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UBS AG (NYSE:UBS)

Q2 2014 Earnings Call

July 29, 2014 3:00 am ET

Executives

Caroline Stewart -

Sergio P. Ermotti - Group Chief Executive Officer, Member of Group Executive Board and Chairman of Global Community Affairs Steering Committee

Thomas Naratil - Group Chief Operating Officer, Group Chief Financial Officer and Member of Group Executive Board

Analysts

Fiona Swaffield - RBC Capital Markets, LLC, Research Division

Kian Abouhossein - JP Morgan Chase & Co, Research Division

Kinner R. Lakhani - Citigroup Inc, Research Division

Andrew Lim - Societe Generale Cross Asset Research

Michael Helsby - BofA Merrill Lynch, Research Division

Jeremy Sigee - Barclays Capital, Research Division

Jon Peace - Nomura Securities Co. Ltd., Research Division

Robert Murphy - HSBC, Research Division

Christopher Wheeler - Mediobanca Securities, Research Division

Caroline Stewart

Good morning, everyone. It's Caroline Stewart here, Head of Investor Relations for UBS. Welcome to our second quarter results presentation. As usual, Sergio Ermotti, our CEO, will take you through the highlights of our results; and Tom Naratil, our CFO and COO, will talk through the numbers in more detail. We'd be happy to take questions from analysts on the line first; and then after a short break, we'll take questions from the media.

Before I hand over to Sergio, I'd like to highlight our cautionary statement as regards forward-looking statements, and I'd ask you to read this carefully.

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

Sergio P. Ermotti

Thank you, Caroline. Good morning, everyone.

For the second quarter, we generated an adjusted profit before tax of CHF 1.2 billion. Net profit attributable to UBS shareholders was CHF 792 million, which includes CHF 254 million related to provisions for litigation, regulatory and similar matters. Excluding these costs, our operating performance was strong in a quarter marked by subdued client activity and risk appetite despite equity markets reaching new highs.

We continued to build our industry-leading capital position, with our fully applied Basel III CET1 ratio rising to 13.5%. Same time, our Swiss SRB fully applied leverage ratio increased to 4.2%, meeting our expected 2019 requirements more than 4 years early. This is an important achievement for us not at least because we adapted our strategy fundamentally to address regulatory change. We have reduced our balance sheet by almost CHF 500 billion since we implemented these changes at the end of 2011. And at the same time, we have adapted -- we have added significantly to our high-quality capital base. Now putting this in an international context and taking in account the differences for accounting standards and banking systems, we believe that 4.2% is already a strong minimum, which doesn't require fundamental regulatory adjustment just because we have achieved it. And say that and consistent with our industry-leading fully applied CET1 ratio and what we said in the past, we will also target a premium leverage ratio.

Now looking at the business divisions in more detail. Wealth Management earned an adjusted profit before tax of CHF 393 million, which included CHF 291 million in charges for provisions mainly related to our cross-border settlement with Germany. On an operating basis, we made solid progress as mandate sales, Lombard lending and invested assets rose. But overall, the significant drop in transaction volumes impacted revenues and margin. Net new money remained strong at nearly CHF 11 billion.

Wealth Management Americas delivered record revenues on invested assets that exceeded $1 trillion for the first time. Financial advisor productivity also reached an all-time high. Adjusted pretax profit of $246 million was affected by litigation charges mostly related to Puerto Rico. Net new money outflows of $2.5 billion mostly reflect seasonal tax payments made by clients during the quarter. The quarter's results need to be put in the context of WMA very strong net new money track record, with nearly $60 billion of net inflows over the last 16 quarters.

Consistent with our investor update message, we want to be the firm of choice for high net worth and ultra-high net worth clients and the financial advisor that serves them. That's why high-quality advisors will always be central to the success of this business. Therefore, our focus on FA retention remains relentless, and FA recruiting will continue to be highly selective.

In July, once again, Scorpio Research confirmed that, together, our Wealth Management businesses are the largest in the world. Most importance, I like to highlight the earnings power. Putting litigation costs aside, the combined underlying profits of our Wealth Management businesses were around CHF 940 million in the quarter. You can see why we are comfortable that they could earn well in excess of CHF 1 billion in quarterly pretax profit in a normalized environment.

Retail & Corporate delivered a resilient adjusted pretax profit of CHF 367 million, including CHF 48 million related to litigation, regulatory and other matters. Excluding this cost, profit before tax was over CHF 400 million and on par with the very strong performance we reported in the first quarter. Loan and deposit margins also rose, and annualized net new business volume growth for retail was solid at 2.5%.

Global Asset Management delivered CHF 107 million in adjusted pretax profit, which was also affected by litigation and regulatory charges. Our alternative capabilities continued to deliver solid investment results for their clients. Net new money was strong once again, with net inflows, excluding money market, of almost CHF 12 billion, with around 1/4 from our Wealth Management clients and the remainder from third parties.

The Investment Bank reported an adjusted pretax profit of CHF 563 million, up on the first quarter, driven by an excellent Corporate Client Solution performance, with particular strength in European ECM where we took part in all major capital increases. In ICS, performance was resilient, especially in rates and credits, while our business in FX and equities were impacted by low volatility and volumes. The Investment Bank delivered an adjusted return on attributed equity of 30% for the quarter. Once again, we are very pleased with how our client-centric Investment Bank performs in a variety of market conditions.

In the Corporate Center, we reported a pretax loss of CHF 387 million, partly due to losses incurred as we continued to reduce risk-weighted assets, balance sheet and our leverage ratio denominator in Non-core and the Legacies. These trades were completed while keeping long-term shareholder value and capital efficiency in mind. And we expect further progress over the course of this year.

Lastly, in July, we were honored to receive one of the most important awards in the industry, as Euromoney named UBS Best Global Bank and, for the third year running, the Best Bank in Switzerland.

Looking ahead, we are working towards the goals we outlined at our investor update a few months ago. Our first objective is to drive capital-efficient profit growth as we build revenues and reduce costs. I've already highlighted a number of successful strategic initiatives to grow revenues across the group, and as you know, we are committed to make further investments in growth regions and businesses.

Increased efficiency and effectiveness should be viewed as a complement to these investments, as the majority of our savings will be generated in our Corporate Center. In the first half of the year, we have recorded a further CHF 300 million in net cost savings, and I have every confidence we will achieve our targets in line with the schedule we laid out at our investor update.

Our second objective is to continue to address structural and legacy issues while maintaining our financial strengths. During the quarter, we made progress in a -- on a number of these matters, including our cross-border case with Bochum in Germany. The resolution of this matter is a significant step in allowing UBS to move forward in this important market. However, several industry issues remain that will require substantial focus and resource. We will continue to work persistently to resolve those that affect us. The cost of these matters cannot be measured in settlement terms alone, as remediation is also expensive. But our priority is the same. We continue to invest in our compliance and operational risk control processes and foster and promote a culture which limits financial and reputational risks.

Last quarter, we took an important step in improving UBS' resolvability by incorporating a subsidiary, UBS Group AG, which will become our future group holding company. To do this, we intend to launch a share exchange offer this quarter, subject to regulatory approvals. Upon completion of the transaction, we expect to propose a supplementary capital return of at least CHF 0.25 to holders of UBS Group AG shares. We believe this structure will not only be, by far, the most efficient way to address UBS' resolvability requirements but also to return capital to shareholders. Tom will provide more details on the topic in his presentation.

So in conclusion, we reported strong underlying results in each of our businesses. Our capital and leverage ratio improved further, and we gained industry recognition. It's clear that we are on the right track, and so we will keep executing our strategy with discipline, focusing on client and controlling what we can control as we address legacy issues. UBS has a unique franchise, we have excellent growth prospects, a very strong capital base and the focus to deliver results in a variety of market conditions. This continues to give me great confidence in our future and in our ability to deliver strong returns to our shareholders.

Now Tom will provide more details on the quarter.

Thomas Naratil

Thank you, Sergio. Good morning, everyone. As usual, my commentary will reference adjusted results, unless otherwise stated.

This quarter, we excluded an own credit gain of CHF 72 million, gains on sale of real estate of CHF 1 million, net restructuring charges of CHF 89 million and a CHF 43 million gain in the Investment Bank from the partial sale of our investment in the financial information services company, Markit. The tax expense for the quarter was CHF 314 million. Our full year effective tax rate could change significantly based on the revaluation of our deferred tax assets, which we expect to occur in the third quarter. In the past, we have attributed 75% of the DTA revaluations in the third quarter and 25% in the fourth quarter, in accordance with the interim accounting principles of IAS 34.

We reported an IFRS net profit attributable to shareholders of CHF 792 million. Net profit attributable to preferred noteholders and noncontrolling interests was CHF 112 million.

As we announced in May, and as Sergio mentioned earlier, we expect to commence a share for share exchange offer, subject to regulatory approvals, during the third quarter in order to establish a new holding company, UBS Group AG. Currently, UBS Group AG is a wholly owned subsidiary of UBS AG. And the intention is for shares of UBS AG to be acquired in exchange for registered shares of UBS Group AG on a one-for-one basis. Upon completion of the offer, UBS Group AG will become a holding company of UBS AG and its subsidiaries and will be listed on the SIX and the New York Stock Exchange. The offer is expected to take up to 3 months. And its successful completion is subject to a number of conditions, including the acquisition by UBS Group AG of at least 90% of UBS AG's outstanding shares. Depending on the level of ownership achieved by UBS Group AG during the exchange offer, there may be an extended squeeze-out period required in order to achieve full ownership by -- of UBS AG by UBS Group AG that could last several months.

On completion of this transaction and the other measures we've announced, UBS' global resolvability will be significantly improved, and we expect to be eligible for a capital rebate by a reduction in our progressive upper capital requirements. This would result in lower total capital requirements for UBS. We also expect to propose a one-time supplementary capital return of at least CHF 0.25 per share to shareholders of UBS Group AG, which is separate and in addition to our targeted capital return of at least 50% of net profit attributable to shareholders. As Sergio mentioned, we believe that our exchange offer is the most efficient way to implement both a group holding company structure and to return capital to our shareholders.

Wealth Management delivered a pretax profit of CHF 393 million, which includes provisions for litigation, regulatory and similar matters of CHF 291 million. With a profit of CHF 684 million, excluding charges for litigation, regulatory and similar matters, declines in transaction-based revenues were evident, as client volumes fell across all regions but were partially offset by higher net interest and recurring net fee income. We're pleased with the progress we're making with this business, especially with our initiative to grow mandates. Costs increased 19%, mostly due to higher provisions and the resolution of the German cross-border matter. Net new money was strong once again, with net inflows of CHF 10.7 billion and annualized growth rate of 4.8%.

As Wealth Management is our core business, our reported figure includes CHF 3.4 billion in cross-border asset outflows. Continued demand in Lombard lending contributed CHF 2.2 billion and has been a consistent source of net new money over prior quarters. This activity depends on existing client appetite for leverage. And should we see a cycle of deleveraging, reduction in invested assets related to Lombard loans could somewhat offset a portion of our net new money inflows in any given quarter.

Looking at revenue in more detail. Net interest income increased by CHF 22 million, partially due to higher income from Lombard loans across all regions, as both margins and volumes rose. We believe we're nearing or have reached the trough in deposit margins and expect some expansion to begin in 2015. Recurring net fee income increased by CHF 25 million, as our invested asset base continued to grow, strengthening the foundation for future profitability. Revenues from discretionary and advisory mandates also grew, as penetration increased to 24% from 22% at year-end. As highlighted in our recent investor update, we're aiming to have around 40% of our invested assets in mandates, as they provide an opportunity to deliver a superior client value proposition while generating recurring income at an attractive gross margin. Transaction-based and other income declined by CHF 72 million.

Overall gross margin declined by 3 basis points to 84 on slightly lower revenues and a growing invested asset base. In contrast to the last 7 quarters, month-to-month volatility in gross margin was relatively limited, with gross margins of 83 basis points in April, 84 basis points in May and 86 basis points in June.

Net new money was strong in APAC, at CHF 8.9 billion and an annualized growth rate of 16%. In Switzerland, we continued to enjoy strong momentum. Emerging markets weakened after a strong first quarter; while in Europe, net new money improved but remained negative, as cross-border outflows were only partially offset by domestic inflows. We're pleased with the net new money we saw in our domestic European business. In the ultra-high net worth segment, net new money growth was robust at CHF 9.6 billion. Lower client activity, particularly in FX products and investment funds, pressured gross margins, with margins down in all regions. APAC saw the largest decline, with the 7-basis-point drop to 78.

This quarter, we continued to make investments in our core business in Wealth Management and made further progress in our objective to continuously improve our advisor force and to add advisors to our growth regions. Advisors increased by 25, up 53 in APAC, while more established markets were able to reduce headcount as a result of improvements in our advisor productivity.

Wealth Management Americas continued to make good progress in the quarter, with record revenues, record investment assets and increased financial advisor productivity. Pretax profit was $246 million and was strong, excluding provisions for litigation, regulatory and similar matters of $44 million, mostly related to Puerto Rico. Operating income increased to a record of $1.9 billion, as both net interest income and recurring net fee income rose on higher lending balances and higher managed account fees on record invested assets. This was partly offset by lower transaction-based income, as client activity fell, most notably in U.S. municipal securities.

Expenses increased due to higher financial advisor compensation on higher compensable revenues, Corporate Center allocated costs and legal fees. While we're focused on reducing costs, we continue to invest in key strategic areas of our business, such as lending, technology, infrastructure and financial planning.

Net new money outflows totaled $2.5 billion, excluding dividends and interest. Outflows mainly reflect client withdrawals of approximately $2.5 billion, associated with seasonal income tax payments. As Sergio mentioned, the quarter's results need to be put in the context of WMA's very strong track record.

Looking at that track record in more detail. The benefits of our strategy are evident. Our focus is on improving the quality and productivity of our financial advisors. We have the most productive FAs in the industry, as the business delivered a record $1.1 million of revenue per FA, with our average FA having a record $143 million of invested assets. This strategy, where we operate with around 7,000 financial advisors, is working. We improved revenue productivity by over 20% in the past 3 years, while invested assets per advisor have risen by 25% in the same period. As a result, our financial advisors have been instrumental in driving an increase in our invested assets of over $0.25 trillion since the start of 2011.

Growing lending balances is also a critical component of our strategy. It's attractive not only for clients and FAs by providing more holistic products and services, but it also supports high-quality growth in recurring net interest income and in pretax margin. This initiative has been very successful, as we've grown lending balances steadily since the end of 2011, adding $12 billion in 5 quarters, which equates to a 40% growth rate.

Retail & Corporate delivered a strong performance, excluding charges for litigation, regulatory and similar matters of CHF 48 million. Excluding these charges, our profit before tax was once again above CHF 400 million. Our annualized net new business volume growth rate for retail clients decreased to 2.5% from a seasonally strong first quarter and remained within our 1% to 4% target range. Net new loans were positive, increasing to a lesser extent than client assets, reflecting our strategy to selectively grow the business by focusing on high-quality loans. Net interest margin increased 5 basis points to 158 basis points, reflecting higher allocated income from group treasury and the effect of selective pricing adjustments to our deposits, which more than offset the adverse effect of the ongoing low interest rate environment. Loan margins increased on higher volume, as spreads widened across all major products.

Global Asset Management delivered a pretax profit of CHF 107 million, down principally due to a CHF 33 million charge for a single matter, which more than offset higher revenues from increased management fees, mainly in traditional investments and global real estate.

Net new money, excluding money market flows, was very strong at CHF 11.6 billion. We saw robust contributions from third-party channels and our Wealth Management businesses across a variety of products. We're very pleased with the net new money performance we've seen in the first half of this year, and we expect to see growth more in line with our annual targets during the second half.

We continued to outperform peers in real estate and alternatives, as well as in key multi-asset strategy. Investment performance was mixed in our key equity strategies and in fixed income.

As a reminder, the Investment Bank suggested results exclude a CHF 43 million gain from the partial sale of our stake in Markit. The Investment Bank delivered strong results, with pretax profits up on the first quarter to CHF 563 million, and return on attributed equity was 30%. On a reported basis, revenues were the second highest since the announcement of our strategy in 2012. Our model proved resilient as Corporate Client Solutions delivered its best quarter since 1Q '13. And Investor Client Solutions remained focused on maximizing resource efficiency in a quarter with lower client activity and limited volatility.

Corporate Client Solutions revenues were up across all regions, totaling CHF 986 million. Equity capital markets delivered the largest increase in revenues, as market share increased on strong participation in both IPOs and follow-ons as we participated in a number of high-profile transactions, such as the rights offering for Deutsche Bank and Grupo Banco Popolare and the JD.com IPO. Debt capital markets revenues increased 22% on higher leverage finance results, which included a gain on an investment in an associate following its IPO.

Advisory results also improved in the quarter, as we acted as lead advisor to AerCap on their acquisition of International Lease Finance Corporation from AIG and as an advisor for Westfield Group's restructuring.

Investor Client Services revenues declined to CHF 1.3 billion, as our client-focused model was impacted by low volumes in equities, which posted revenues of CHF 906 million as cash and derivatives declined; while financing services improved slightly, driven by strong trading revenues in equity finance. On a reported basis, revenues in FX, Rates and Credit increased, as the quarter included CHF 39 million of the gain on the sale of Markit. Even excluding this gain, performance in rates and credit was solid. FX revenues decreased on lower client activity levels.

Operating expenses increased slightly. Risk-weighted assets and funded assets increased to CHF 68 billion and CHF 182 billion, respectively. Our resource efficiency has improved since last year, as revenues were relatively flat; while RWA, excluding operational risk, was down CHF 7 billion year-over-year.

Our reported pretax profit in Corporate Center - Core Functions was CHF 25 million. Net treasury income remaining in Corporate Center - Core Functions included CHF 182 million in retained funding costs, which increased due to the issuance of the final targeted tranche of our loss-absorbing capital and as business divisions reduced their funding consumption. While we continue to expect retained funding costs to decrease over time to approximately CHF 100 million in 2015 and to a negligible amount in 2016, it's likely that funding costs will increase for full year 2014 as a result of several evolving factors, such as our desire to hold additional liquid assets due to the macroeconomic, geopolitical and regulatory environment.

Operating expenses decreased CHF 229 million to negative CHF 2 million, as we released provisions for litigation, regulatory and similar matters amounting to CHF 141 million and as actual costs incurred were lower than the cost allocations charged to the business divisions.

Non-core and Legacy Portfolio reported a pretax loss of CHF 412 million. Revenues in Non-core and Legacy were negative CHF 167 million, mainly due to negative revenues from the exit of the majority of the correlation trading portfolio, as well as novation and unwind activity and lower revenues in Legacy Portfolio from reference-linked notes and real estate portfolio.

Reported expenses decreased 4% to CHF 245 million, as personnel costs declined at headcount reductions and lower variable compensation expenses. G&A costs were broadly flat, as an impairment charge of CHF 78 million related to certain disputed receivables and the professional fees related to the exit of the majority of the correlation trading portfolio were largely offset by the effect of a net release of provisions for litigation, regulatory and similar matters.

We made significant progress in reducing our exposure in the Non-core and Legacy Portfolio this quarter, as we reduced associated RWAs by CHF 8 billion to CHF 52 billion and the leverage ratio denominator by CHF 14 billion to CHF 121 billion. Excluding operational risk, risk-weighted assets were down 21%.

As I've previously mentioned, the most significant trade in the quarter related to the exit of the majority of the correlation trading portfolio in Non-core. This trade, with continued other reductions in OTC derivatives through active unwind activities, contributed to a CHF 5 billion reduction in risk-weighted assets and a CHF 13 billion reduction in leverage ratio denominator. We expect novation to [ph] maturities related to the exit of the majority of the correlation trading portfolio, will lead to a further reduction of approximately CHF 7 billion in LRD by year-end.

In Legacy Portfolio, exits of certain real estate securities led to a reduction of CHF 3 billion of RWA and CHF 1 billion of LRD.

In July, the loan to the BlackRock fund was fully repaid. This loan was established in 2008 as part of a transaction to reduce our exposure to the U.S. RMBS market during the financial crisis. As a result of the repayment of this loan, associated RWA and funded assets were reduced to 0, which will be reflected in our third quarter results.

Reducing our exposures in Non-core and Legacy Portfolio to free up capital remains one of our key priorities. And we're confident we can continue to achieve our RWA and LRD reduction targets while optimizing value for shareholders.

Our daily trading revenue in any quarter is a function of our market exposures, volumes and volatility. But they also reflect the choices we make regarding risk reduction activity in the Non-core and Legacy Portfolio. As you're aware, we may be willing to take some losses to accelerate the exits in certain cases. In the second quarter, we had just 1 negative trading day, which was driven by the exit of the majority of the correlation trading portfolio in Non-core, which I mentioned earlier. ICS has recorded positive trading days every day in the first half of this year. And the 2 negative days in the second half of last year represented a combined loss of less than CHF 3 million. For the group overall, we haven't experienced the back testing exception since 2012.

As communicated on our investor update, we remain committed to net cost reductions of CHF 1 billion in Corporate Center - Core Functions and CHF 400 million in Corporate Center Non-core and Legacy Portfolio by year-end 2015. We're pleased with the progress we're making with our clean slate budgeting process, which will drive cost reductions in the next 2 to 3 years.

So where do we stand this quarter? In Core Functions, we achieved annualized net cost reductions of CHF 100 million in the first half of 2014 compared with the same period last year. Year-to-date, annualized operating expenses in Core Functions decreased further, as higher regulatory demand was more than offset by lower litigation charges and FX movements.

In the Non-core and Legacy Portfolio, we've achieved annualized net cost reductions of CHF 200 million. Our year-to-date annualized operating expenses decreased, however, by a further CHF 1.9 billion compared with the same period last year, as we incurred significantly lower provisions for litigation, regulatory and similar matters.

We remain committed to improving our efficiency. As we continue to reduce costs, lower allocations from the Corporate Center will directly benefit the total cost base in the business divisions. As a consequence of our ongoing cost reduction efforts, we continue to expect restructuring charges of up to CHF 900 million in 2014 and CHF 800 million in 2015.

We ended the second quarter with RWA flat at CHF 227 billion. As previously mentioned, we continue to make good progress in reducing our exposures in Non-core and Legacy Portfolio, where we reduced RWA by CHF 8 billion. However, this decrease was partly offset by an increase in RWA in the Investment Bank, which nonetheless remained below its CHF 70 billion target.

Our Basel III CET1 ratio improved by 30 basis points to 13.5%, on increased CET1 capital. And at quarter-end, our Basel III CET1 ratio post-stress was above 10%. Our Swiss SRB Basel III leverage ratio increased to 5.3% on a phase-in basis and 4.2% on a fully applied basis, meeting our current estimated 2019 requirements. The numerator increase, largely due to the issuance of loss-absorbing capital and from retained earnings. We reduced our fully applied leverage ratio denominator by CHF 7 billion, driven by a reduction of CHF 14 billion in our Non-core and Legacy Portfolio.

Despite low client activity and elevated charges for litigation, regulatory and similar matters, the underlying performance of our businesses was strong, and several significant achievements were made. We continue to build on our industry-leading capital position. We're fully committed to executing our strategic priorities across the group and in all business divisions.

Thank you. Sergio and I will now take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Mrs. Fiona Swaffield, RBC.

Fiona Swaffield - RBC Capital Markets, LLC, Research Division

I just had questions on a couple of areas. The first was on the number that you give in the quarterly report on potential capital loss from further litigation matters. I think it was stable. Could you talk about why that was stable when industry settlement costs are rising? And then the second issue was just on operational risk-weighted assets, which are drifting up, not much but a little bit. Could you talk about what could be driving that? And then the third was just on the Wealth Management business and particularly kind of on Asia, where the margin was particularly weak in Q2. Is there anything -- what do you think in second half? Or was there something particularly seasonal in transactions there or could that recover?

Thomas Naratil

Okay, thank you, Fiona. For the first question regarding the estimated capital loss, if you look at the methodology that we used that drives off the AMA model and in terms of drawdown of exposures, it depends on the categories in which we see the losses. And on a quarter-to-quarter basis, we did not see an uptick in the amount of outflows that we would have estimated using that model and methodology. I would say I think, to some extent, we might have already anticipated some of that uplift earlier in the modeling. Second, on the op risk RWA, some of the uplift, we do have now 37% of our RWA in total on operational risk. You did see an uplift of CHF 1.3 billion that came from supplemental components that we arrived at in our discussions with FINMA. And then finally, on the Wealth Management business, you're asking about Asia and what we saw. We did see a very good first quarter high amount of transactional activity in APAC. However, with the declines in equity market volatility and FX volatility in 2Q, we did see that substantial decline in activity that you noted, and that was roughly about a 7-basis-point decline in gross margin during the second quarter. Now if you look back at the history of the APAC region, I'd say it's not abnormal to see a lot of volatility, in particular, 1Q to 2Q.

Fiona Swaffield - RBC Capital Markets, LLC, Research Division

But is there any kind of hope that second half may be somewhat of an improvement?

Thomas Naratil

Yes. I think, Fiona, if you look at our outlook statement, we continue to reflect in that what our clients see, which is an environment where there is a fair amount of geopolitical stability -- geopolitical instability, as well as concerns about timings of unwinding of easing at potentially different rates and, perhaps, even different directions by the major central banks. So I would say that the environment we saw in 2Q for our outlook statement is the same one we see in 3Q, however, with the addition of some of the seasonal slowdown you traditionally see in the summer.

Operator

Next question from Kian Abouhossein, JPMorgan.

Kian Abouhossein - JP Morgan Chase & Co, Research Division

The first question is coming to top line margins in Wealth Management. Can you just discuss a little bit more in detail of what -- how we should think about the top line margin considering you're quite far off your targets -- your KPI target? And in respect to transactions, is there any change that you're seeing, especially in Asia? The second question is more related to litigation issues. Why you're bringing -- why you talk about high frequency in this quarter but not in the first quarter? So just what has changed between first quarter and second quarter, if I look at your statements, you didn't have in the first? The second question is regarding FX, regarding litigation. Did you self-disclose on FX? Is my first question. And the second question is, how does the NPA, which you still have, kick in, in case there is any wrongdoing in respect to any U.S. matters, such as FX?

Thomas Naratil

Okay, thank you, Kian. So to take a look at the top line margin in Wealth Management, I think the best slide to look at is actually our Slide 7 to be that -- I mean, one, as you know, we are a fair distance away from the target that we've set, but as you know, we've always indicated that there's a multiyear process to get there, not a multi-quarter process. And if we look at what we did see in the quarter that we're very happy with is the fact that, first, our objective is to drive revenue higher, so we have a higher pretax in the business. Gross margin is an indicator of what we're doing to get there. Now I think if you look at this, some of the trends that I think are encouraging, as I mentioned, we're seeing a troughing of deposit margins. That will be a little stubborn. Certainly, it won't rise very quickly, but we could see some improvements in there as we move into early 2015, first or second quarter. Second, we are seeing some benefits of improved pricing on the lending side in terms of net interest income, so that's also a potential positive for us. Second, if you look at the recurring fee income line, where we saw a stable margin in the quarter but growth in income, now we're really seeing the impact of our mandate initiative, where we've increased the penetration in mandates from 22% to 24% just in the first half of this year. And that's something that is we believe more attractive for clients in the way that we manage their money. And also it's something that has higher gross margin for us over time than the average that we have today. So you see where the volatility and the thing that is really driving us away from the targets is mostly the transaction-based volatility. So I think if you look at the trends, we still feel comfortable with what we said at the investor update, when we certainly had a chance to revisit the target. And the 95 to 105 range, I'll just remind you that it's multiyear, not multi-quarter from that. Your second question, why I talk about high-frequency trading in the second quarter rather than the first quarter, I certainly think if you look at the press and the number of events surrounding that topic, they've certainly picked up in the second quarter more than the first quarter and our litigation note conformed with that pickup in activity. Finally, on FX, what we've had in our FX note from the very beginning, when we introduced that matter, is that we conducted our own investigation on foreign exchange following some media reports around the topic, and we've been doing that for about a year now. So we did have a self-initiated investigation into the matter. Regarding the non-prosecution agreement, the only comment that I would make on that, we've clearly disclosed the terms of the non-prosecution agreement. We filed that in our filings. It's also referenced in the note. And of course, anything that would happen with that non-prosecution agreement, is at the discretion of the Department of Justice.

Kian Abouhossein - JP Morgan Chase & Co, Research Division

Yes. And just a follow-up, you said you disclosed the information, but did you self-disclose proactively before you were asked by the regulators on the FX side?

Thomas Naratil

I think, Kian, my answer that we began our own investigation is sufficient.

Kian Abouhossein - JP Morgan Chase & Co, Research Division

Okay. And in terms of NPA, I mean, I read the document in detail myself, and frankly, I don't fully understand what it actually means. I'm not a lawyer. Now what -- if NPA kicks in, what does it actually mean for you, if it's triggered?

Sergio P. Ermotti

We are not -- we cannot be in a position to comment on hypothetical questions.

Kian Abouhossein - JP Morgan Chase & Co, Research Division

Okay. And just on high frequency, just to come back to that, a lot of banks tell me at what point legal matters go into the public domain in terms of your reports. I would like to know what triggers for you to put something into the reports that you publish publicly.

Thomas Naratil

Yes, Kian, it's no single factor. It's any number of factors, which could include whether or not it's pertinent to the industry at large, and we believe it's potentially sufficiently of interest to investors as a topic, or two, it could also be something where we expect a material outflow related to the matter. And as a result, that's another reason it could be highlighted.

Operator

Next question from Kinner Lakhani, Citi.

Kinner R. Lakhani - Citigroup Inc, Research Division

I've got 3 questions. So firstly, on the SNB financial stability report that just came out recently with a particular focus on risk weights and leverage ratio, I just wanted to get your thoughts on -- so both issues, both on the risk weights, as well as on potential higher leverage requirement, and specifically, what your views are on GLAC, as a means of higher "too big to fail" requirements. Secondly, just to understand the rationale behind the Group Treasury reallocations that we saw to the divisions and how much NII benefits in through each division to help us better understand the interest [ph]. And thirdly, is the Investment Bank hitting a ceiling -- a glass ceiling on risk-weighted asset target that you have of less than CHF 7 billion [ph]?

Sergio P. Ermotti

Okay. Kinner, thanks for the question. On -- in respect of the stability report, I think that what we're seeing, I think that to the extent that we can create more transparency in a level playing field matter, I think that we are in favor for a higher disclosure and setting clear rules and standards for international banks. In respect of the leverage ratio demand, I think that we have been quite consistent in our points in saying that our new business model, our plans for reducing balance sheet would lead into a significant improvement of our leverage position, which we achieved this quarter by reaching a 4.2% ratio on a fully applied basis, the SRB ratio. We're still going to improve this ratio going forward. We don't think it's necessary at this stage to change the minimum requirement. Also, because if you look at -- on an international comparison, when you adjust for different accounting standards and different banking system, those ratio are very solid. So we will continue to work, as we say, to put a premium on top of minimum requirements in line with our policies, but we don't believe this should be or will be a matter of big issues for us. In terms of GLAC, I think that is a quite interesting component of building up buffers and capital base. We do think that with the establishment of the holding company and the potential, also, introduction of bail-in-able debts, the structure with a very solid capital equity, core equity position we have, in addition to having completed our GLAC issuance, this will put our holding company and the group in an extremely strong position going forward. So we welcome this kind of actions. And as you know, in terms of GLAC, we do believe that it's better to have loss-absorbing structures rather than dilutive structures.

Thomas Naratil

Yes. Kinner, if I could just add 2 things on -- to the other questions onto Sergio's comments, the first, we have said for the group holding company, we will issue contractually bail-in-able debt out of the holding company in the future. Obviously, we have a substantial amount of overfunding at this point in time, but that's something that's certainly in our menu of options as we look forward. Second, on the debates on risk weights and standardized versus advanced. I think, as you know, we continue to have a 3-pronged approach to the way we view our capital management, which is based on our CET1 ratio and risk weighting, which is based on the leverage ratio and also based on stress testing. And our own stress test that we run internally is one that has us stressing to the regulatory minimum CET1 ratio. So we think that 3-pronged approach is the best way to look at this and not just looking at any one single factor as the binding constraint. On the Group Treasury reallocations, I think there is an important thing to note. We've had -- our business divisions have been very disciplined about their use of balance sheet during the course of the year. And our approach and our methodology is that to the extent that we have excess term funding that we're carrying, if the divisions utilize less balance sheet, we do not allocate the incremental term funding to them. And so what we're trying to do is really have a very responsive mechanism. So if divisions reduce their demand, we want them to see the benefits coming through in their costs related to their P&L. We think that one of the advantages of doing that is to prevent people from thinking, "I've got term funding anyway, so why don't I just put on a few balance sheet trades to try to address the fact that I already have that expense." We manage that at Group Treasury. We do have a symmetric approach to that. So to the extent someone borrowed over their usual line, we actually have a more punitive system, where there's a penalizing charge on top of the normal rates that we charge out of Group Treasury. So in this quarter, where you saw some more efficient balance sheet utilization below limits, you do see the Group Treasury retaining more of the net interest costs, number one. The second piece that I referenced in my remarks is that I'm sure you noticed that our LCR rose to 117% in the quarter, and we continued to have a very conservative liquidity position based on some of the things that we've said in our outlook statement. And so again, that extra liquidity which we're carrying on a strategic basis, the costs associated with that are carried in Group Treasury. So I do think there's some benefit. If you look at the allocation, not everything is passing through directly to the divisions.

Sergio P. Ermotti

On the IB side, if you look at the performance year-on-year in terms of risk-weighted assets, utilization, excluding operational risk, went down by CHF 7 billion. So I would say that from a business standpoint of you serving clients, being a client-centric investment bank, there is no indication whatsoever that they are reaching a ceiling. Of course, over time, we do expect 2 issues: short term, we had a temporary uplift of risk-weighted assets that we do expect, short term, to phase out; but also long term, the proportion of operational risks associated with the Investment Bank should also help creating capacity, should market condition and clients' activity also increase because there is a high correlation between our utilization of risk-weighted assets and clients' activity.

Kinner R. Lakhani - Citigroup Inc, Research Division

Great. So just as a very quick follow-up, do you have any number in mind -- or range in mind in terms of how much contractual bail-in will be issued? Is that completely consistent with the...

Thomas Naratil

At this point in time, Kinner, we're still doing the modeling on that.

Operator

Next question from Andrew Lim, Societe Generale.

Andrew Lim - Societe Generale Cross Asset Research

The first one is on CoCos or BCNs. You issued quite a lot this quarter, CHF 2.3 billion. And you're standing out now at CHF 9.5 billion in aggregate, which seems a bit higher than CHF 9 billion that you were guiding to beforehand, if I base that on 4.5% of your risk-weighted assets. And I was just wondering what your thinking is here going forward. Are you at the limit now? Or are you intending to issue more for leverage ratio purposes? And then secondly, on recent litigation affecting some U.S. banks for CDOs, straight MBS [ph], if you could give us some color on how your market shares backed up [ph], leading up to the credit crisis and whether you've provisioned adequately versus the forthcoming litigation in this regard, any color here would be much appreciated.

Thomas Naratil

Andrew, thank you for those questions. On the low-trigger loss-absorbing capital that we issued, including the issue this quarter, as you noted, it did put us in a position where it took us slightly above our 450-basis-point estimated requirement on CHF 200 billion of risk-weighted assets, as you said, CHF 9.5 billion. But let's not forget that we do issue in currencies other than Swiss francs, so we do have to have some buffer in there for anticipated FX volatility over the course of time. But in our view, we've completed all the issuance we need on low-trigger loss-absorbing capital until we get closer to the call dates on those securities. Your question on litigation -- and actually, another point as well. It's -- we issue to where we thought we need to be. We don't need to work on the numerator as much to reach and to have a further improvement on our leverage ratio because we're working down. Don't forget, our leverage ratio denominator target is CHF 900 billion from where we are currently, so there's still some substantial movement down. And at 4.2%, we're actually at our 2019 estimated requirement anyway. On the litigation item, regarding RMBS, we do have a very detailed RMBS note. Market share is one variable that you could certainly go back and find the data on, going back to the financial crisis. But each one of these matters, and if you look through this, depends on the facts and circumstances of each set of claims that are being made by a particular plaintiff or by a regulator, and so I think it's too broad. I think if you just did a market share analysis and said, as a result, that's my way to calculate what the exposures would be -- or the ultimate outflow would be; certainly, is a way to calculate the exposures. But to estimate the ultimate amount of outflows, I think, that would be a flawed approach.

Operator

Next question from Michael Helsby, Bank of America Merrill Lynch.

Michael Helsby - BofA Merrill Lynch, Research Division

Just 2 questions from me. Firstly, just circling back to what Kinner was asking on the Swiss National Bank and on leverage, it's pretty clear that they're talking about the lack of international comparability. So if I use your leverage target of CHF 900 (sic) [CHF 900 billion], you've got a CET1 leverage ratio at the moment of about 3.4%. I think the U.K. is quite interesting at the moment because they're going halfway house between what the U.S. have set out and where Europe currently stands. So if the Swiss did go down that route of having a buffer for the G-SIB, and therefore, more like 4% was appropriate, would you consider changing your policy on high-trigger AT1 and look to issue that to close the gap? Or would you just let your core Tier 1 ratio drift higher from the 13.5% that it is at the moment? So it's just your -- how you feel about that, using AT1 from here? And secondly, in the Core Functions, Corporate Center, I'm just very curious why -- given the backdrop for litigation and regulatory matters, why you've actually released CHF 141 million this quarter, if you could tell us what that's for and why you just didn't keep it in the buffer, so to speak.

Sergio P. Ermotti

Go on, Tom.

Thomas Naratil

Okay, Sergio. So Michael, first, on leverage ratio, I mean, I think considering there is a process that there will be both on a legislative and regulatory side in Switzerland that I don't think it's really appropriate for us to try to guess on the hypotheticals of where things will come out. I think just in terms of making a comment overall, when you talk about international comparisons, it's also important to note the differences in terms of the structure of the banking systems. And so on the U.S. comparison to Europe, let's just make it very generic, when you have quasi-governmental entity that purchase up the vast majority of the mortgage production of a particular country and take it off balance sheet, comparing the leverage ratios of 2 different groups of banks where that doesn't exist is an interesting way to do it, but they're very -- 2 very different systems. And the others [ph] should not have the same leverage ratios, unless you're going to make the changes necessary to go down that path. I think there's -- there are a lot broader set of questions on that. In terms of just what would we do, would we consider, in the event something came along, other forms of issuance that we haven't done publicly? We have used high trigger in our employee compensation plans. Of course, we'd have to consider it, but we'd have to wait and see what the environment looked at, at that point in time and what the rules and regulations were. On the release, the one thing I'd say about the release, you mentioned, "Well, why couldn't you just keep it in the buffer?" Well, we couldn't because that would not be in line with what the accounting standards permit. We can only carry a provision if it is both probable and estimable, that will be an out -- there will be an outflow for that matter, and if that estimate is, in fact, reliable. And based on the one particular matter for which we reversed the provision in the quarter, it was either no longer probable or estimable.

Sergio P. Ermotti

Yes. And maybe let me add to Tom's remarks on leverage ratio because, as we mentioned in the past, I think that's -- particularly for our Swiss domestic business, when you look at the Corporate & Retail business, the mortgage business, this is a business that would -- will be affected the most. And we would need to take appropriate actions in respect of adapting our business model and our on and off balance sheet strategy on this matter. So the response to potential changes, which we -- are difficult to predict at this stage, it's not necessarily by taking actions on capital on -- but it could well be based on different ways to manage the business going forward.

Operator

Next question from Jeremy Sigee, Barclays.

Jeremy Sigee - Barclays Capital, Research Division

Just 3 specific questions, please, following up on things. Firstly, in Wealth Management European clients, your flow number and also your language was quite resilient, and I thought that contrasted a bit with Credit Suisse who are warning of further outflows from that area. And I just wondered if that reflects that you're at a different stage than they are. I know you won't want to comment on them, but if you could just comment on your own situation with Western European clients. Second question, in the IB, I sense your equities revenue number was a bit disappointing for you, and I just wondered if there are any specifics around that or any scope for that to bounce back from that number. And then third question, you highlighted the extra exit costs in the Corporate Center from exiting the correlation trading portfolio, and I just wondered if this is a -- reflecting a more aggressive approach that you are now taking now that you've made such good progress there, you're now sort of being more aggressive about tidying up some of the remaining portfolios. So is that a change of approach in the Corporate Center?

Sergio P. Ermotti

Okay. Thanks for all the question. I'll take the second and the third. I mean, in respect of our equity performance, I think that's -- if you look at the correlate -- at the correlation of this performance versus the volumes in the markets, I would say that it's exactly what we would have expected from a client-centric business. So of course -- and also, if you look at the overall activity in respect of a prime brokerage, where we have a -- we are running a substantial balance sheet but not as big as other players, you can justify, to some degree, the delta between our performance and some competitors. In respect of Non-core and Legacy, I think that we always had a fairly aggressive stance as long as that disposal of assets would be managed in a capital-efficient way in respect of making sure that we do something that makes sense from an economic profit stand point of view for shareholders. So our stance hasn't really changed. What has changed is that we have been quite carefully using the right time and not being in a scenario which we needed to sell out in order to achieve targets. That's the reason why we were always comfortable to run ahead of our targets so that we could manage those processes in a position of strength and not being forced to take action.

Thomas Naratil

And Jeremy, I'm glad you noticed the positive trends that we see in our Wealth Management funds [ph], and they're a continuation of what we've been seeing for quite a long period of time. I mean, we have -- if you look at APAC, although the results are volatile quarter-to-quarter because it's a high percent of ultra-high net worth clients, that's a key area for us for growth, and it continues to perform well. We're very pleased to see a continued positive growth in Switzerland. In our home market, our ultra-high net worth percentage at 9.6%. EM, still positive, again, subject to those big-ticket flows. And if you look at Europe, I do think the comments that we've made about -- that we were negative 0.6, but we did see very good performance in our European onshore business. And as we complete in Europe the remainder of the voluntary compliance programs, we'll begin to see that offshore outflow drag begin to wane. And then you'll start to see that very good performance in the onshore business begin to show through on a net basis.

Operator

Next question from Jon Peace, Nomura.

Jon Peace - Nomura Securities Co. Ltd., Research Division

Just sort of returning back to some of the comments you made earlier around the leverage ratio and how you think about your capital. With the special dividend that you declared last quarter of CHF 0.25, could you just remind us, how did you decide that, that was the right number to pay? And as we go forward from here, how should we think about the timing and the amount, if any, of future special dividends?

Sergio P. Ermotti

Jon, sorry just for the correction, but this is not a special dividend. It's a supplementary dividend that is focused exclusively to incentiv-ate. And I think -- and our shareholders to go through an exchange on -- by creating the holding company. So it's not meant to be a special dividend and has nothing to do with our future dividend policy, which remains the same. Our dividend is stated. We want to pay out 50% above -- 50% -- at least 50% of the net profit attributable to shareholders when we achieve our capital targets. So the rebate is -- that we will get through the creation of the holding company and the successful exchange offer will allow us to create further buffers for capital returns. But the CHF 0.25 that we said, at least CHF 0.25, is not a special dividend in that sense, but it's rather a one-off payment for -- in this process.

Operator

Next question from Robert Murphy, HSBC.

Robert Murphy - HSBC, Research Division

A quick thing on Wealth Management Americas first. You said the CHF 10.5 billion outflow, that was seasonal, but we didn't seem to get that last year, so that's the first question. Secondly, going back to Wealth Management. When you talk to the clients now, what's holding back the activity levels? Because it seems to be kind of a very long-term process, that they seem to sort of continually underperform expectations. And what's going to turn that around? I mean, if you look at the sensitivity with, I think, the transactional revenues of 21 basis points, so they'd have to go up 50% or something to hit your -- the bottom end of your target on gross margin. And then finally, also on the Wealth Management, in terms of interest rate sensitivity, obviously, I think the market's expecting U.S. dollar and sterling rates to move first. Should we imagine the impact of that will be sort of roughly in proportion to the assets that you have in that? That's basically it.

Sergio P. Ermotti

Yes, Robert. I think when I look at the first question on WMA, I think, last year, we had, indeed, outflows in the -- because of tax payments. But of course, they were offset by order inflows. And this year, inflows and outflows were not sufficient to offset the major seasonal effects. So the net number is -- happened to be that exactly what is the tax outflows, but it's just a pure coincidence. So I would say that the reality's that we didn't see any inflows from clients, as we mentioned before, the -- that 16 quarters of positive numbers, around CHF 60 billion. And also, when you look at the results of the U.S. banks, you can see, really, there's a risk aversion being in play. All banks have reported that substantial increase in their deposits. What happened there is that we are seeing inflows when clients' risk appetite for investments goes up. And clearly, that's another indicator that, that risk appetite is not there in the U.S. So we do think it's temporary, but we need to have a resolution of these macroeconomic and geopolitical challenges to see a new wave of inflows. I understand the point on ROA for Wealth Management that, as we outlined at investor update, ROA is one of the metrics we measure the business. If I look all other metrics as [ph] being penetration of mandates from advisory, if I look at our cost management exercise excluding the litigation charges, if we look at net new money, I would say that our performance in our Wealth Management businesses, it's quite solid. Our transaction revenues are under pressure because you can see volumes across the board being under pressure. So -- and we always say we're not going to force and go into campaigns of promoting better transaction revenues just for the sake of improving a quarter results if we think that this is against the risk appetite of the clients. So I would say that from a strategic stand point of view, our Wealth Management business and, I would say, our Wealth Management businesses combined are demonstrating a great potential not only in their results, with CHF 940 million adjusted results for the quarter, but also going forward. So of course, when you look at the volatility of the ROA during the quarter, this is the first time in the last 7 quarters, as Tom mentioned in his remarks, that we see very little volatility in the ROA. In the past quarters, we had 7, 8, almost even double-digit intra-quarter movements of ROA. This is the first quarter in which we have -- the variance are very close, 3 basis points, so -- which is another indication maybe that there is something that's changing in the marketplace. And we do -- our outlook statement speaks very clearly, once again, it's -- unless we have a resolution, we don't see our transactions will go up.

Robert Murphy - HSBC, Research Division

Fine. And just, obviously, with the ultra-high net worth and the focus on emerging markets, I mean, those markets have been relatively weak, I guess, compared with developed markets, I mean, we're starting to see a bit of a pickup. Would that make a massive difference there in your overall margin? Because I think you said the June was higher than the other 2 months of the quarter in terms of margin.

Sergio P. Ermotti

There is a high degree of sensitivity about macroeconomic and geopolitical things. I mean, we -- as we saw in the past with this volatility intra-quarter, things can change very quickly. The reality is that the underlying fundamental issues are still unresolved. And we work hard on -- that's the reason why we are working very hard on the mix of our businesses. That's the reason why we work very hard on costs and anything we can control to create sustainable value but...

Thomas Naratil

Rob, you had your third question, which is on interest rates. So I mean, you can look through in the annual report to get the currency breakdown according to our -- for our investment of equity. And then you can also see -- and also look at the deposit percentages in the currencies. But what you'll see there is, we're more weighted to dollar; second, most weighted to Swiss; third, to euro; sterling is far behind. And so if you want to figure out sort of what's going to be moving, the fact that the Fed is -- the Fed appears to be a little ahead of the curve on the tightening cycle is something that would be more advantageous, given our currency mix.

Operator

Next question from Christopher Wheeler, Mediobanca.

Christopher Wheeler - Mediobanca Securities, Research Division

A couple of questions really on Wealth Management. First of all, on the ultra-high net worth, I think up to 48% of the assets under management in the Wealth Management division. I mean, where would you see that going over time? Is that something that heads up to sort of the mid-50s? And is that something you'd like to target? And perhaps attaching to that, obviously, the 3-basis-point decline in the gross margin was a bit higher than the market certainly was expecting. And your major competitor suggested that the shift towards ultra-high net worth may well result in a more volatile gross margin. I just wondered what your view is on that. And then perhaps on the emerging markets, I think CHF 157 billion of AUM was in emerging markets. Can you give us a clue as to how much of that relates to what I think has been a pretty successful Russian business? And what are you going to have to do around that business? I saw Sergio quoted on Bloomberg on this, but what are you going to have to do around that in terms of the very awkward situation, to put it mildly, that's now developing around the Russian market?

Sergio P. Ermotti

Yes. Let me tackle the last point, and then Tom will take the rest. I think on the Russian business, it's a very important business for us, but I wouldn't describe this business as critical in terms of affecting our targets and our long-term prospects for growth. I think we are watching the situation very carefully, how it develops, but I really don't believe that this is going to be of significance, long term, in our capabilities to grow and in emerging markets in general. So I guess...

Thomas Naratil

Yes, so Chris, I'll answer your first 2 questions, so on the ultra-high net worth, with the faster growth rate in -- that we see in ultra-high net worth, both in terms of our own ability to attract the assets but also in terms of creation of wealth, if you look at the industry-wide data, ultra-high net worth growth -- wealth growth rates are higher than those for high net worth and high net worth for Cora [ph] on down the line. So you would expect us to start to creep over 50s, and that certainly wouldn't be inconsistent with the strategy we're executing. At the same time, we do have a focus on our high net worth businesses as well. So it's not that we're not focusing on high net worth. I just think we're -- we've been exceptionally successful in the segment as a whole. And the benefit for that, away from gross margin, is actually net margin because, as you know, that's a segment that has a better profit margin than the high net worth segment. On the gross margin comment, I think if I differ a bit from your -- from -- not from your comments about the consensus on it, but I think our 3-basis-point decline, I think, relative to what we've seen from competitors, looks pretty good. And I think we performed well, and we're executing on what we want to do in the business; in particular, growing that mandate penetration, which is clearly a key part of our strategy and the longer-term improvements in gross margin. I don't think we subscribe to the theory that it's because of our focus on the ultra-high net worth and our great success there, that we're going to be unable to improve our gross margins over time. We set our 95 to 105 target, which is a substantial improvement from where we are today based on the fact that, as you mentioned in your first question, our ultra-high net worth business is going to continue to grow more quickly than the high net worth business. So we don't see those 2 as conflicting; a little bit of a headwind to do it, but we think both are achievable.

Sergio P. Ermotti

Sorry, maybe to add, Christopher. When you look at this issue on -- in respect of the ROA, if you have the denominator going up as a function of financial markets, in addition to the risk aversion and net new money inflows, you have -- you are creating also a kind of headwind. So to some extent, we have to be able to live through this issue. And while I understand the questions about ROA, we are working based on creating profitability, bottom line profitability in a balanced business approach. 60% of our assets are in high net worth individuals. And we think, by the way, also in Asia, the next real opportunity is going to be the creation of the new millionaires, and those are the next clients that we also want to really be close to. So I think that our strategy continues to be very combined, high net worth and ultra-high net worth, and we will be successful in doing that.

So I see we have no more questions. Before I close, let me reiterate that we -- these set of results are, in our point of view, quite strong. When you look at the underlying profitability of the group, not only we were able to achieve better results than last year by 20%, but most importantly, if you look at the underlying profitability of our businesses, reaching almost CHF 2 billion. And our Wealth Management business clearly indicating its capacity to go above CHF 1 billion in pretax profit in a normalized environment makes us very confident that we are moving in the right direction. We have an Investment Bank that has showed during the last 6, 7 quarter now that it can provide superior -- I would call it superior returns in very challenging market conditions. We are counting on our reliable Retail & Corporate business in Switzerland. We are making a huge progress, and we are yet again ahead of the curve in taking down our Non-core and Legacy assets. So we are managing the bank with the highs to create long-term value for shareholders, and our determination to continue to do that is very high. So we are prepared and we are preparing ourselves for any kind of market condition. And as I mentioned before, myself and my team here, we are really confident that we can achieve our results. Many thanks for your attention, and I guess now we move into media session.

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