saw a rebound in volatility levels, but that would be accompanied, of course, with a very nice pickup in revenue. And I would also highlight that we always have options to hedge that so that, that increase doesn't become overly pronounced.

Can I just follow up on the U.S. side? I mean you're saying that you've got comparable performance with your U.S. peers. If I look at the revenues, there is a distinct difference in the growth profile there. And I'm also wondering on the cost side whether that's a big difference as well. You changed the payment grid. I think you tried to make it much more Swiss orientated rather than U.S. orientated. So you're trying to pay your advisers more to bring in more AUM per adviser. But I'm not sure whether that really works. If you look at the cost base, it's the same. AUM has gone up, but your revenue likewise has been under pressure. So actually, your efficiency hasn't improved despite rising AUM. And I appreciate there's other factors involved, but I'm just wondering what basis you're really seeing is similar.

So let me take entirely in front of that. The base we are seeing that we are growing our profitability and our asset base in line with others, so there seems to be a trend which includes net new money, and asset growth penetration is in line with our peers. The cost base is different. It's a combination of scale effects that some of those players have with also what I -- we mentioned before, are still outstanding initiatives that we need to deliver on in the next years to come.

So that one keeps us confident that the trajectory -- and also, by the way, the headwinds that we have on litigation in Puerto Rico, which you don't see really coming up, but the legal fees and the provisions that we had to take is something quite unique that we take on our U.S. business, which I wouldn't really compare it to others. But -- so over time, we will reduce the cost advantage through Broadridge, as I mentioned before, some of it, and a broader penetration of mandates, the ultra client segment penetration and the NII and the lending space.

Frankly, Andrew, I don't know where you are taking this line that we adopted a Swiss-based grid in the U.S. This is really -- I never heard that argumentation. And I will ask my colleagues in Investor Relation to sit down with you and understand exactly what you're talking about and explain you exactly how it works.

Sure. I was just alluding to the fact that maybe you changed your payment grid to try and pay your most productive advisers more, but hoping also to get more AUM per adviser and fee away more from a high net worth model. But I appreciate your comments...

Sorry, sorry. I think the issue, and then we move on, the grid was driven by our desire to incentivate (sic) [incentivize] basically people staying longer with us and, of course -- and the productivity, but it's also more of a reflection that we believe -- and actually, if you look at -- if we look at our numbers, same-store client adviser, net new money inflows and growth is picking up as a function of this issue. So we are incentivating people to stay longer with the firm and rather than having growth coming from recruiting, which is very dilutive to PBT, historically speaking. And this is not an idiosyncratic situation of UBS. It's an industry situation.

And I saw -- and we saw our peers adapting to that model, which is a very U.S. market-centric model, fine-tuned to the fact that we are -- if you look at our financial adviser base, we have the highest level of asset per financial adviser in the industry. We have the highest level of revenue per financial adviser. So there is, of course, a recognition that, that part of our Wealth Management business in the U.S. one is converging more and more towards the rest of the world as the preeminent and more ultra franchise in the industry.

And then, sorry, just one last question. How do you square that with the $9 billion of net new money outflows in the Americas? And is that just like a one-off for 1 or 2 clients, and you're saying that the underlying AUM per adviser is actually better than it was before?

Yes, it was 2 large clients, mostly. We had the highest same-store inflows actually at $6 billion that we've seen, and they've been increasing steadily, which is our objective. And it was very low margin in the outflows as well, so it didn't really impact our profitability.

The next question comes from Amit Goel, Barclays.

Just 2 questions, maybe a bit more a follow-up. But just firstly, again, coming back to the targets, so in terms of the 10% to 15% PBT growth expectation in GWM and the 12% to 15% RoCET1, in terms of the kind of expectations, so I guess as some of the previous people have alluded to, obviously, PBT growth hasn't been at the 10% to 15% level. If we weren't to get to the 10% to 15%, what kind of pressure does that put on the 12% to 15%? Or is 10% baked into the 12% RoCET1? Or is it just more flexed than that?

And then secondly, just -- I mean I'm just curious, just on the commentary that you're not going to be giving the adjusted kind of results. Obviously, you'll be calling out the items. But are we to take from that, that I guess, from your perspective, the kind of broader restructuring, et cetera, is done and so now it really is a kind of business as usual in terms of how you run, organize the group and so all the kind of scenario, analysis, restructuring, et cetera, is really kind of more of a moot point?

Yes. Naturally, Amit, the overall growth in GWM is certainly integral to our achievement of the group targets and the progression that we see over the next 3 years. At the same time, though, as Sergio mentioned, that we stress test our targets overall. And you can imagine part of that stress test included what happens if GWM is not able to grow at its 10% to 15% level. And Sergio mentioned that under those stress scenario, we still feel comfortable achieving that 12%. So that 10% to 15% helps to push us into the upper end of that 12% to 15% RoCET1 target.

Now on the adjusted side, you might recall that a couple of years back, we indicated that we would continue to adjust for our legacy cost program. And we actually had an accounting convention that allowed us to restructure or where we restructured and adjusted for the cost to achieve that program. That tapered off as we went through the end of last year, and that's been fully tapered down to 0. So last year was the final year where we had $200 million of restructuring related to that accounting. And so going forward, since we stopped that overall accounting convention, we'll just have more normal restructuring that we incur in the business. And we'll call that out, as we indicated, like the $200 million I already highlighted, and we'll queue off our reported results and give you the transparency.

There are no more questions. Ladies and gentlemen, the webcast and Q&A session for analysts and investors is over. You may now disconnect your lines. We will start the media Q&A session at 11:15.