UBS Group AG (NYSE:UBS) Q4 2017 Earnings Conference Call January 22, 2018 3:00 AM ET
Caroline Stewart - Head of IR
Sergio Ermotti - Group CEO
Kirt Gardner - CFO
Magdalena Stoklosa - Morgan Stanley
Stefan Stalmann - Autonomous Research
Jeremy Sigee - Exane
Anke Reingen - Royal Bank of Canada
Andrew Stimpson - Bank of America
Andrew Coombs - Citigroup
Jon Peace - Credit Suisse
Andrew Lim - Societe Generale
Kinner Lakhani - Deutsche Bank
Al Alevizakos - HSBC
Piers Brown - Macquarie
Kian Abouhossein - JPMorgan
Amit Goel - Barclays
Good morning everyone. This is Caroline Stewart here, Head of Investor Relations at UBS and welcome to our fourth quarter results presentation. This morning Sergio will provide an overview of our results and targets and Kirt will take you through the details of our results. After that, we would be happy to take your questions.
Before I hand over to Sergio, I’d like to remind I'd like to remind you that today's call may include forward-looking statements. These statements represent the firm's belief regarding future events that by the very nature are uncertain and outside of the firm's control and our actual results and financial condition may vary materially from our belief. Please see the cautionary statement included in today's presentation on the discussion of risk factors and in our Annual Report 2016 for a description of some of the factors that may affect our future results and financial condition.
Thank you. And with that I'd like to hand over to Sergio.
Thank you, Caroline and good morning, everyone. 2017 was an excellent year for us. We delivered stronger financial results and met our net cost reduction target. Greater regulatory clarity means we can open a new chapter for UBS, allowing us to sharpen our focus on growth across our businesses, make further investment in technology and deliver attractive returns to our shareholders.
Our reported profit before tax rose 32% to CHF5.4 billion as we expanded our wealth and asset management businesses, which attracted over 100 billion in net new money, and added over 360 billion to invested assets.
Personal and Corporate Banking delivered good results despite the unfavorable interest rate environment. Net new business volume growth was the highest since 2003 and net new client acquisition was a record, underlining our very strong momentum especially with younger clients via our online and mobile banking solutions.
The Investment Bank once again achieved an adjusted return on attributed equity above its 15% target for the full year, as a strong year for CCS offset the pressure from low volatility in ICS. In Corporate Center, losses were lower as we reduced non-core and legacy and litigation expenses. As you know, our capital position is very strong, with total loss absorbing capacity of almost 80 billion.
We're also turning a page on our successful efficiency program that delivered 2.1 billion in net savings. Gross savings were 3.9 billion, and were partly offset by higher spend to grow our businesses and complying with new regulation. Increasing revenues and delivering on costs allowed us to improve our Group adjusted cost income ratio by 3 percentage points to 78%.
Lower operating expenses and reduced litigation costs contributed to over 570 million to PBT. We made further progress in resolving legacy items. We are confident that the remaining matters are manageable but they’re likely to take some time to resolve.
Excluding the effects of the US tax law changes announced in December, net profit was more than 4 billion, up 24%. And our adjusted return on tangible equity, excluding deferred tax assets, increased to 14%.
Like many of our peers, the new tax law resulted in a write-down of our DTA, but this had no impact on our fully applied CET1 capital and doesn't affect our ability to return capital. This is in line with guidance provided throughout 2017.
Global Wealth Management had an excellent year, with profit before tax up 14% to 4.1 billion. Revenues rose in all lines and the cost/income ratio was down. Invested assets increased 12% to more than 2.3 trillion, including 1 trillion from ultra-high net worth clients.
We had record performances in APAC, the Americas and ultra-high net worth, with PBT up almost 30% in Asia and 12% in the other businesses. We believe these areas will continue to drive superior growth. But wealth management is more than just these three areas.
UBS is the only truly global wealth manager, with leading and diversified positions across the globe, operating both on and offshore in each region.
Today, we also want to look ahead at our priorities for the next three years. And what's clear is that disciplined execution remains our number one priority, and our strategy is unchanged. Global Wealth Management remains at the heart of our bank, and I will come back to its priorities later.
But UBS isn’t just about wealth management, it's also about Asset Management, the Investment Bank and Personal and Corporate, as all three are successful businesses in their own right. Together, they make a significant contribution to earnings, diversify revenues and generate high-quality returns. Without them, Global Wealth Management would not be what it is today, nor could it deliver on its aspirations.
From a geographic standpoint, we have a clear ambition to grow in the Americas and to reinforce leadership in our home market in Switzerland. In EMEA, we want to leverage our capabilities to grow our share in a market that is more and more likely to consolidate.
In all cases, continued cross-divisional collaboration creates a unique opportunity for growth.
As you know, we are big believers in the Asia-Pacific opportunity, especially China. The number of billionaires in China has exceeded the US for the first time, and the middle classes are growing even faster. UBS' competitive position here is strong and we are best placed to capture opportunities in the region across our businesses. We will also invest more in technology to drive growth, better serve our clients and improve efficiency and effectiveness.
Two years ago, we began to more closely align Wealth Management and Wealth Management Americas. We have already made good progress converging our Chief Investment Office, Ultra High Net Worth and Family Office into more global organizations. So, our decision to combine Wealth Management and Wealth Management Americas is the natural next step. There has never been a greater need, or opportunity to provide our clients with global, fully diversified products and services and a true multi shore offering. Shared best practice, greater synergies in investments and technology as well as new products and business lines will benefit our clients and our shareholders.
We can also more effectively leverage the purchasing power of $2.3 trillion of invested assets. That said and this is very important, our distinct client service and local advisor models will be maintained. In the new division, we will integrate control functions and operate with single finance, risk and legal organizations; middle and back office functions will be more closely aligned and integrated.
On the business side, as an example, we will integrate our existing LatAm offshore and onshore operations in the Americas region, which means our clients will benefit from a more seamless multi shore booking model.
In Global Wealth Management, our priorities are already familiar to you as they are not new. Increasing mandate, loan and banking products penetration remains important. We will continue to collaborate across divisions to bring the best of the bank, in particular, to our family office and ultra-high net worth clients. We will also look at ways to further enhance our offering to high net worth clients and by using technology to access core affluent wealth pools.
And lastly, to complement our existing portfolio, we will likely make small acquisitions to build our presence in attractive locations and segments.
Moving on to Personal and Corporate, here we continue to aim for sustainable growth, by developing existing clients and winning new ones supporting this through investments in our already leading digital capabilities. In Asset Management, we will expand our offering of passive and alternative products, and continue to invest in unique B2B and third-party platform solutions.
In the Investment Bank, we remain focused on growth in China and the US, and will take advantage of our top-ranked global equity research and our leading execution capabilities. Both are critical to succeed in a MiFID II world. And of course, the IB will remain disciplined in managing its resources.
As I’ve said in the past, as much as the last 10 years were driven by regulatory change, I believe the next decade will be shaped by technology. Our focus is on enhancing the client experience, driving product excellence and distribution, and creating a more efficient and effective operating model.
Last year we spent 3.2 billion on both strategic initiatives and run-the-bank IT programs. Our investments will add to a total of around 1 billion to our IT costs over the next three years, with a growing proportion related to strategic initiatives rather than regulatory projects. Technology is a means to achieve our efficiency objectives and it’s not credible to expect our IT spend to go down. Therefore, these expenses will remain slightly above 10% of our revenues in the near future.
Capital strength has always been a key pillar of our strategy. Since 2012, we have increased our loss-absorbing capacity by around 50 billion to around 80 billion, while improving the bank's resilience and risk profile.
While we still await further details on the implementation of the final Basel III rules, the December announcement gave us greater clarity on our medium-term capital needs. We estimate that risk-weighted assets could rise by around 40 billion through 2020, but we will consider a CET1 leverage ratio of around 3.7% to be our binding constraint over the period. As a result, we intend to build approximately 4 billion in CET1 capital over the next three years.
After that, our current best estimate of the impact from the finalized standards is an incremental 35 billion of Risk Weighted Assets from January 2022, although ultimately it will depend on mitigating actions and the interpretation of the standards by our regulator. Once the final rules are known of course, we will provide an update on our CET1 ratio guidance.
This welcome regulatory clarity also means that we can update our capital returns policy. Our aim is to further increase returns to shareholders while building on our strong capital position. Going forward, our priority is to pay an ordinary dividend, growing at mid-to-high single digit percentage per annum while considering supplementary returns, most likely in the form of buybacks.
At the same time, as I said, we want to operate with a CET1 leverage ratio of around 3.7%. This means that we can potentially return almost all of our earnings after considering the 4 billion capital build-up I mentioned before, subject to regulatory approval. When facing adverse market conditions or idiosyncratic events, we could reduce or pause the buyback, while at a minimum defending the prior year dividend.
Following our strong 2017 performance and in line with our new capital returns policy, we are proposing an increase of our ordinary dividend of 8% to CHF 0.65 per share, which will be paid out of capital contribution reserves. We are also launching a three-year buyback program of up to CHF 2 billion, including up to CHF 550 million this year.
Alongside our integration and investment measures, we are setting new targets for the next three years. The Group will target an adjusted return on equity of around 15% excluding DTAs, which at around 20% remain a material part of our tangible equity.
Taking into account our planned increases in technology spend and the permanent nature of much of the regulatory cost we have incurred in the past few years, we are targeting a Group cost/income ratio of below 75%.
Our business divisions are aiming to generate positive operating leverage, resulting in a progressive improvement in their cost/income ratios, contributing to our overall efficiency.
In addition to the existing 10% to 15% adjusted PBT growth target for Global Wealth Management, we are setting a 65% to 75% cost/income ratio target range and a 2% to 4% net new money growth target.
For Asset Management, we are targeting around 10% growth in PBT per annum. The Investment Bank will continue to target an adjusted return on attributed equity of at least 15% and operate at around one third of the Group’s LRD and risk weighted assets. This is consistent with our existing guidance.
As we enter this new chapter, one thing will stay the same, that's our focus on executing our plans with discipline. In addition, and this is very important, we will focus on investments to drive growth, efficiency and higher returns.
Over the last few years, we have demonstrated our ability to master challenges while capturing opportunities and I’m confident we will continue on the right path to secure the bank’s future success.
With this thought, I'll hand over to Kirt, who will take you through the Q4 results.
Thank you, Sergio. Good morning, everyone. For the fourth quarter, our results were adjusted for net restructuring expenses of CHF 381 million, CHF 153 million gains on sales, CHF 29 million AFS gains, and CHF 25 million in expenses related to the modification of terms of certain compensation awards.
Over the next several quarters, we expect to see a gradual convergence of our reported and adjusted results, as our restructuring declines to around half a billion in 2018 and under CHF 200 million in 2019.
Just a note upfront on today’s results, which are now a week earlier than any other major European bank, reflecting streamlining and improving our closing and reporting processes, which gives us an extra month a year to focus on other value-added activities. My comments compare year-on-year quarters and reference adjusted results unless otherwise stated.
Global Wealth Management delivered strong fourth quarter PBT, up 18% on positive operating leverage. In fact, all four quarters this year have come in above a billion in profits. Fourth quarter net margin increased by one basis point from the prior year. Operating income rose 6%, with all revenue lines up in both Wealth Management and Wealth Management Americas and also improvements in all regions. Recurring net fee income increased by 6% on higher invested assets and increased mandate penetration. Net interest income improved, on higher US dollar rates and 9% higher loan balances.
In Wealth Management, strong loan growth led to the highest revenues from lending in a decade, we also saw the highest deposit revenues since 2011, partly reflecting euro deposit repricing and related outflows of negative margin deposits. Wealth Management Americas had record loan balances partly benefitting from our investments in banking products.
Global Wealth Management’s transaction-based income increased 4% year-on-year, with increases in all regions. Overall, costs rose less than revenue, improving cost-to-income by two percentage points to 75%. The results also include a significant amount of investment in transitioning our operating model in Wealth Management Americas, tech spend and enhancing our product offerings and client service globally.
In many cases, we are already seeing benefits but as always, our objective is to deliver sustainable profit growth. In Wealth Management, net new money was strong at $14 billion mainly from APAC and Europe, where we benefitted from a few large inflows and this is also net of $6 billion of cross border outflows. For the year, excluding outflows for cross-border and for the introduction of euro deposits fees, Wealth Management generated over $70 billion in net new money, a 7% growth rate.
In Wealth Management Americas, net new money was marginally negative reflecting lower net recruiting in 2017 and higher attrition in Q4 related to end of the protocol. Many of the leavers following the protocol exit had recruitment loans that were nearing maturity or had matured and we see this as an acceleration versus our plan and not as an indication of higher attrition to come. There will likely be some related outflows in 1Q, 2018 which we aim to offset with same store inflows.
As you know, we’re focused on boosting retention and productivity through an attractive grid and rewarding FA loyalty through the retirement. Same store net new money was strong and rose to around $8 billion this quarter, reflecting the actions we’ve taken throughout the year. As we have significantly reduced our recruiting, employee loans are now down 14% year-on-year, with related expenses down 9%. We expect further reductions in 2018. Last quarter, we highlighted our increased investment in Wealth Management Americas to position this business for continued growth.
Apart from investment in retention and productivity, we continue to build-out our banking products and have launched our public finance business. We are seeing early returns with mortgages up 4% in the quarter, improved deposit margins, and initial mini fields loan. These benefits should accelerate in 2018.
In Wealth Management, the completion of our cross border and voluntary compliance programs was a critical milestone for 2017. Since 2012, we’ve had around 70 billion of related outflows, which has impacted our profitability. The outflows from Q4 are likely to have a slight dampening effect on recurring net fee income in 1Q18, after which we should see a more normal recurring revenue trajectory quarter on quarter. This substantially ends the largest headwind faced by this business.
The cost actions we took in 2016 help fund some of the investments we’ve made, notably into One Wealth Management Platform, which now covers around 80% of Wealth Management invested assets. We will continue to invest in Global Wealth Management, to position the business for sustainable growth, including accelerating technology investments, as Sergio highlighted.
Personal and Corporate delivered strong PBT of CHF 428 million, up 8% year-on-year and our best 4Q since the crisis, benefitting from management actions taken throughout the year and strong client flows. Recurring net fee income increased 19%, transaction-based income rose by 11%, and while net interest income from deposits improved, it was more than offset by higher funding costs and lower banking book income.
Higher expenses were driven by Corporate Center Services. Personnel costs were down due to a one-time adjustment, and we’d expect them to return to a more normalized run rate in the first quarter. As we highlighted last quarter, we expect a build-up of expenses related to our Client Experience initiative, focused on fully digitizing our leading Swiss universal bank, which will continue over the next three years, with benefits starting in 2019. We saw 4 million net credit loss recoveries this quarter. The adoption of IFRS 9 on Jan 1 2018 may introduce greater volatility in our credit loss expense.
On October 1, we completed the sale of our fund administration business, resulting in a gain on sale of 153 million included in the reported pre-tax results of 238 million. Therefore, the fourth quarter results don’t include the roughly 10 million quarterly PBT we have seen from the business historically. Adjusted PBT decreased to 116 million, partly due to around 20 million of one-offs that flattered the prior-year quarter and the sale.
Excluding these items, operating income was slightly up as net management fees increased on good market performance with positive net new run-rate fees for the second quarter running. But we had lower performance fees, mainly in real estate. Expenses increased on higher personnel costs and allocations from Corporate Center Services.
Asset Management recorded excellent net new money of 10 billion, contributing to a full-year record of 59 billion including money market flows, and taking invested assets to a nine-year high. We're pleased with the full-year performance in the IB; however, as you've seen, for us and our competitors, Q4 was particularly challenging due to continued low volatility levels.
The IB delivered CHF 168 million in PBT in the fourth quarter, including CHF 79 million in credit loss expenses, mostly due to a write-down on a margin loan.
In Corporate Client Solutions, debt and equity capital markets performed well, but overall revenues declined, mostly due to a 20% drop in the market fee pool for M&A, as well as the strong prior year revenues from Advisory.
Within ICS, equities held up well, particularly in APAC, with good performance in cash and derivatives more than offset by lower Financing Services revenues in the low volatility environment. This also impacted FRC, driving a significant reduction year-over-year.
That said, our performance in FX recovered somewhat, particularly in our e-trading business, reflecting investments we made earlier in the year.
Earlier, Sergio mentioned that we are well positioned to succeed under MiFID 2. However, we may see some short-term impact on recognizing research revenues of around CHF 50 million in the first quarter related to timing of billing, mostly in equities.
Costs were down 4% due to actions taken in 2016 and good discipline throughout 2017. The UK bank levy was also around CHF 10 million lower than last year.
The Corporate Center loss before tax was CHF 515 million. Services’ PBT improved by CHF 116 million. During 2017, we retained less of the Corporate Center Services costs centrally, mainly related to the elimination of the cost guarantee during 2017 and a change in funding cost allocations as a result of revising our equity attribution framework.
Group ALM's loss before tax was CHF 213 million, with the increased losses mostly due to lower rates, increased debt issuance, and mark-to-market losses on our high-quality liquid assets.
Non-core and legacy portfolio posted a lower pre-tax loss at CHF 142 million, mainly as litigation provisions and other operating expenses, including the UK bank levy, decreased. LRD is now down to 15 billion, less than 2% of total Group, and RWA ex op risk is only 6 billion.
Over the past four years, we have substantially reduced the drag on Group PBT from Corporate Center. Excluding litigation, we’ve gone from a loss of 3 billion to 1.3 billion in that time, mostly driven by reductions in NCL, but also related to lower retained costs in Corporate Center Services. We expect Corporate Center losses excluding litigation to continue to reduce over the next three years.
In the fourth quarter, we recorded a net tax expense of CHF 3.2 billion. This includes net DTA write-down of CHF 2.9 billion following the enactment of the US Tax Cuts and Jobs Act. This was in line with our guidance throughout 2017 of roughly CHF 200 million net reduction for each percentage point of tax rate decrease.
The impact on fully applied CET1 capital was negligible and there is no impact on our dividend paying capacity.
The US tax law changes also introduced the Base Erosion and Anti-Abuse Tax, or BEAT, which could increase our tax liability by up to 60 million in 2018. However, we’re exploring potential mitigation and will update you when we have clearer guidance. For 2018, we expect a full-year tax rate of around 25%, excluding any effects from revaluing DTAs.
Our capital position remains strong, with TLAC above $78 billion, and our fully applied CET1 ratios are comfortably above the 2020 requirements. Of the $20 billion RWA increase we expect from regulatory changes over the next three years, we anticipate about $15 billion in 2018, including $5 billion in the first quarter. Despite this increase, as Sergio highlighted, we consider the leverage ratio to be our binding constraint over the period. As we adopted IFRS 9 at the start of 2018, we recognized a roughly $0.7 billion reduction in equity and a 0.3 billion reduction in CET1 capital on the first of January.
This morning, we announced measures to support the long-term stability of our Swiss pension fund, including payments of up to $720 million in three instalments from 2020 to 2022, which will reduce our fully applied CET1 capital in each of those years with no impact on P&L. Short-term, these measures will result in a PBT gain of around $225 million in 1Q, 2018. The gain will be treated as an adjusting item in personnel expenses with no impact on equity or CET1 capital.
To wrap up, with fourth quarter PBT up over 20% despite challenging market conditions, we delivered a strong quarter to conclude an excellent year. With that, Sergio and I will open up for questions.
We will now begin the Q&A session for analysts and investors [Operator Instructions] Your first question comes from Magdalena Stoklosa from Morgan Stanley. Please go ahead.
Good morning. Thank you very much for taking my questions. There are both kind of broadly strategic. So, my first one is about kind of view it’s getting a little bit more of a view regarding the sharpening focus on growth which you’ve mentioned literally in your starting remarks here, because of course over the last kind of 12 months we have been and are talking about how constraining the regulatory and certain particularly of the Basel IV rose from the perspective of being able kind of to look forward not only from the capital optimization perspective which you have announced today, but also about how the growth going forward is likely to be delivered.
Now, when we look at your kind of management targets though for the next three years, they are broadly unchanged to what we have seen you talking about with your previous medium-term targets. And I would just love to hear your top-down thoughts about how that kind of newly found clarity allows you to potentially maybe increase those going forward. I think that to a degree particularly given how the business was tilting much more towards the Global Wealth Management and the results that you have been delivering there, I think that some of the expectations may have been higher for those three-year targets going forward.
And my second question is very much about your thinking about the combining of the wealth management divisions. And in particularly what are you kind of aiming to achieve with the combination because to a degree we have seen some of the kind of underlying operating and investment platforms already kind of acting at SA Unison. So, we have seen the one wells platform already with the 80% of business on it. So, I just kind of wondered how are you thinking about that kind of divisional restructuring? Thank you.
Thank you, Magdalena. Yes, I think that where you picked up this issue about sharpening our growth and you know of course beside the fact that having very little visibility on capital is the past also somehow was limiting our ability to think about how much we can invest and how much we need to put aside for further investment. I think that having reduced substantially our litigation portfolio in 2017 is also freeing up everybody's time in management, including myself to look about how to help to sustain growth going forward.
If I look at the targets confirming that we are able to grow double digit in wealth management. An industry that’s likely to grow two times GDP in the next two years and we are aiming to deliver almost twice as much as that or at least 50% of that. Its I would say confirming those targets after coming out of years of growth at this level in my point of view is both ambitious and also realistic considering also the lack of real visibility we have from a macroeconomic standpoint of view and geopolitical stand point of view.
So, I do think that we want to keep an ambitious target that is credible and sustainable and that is also a target that allows us to continue to invest in our business because it's going to be a journey and is constant ways of growing the business, creating positive operating leverage but also at the same time focusing on reinvesting some of those profits.
So, in a nutshell, I do think that we execute this strategy going forward, we will be able to unlock the full potential of our franchise. I think you’re right that in the second question we have been already converging in the last two years our capabilities in Family office in Ultra and our CIO operations but moving to the next level is going to help us to also create a new client experience, facilitate those internal dynamics in sharing best practices in terms of product capabilities, efficiently and effectiveness.
I mean I mentioned a couple of examples, we’re going to have a co-leader in the business but if you look at the organization below Mark and then Tom, they’re going to have one legal support, one risk, one Chief Operating Officer. They will also look at streamline their capabilities as much as we can in order to free up resources to reinvest in our business and deliver bottom-line to our clients, also our client base is going to benefit from that. I also again quote -- the Latin American business is a good example. There was no reason for us after having completed our restructuring growth strategy in the last few years in those two segments to have two different -- two Latin American businesses being managed by two different divisions. So, we are unifying those operations in one seamless operation.
So, I do think that’s also bringing everybody under the same umbrella which reinforce the internal dynamics and also the external perception and which at the end of the day will translate into good returns.
The next question comes from Stefan Stalmann, Autonomous Research. Please go ahead.
Hi. Yes, good morning, gentlemen. A couple of questions please. The first one on your new return on tangible equity target. Now that you exclude the DTAs, it's still 15% as the old target and it looks a little bit unambitious compared to the fact that you are actually generating more than 14% already in 2017. Could you may be talk a little bit about how you look at this return on tangible equity return potential going forward?
The second point regarding your IT investment budget, more than 10% of revenue. That’s round about 3 billion of spending a year and that is about 13% of your expense base. Some of your competitors at the end of last year have talked about the IT spending and have suggested it’s more in the range of 15% to 25% of the cost range. SocGen which is not a direct competitor of you might say is spending more than 20% of its cost base on IT. Could you may be also add a bit more color on how you look at this discrepancy between your spending plans and what a lot of your peers are spending apparently?
And may be the final question on the performance of the business Wealth Management Americas, in US dollar terms revenues up 8% for the whole year but the cost income ratio has only improved by 50 basis points and I assume you can attribute most of that to the fact that your recruitment loans and the amortization of these recruitment loans is declining. And then obviously it’s a very different performance to what you’ve seen in the wealth management business, in the Global Wealth Management business where your revenue has been just 5% but your cost income ratio has improved by 300 basis points. Also compared to more Morgan Stanley I think the profit margin looks relatively underwhelming.
Could you may be explained why you’re happy with the performance of the Wealth Management Americas business? And by combining this business with the other wealth management business the global business, are we losing reporting granularity going forward? Thank you very much.
Okay. Stefan, I will let Kirt to answer the third question. I just want to may be anticipate part of that question is that you will not lose granularity because transparency I think I know you appreciate that in the last five years we aim to be very transparent in the way we communicate any kind of operations and I would say that it’s a little bit I think interesting observation to compare a monoliner competitor in one market with two, three [indiscernible] to somebody who has a global franchise and that is operating in also with different views of segmentation of the business. I'd like Kirt to answer in a more detailed part of the equation.
Now, to your question about our return intangible APG [ph] excluding the DTA, I would observe that we are not saying that we want to achieve a 15%, I would say that we are not really tapping our upside potential, it is possible to achieve more. I do think that things we started to develop those targets and return on tangible equity, one thing is clear that we are -- which was around 2012 is an adapted, we have been growing substantially basically the cost of equity went down. The cost associated with regulatory requirements as being much higher than anyone could anticipate for the industry both in terms of around the bank cost and also funding cost related to TLAC.
So, I think that’s -- of course there is always a level of subjectivity I think having a range of return on attributed equity in this industry looking also as you mentioned our peers interesting. So, if I look around, I wouldn’t call a 50% return on tangible equity ex-DTA which accounts, the DTA accounts for us around 22% of our tangible book. So, I think it’s also a fair and transparent way to represent our true and like-for-like comparison because I think that there is only one peer that has a substantial DTA in the equities, it's the right way to measure our success. And obviously, we are running a business that is set to grow overtime, there are no shortcuts and going out with unrealistic targets with the level of feasibility we have on the macro picture and the geopolitical picture out there, we need to set standards that are achievable, ambitious but also sustainable.
The second point is on, yes Stefan, I think that probably with my colleagues, we can take up further details of the aspect. I mean our benchmarks somehow seems to indicate that our spend is aligned to industry standard of course, we as a choice of -- we do believe is the 10% to 15% target rather than the 15% to 25% which seems to be a very high number. So, but I guess we have a probably methodology that we need to clarify, but let me tell you that of course we do believe that naturally it's like we talk about cost income ratio, we are really to sacrifice topline in order to create a value accretion on a return on equity basis, on a return on tangible equity basis. So, looking at spending percentage of revenues which we do, it’s our benchmark, it’s only to give you an indication and -- we should always look at on a peer-to-peer basis in a little bit of careful way. But I’m more than satisfy my colleagues to follow up with you on this one.
But I do think that, our technology spend is important. I have seen as a way for us to invest in our future and to allow us to take down order cost in the organization overtime rather than a way to cut cost. And be assured, that I hope that we can shift how we spend money within technology from regulatory and litigation to forward looking but the amount of spend needs to be sustained over the next three years to four years.
And with that step and let me your address your third question. If you look at our Wealth Management Americas business, we’ve been very, very clear over the course of the year that we’re investing in that business to drive the next phase of growth and we’ve been investing in a couple of different areas. The most substantial one that I highlighted in my speech is to focus on the retention in productivity of RFA and to reduce our reliance on recruiting because recruiting overtime is very, very dilutive to shareholders. You have the combination of very expensive packages along with the burden of the loans that you’ve build that have a capital burden as well as a drag on overall profits. And we’ve achieved that, we’ve reduced our recruiting during the year, we’ve improved the productivity of our FAs, you’ve seen that our FAs at same store net new money was 8 billion up substantially year-on-year. We’ve reduced the level of attrition particularly for a more productive FAs. And we’ve accomplished that with spending more during the year. But at the same time, we’ve seen a reduction overall in employee loans, they’ve come down 14% of expenses have come down 9%. We anticipate those to come down substantially more as we go forward. So, what you’ll see coming in to the year will be a tailwind as we get into next year.
Secondly, we’ve also invested in building up banking products because this is an area where we feel we’re underpenetrated, we have further growth opportunity and also those products generate the revenue that’s most accretive to bottom line because the payout rates are less and finally it's the investment in the munis business. Munis business has already started to generate some flows and deal flow will become very accretive next year.
I think therefore if you think about the trajectory of the business, we’re very confident that year-on-year comparison will turn very favorable as we get into ’18. Also, I would just note if we compare our performance with competitors, our average revenue growth is at the top of the industry. Our average invested asset growth is at the top of the industry, so you can see that on a topline basis we’re actually performing very, very well on a comparative basis and I think you’ll see us compare very well on a leverage and also on a pretax basis as we get into ‘18.
The next question comes from Jeremy Sigee from Exane. Please go ahead.
Good morning. I’ve got two quite specific sort of numbers questions please. The first one is in your full Basel IV estimate, I wondered what you’re assuming on operational risk out of UAs. Because it looked like those should come down eventually and I just wondered if you made any assumption about that or whether you’ve just kept them unchanged, that’s the first question.
Second question is on the tax rate outlook, you’re talking about 25% for 2018, it was previously 20 to 25%, I guess BEAT is 1% of that but I wonder what else is pushing up your 2018 tax rate guidance.
And relating to that, I sort of wondered why it's not much lower than that, given that your reporting US profits tax free, given that you’re paying something like 22% in the rest of the world and Switzerland I wondered why you know we shouldn’t be expecting something like a 16%, 17% group tax rate and/or when we might come down to that level if that is a reasonable expectation?
If you look at the increase of 35 billion, we’ve reflected, there is an op risk component, we’re not providing the details, but the two largest components in terms of the increase is FRTB and op risk. Credit is less of an impact because we’ve already absorbing a number of the credit requirements in advance of Basel III as a consequence of the multipliers that we’ve referred to.
Now in terms of the tax guidance overall, you’re right the 25% tax rate is at the upper end of what we have previously guided and that really is just a consequence of the mix that we expect next year. There is also some amortization of DTA expenses that we anticipate during the year which pushes the tax rate above what our normal steady state tax would be. And so that adds a couple percentage to the overall tax rate going forward. But I think the guidance holds overtime. We still expect to be between 22% and 25%.
And that’s with the US profits coming in tax-free, it’s still a group level of 22-ish?
Yes, that’s correct. And it’s a combination of the current taxes that we’re paying but also remember if you look in the details over tax, there is a fairly large component of DTA, amortization and our overall taxes, and that pushes up the effective rate without necessarily driving cash tax outflows.
The next question comes from Anke Reingen from Royal Bank of Canada. Please go ahead.
Yes, good morning. I have two follow-up questions please. The first is on your new cost income ratio target guidance of below 75%. I just wonder why you really can’t -- if you can please explain, why you can’t do better. It seems quite a significant downgrade from the 60% to 70%? I understand there’s an element of investing for growth. But still I’m assuming why you’re not thinking you can do better.
And then a follow-up question on the capital slide, slide 10. You say at the footnote assumes removal of FINMA multipliers. I just wondered, basically this means you have confirmation any regulatory inflation will be offset. And are you willing to give us some indication of what the magnitude is? Thank you very much.
So, thank you, Anke. I’ll take the first question. I think that -- I do believe that aiming to be below 75% cost income ratio is I would say, as I mentioned before a realistic target. Let me tell you that only by peaking at the unexpected regulatory cost that we were anticipating back in 2012 has been of temporary nature, and unfortunately, they are not of temporary nature as we all experienced in the industry. And the additional cost for TLAC that were not known at all back then. Those two factors accounts for almost 5 points of cost income ratio. So, in essence we are confirming the factor our targets excluding only those two items and we will drive the factual performance of below 70% if you’re counting in that way. So, I understand the point but may be with this clarification I hope it helps to clarify a very important item of how we come to those targets.
Yes, Anke, let me touch your point on FINMA multiplier, because we confirm -- we expect a total of 20 billion increase due to regulatory as well as accounting changes, 15 billion of that is really related to regulatory changes, a majority of which is additional multipliers. There is also a component that is related to risk not in VAR and that 15 billion will come next year. We will see an additional 5 billion -- this year -- excuse me, this year, an additional 5 billion in the first quarter of 2019 related to the adoption of IFRS 16. We expect to be able to absorb that with the 4 billion of capital accretion we mentioned and we also expect that as both Sergio and I mentioned, that leverage ratio will still be binding even with those increases that we have visibility to.
The next question comes from Andrew Stimpson from Bank of America. Please go ahead.
Thank you. Good morning everyone. So, on slide 10, you’ve shown that you’ll be willing to put more balance sheet to work across the firm at $80 billion extra leverage by 2020. So, that should lead to some better earnings, but then if I add up the CHF 4 billion Swiss CET1 build up that you’ve also shown on slide 10, on the top of the 2 billion buybacks and then some growth in the ordinary, probably means you see industry CET1 growth or let’s call it reported net profit of something just about 14 billion which seems quite a bit lower than what consensus is looking for. So, I’m just wondering if I’ve got that right or if I am missing anything there. So, I understand the demand from the business for more balance sheet, but I’m just confused why that doesn’t end-up leading to better profits especially when inflows and AUM levels have finished the year so strongly. Thanks.
Yeah. So, Andrew, I think if you look at what we announced, firstly importantly of course the first priority is the dividend growing at mid to high single-digits. Secondly, we’re just initiating our buyback program. So, the announcement of the up to 2 billion is really just the first communication we’re making around buyback. We would expect to continue to assess that each year and to come out with further announcements. And as we look at the trajectory of our earnings, certainly we think and we aspire to repurchase well above that 2 billion over the next three years.
The next question comes from Andrew Coombs from Citigroup. Please go ahead
Yeah, actually mine have been answered, but perhaps a couple of follow ups. And one on the return on tangible equity target on slide 13. And secondly just perhaps on the previous question on slide 10. Starting on the ROTE target and you eluded DTAs being 22% of tangible book. When I look at the exact wording of how you described that ROTE, you say excluding DTAs that do not qualify as fully applied to core Tier 1 capital. So also, is 9.8 billion as DTAs of tangible book. I just wanted to check out I think it's less than a quarter on capital you’ve got 5.8 billion, 6.8 billion. So, if you just clarify exactly what you are implicitly suggesting is in the denominator of that target.
And second question in terms of coming back very explicitly on your communication, on the buybacks there. When you think about the reconciliation between your 4 billion capital generation and the attributable net profit, I just wanted to check if there is anything else that we should about within there aside from dividends, buybacks and the IFRS 9 straight pension adjustment. Or is it a case of one should be a proxy for the other?
Yeah. Andrew just specifically on ROTE actually you’re absolutely correct, the DTAs is approximately 20% of our tangible equity. So, your calculation is right. In terms of the buyback, I think as we clearly state here, the other potential trajectory that could impact how we look at buyback and shareholders is obviously our outlook on the market, anything that should change in terms of cyclicality in addition to any idiosyncratic requirements that we might have over the next couple of years.
But in terms of the 4 billion capital generation that you mentioned, is that assuming the 2 billion buybacks or are you explicitly saying that actually in your internal workings, you'll factor in more because you’re saying that’s just the best communication.
So just to be very clear, the 4 billion is the capital that we need to accrue in order to underpin the growth that we’ve highlighted. On top of that, we would expect to in addition to accrue for a dividend that’s growing at mid to high single digits and then on top of that we would expect to have additional available excess capital that would go towards the buybacks.
Understood. Essentially anything above 4 billion of capital generation could invariably be in a buyback in addition to the 2 billion you’ve announced?
That is on top of the 4 billion we would have the entirety of our buyback program.
Which to date is just the 2 billion?
Yes, correct. The starting point is 2 billion but we would expect to of course consider more going forward.
Yeah, so sorry to labor on this point, the 4 billion that you are saying for capital generation is post your existing distribution plan which is at the high single digit.
That’s exactly correct.
So, my point is that anything you can generate on top of the 4 billion then becomes incremental opportunity.
The next question comes from Jon Peace from Credit Suisse. Please go ahead.
Yes, thank you. Thank you for clarification again on the buyback. So, my question was on the net new money target, so the combined Global Wealth Management and Wealth Management USA and the fact that you said is a 2 to 4% which was the lower of the two targets. And then I can see that Wealth Management USA is the larger business so that is going to be a little bit dilutive. But given you had such a strong finish to the year in terms of net new money, how should we think about that target, is it just reflecting some of the near-term realities of a slightly slow start to 2018 before we accelerate or how should we think about that? Thank you.
Thank you, Jon. No, I think that its reflecting a more important reality that we are operating in many of our businesses in a negative rate environment. We are focusing on quality of net new money, we are focusing also on retention and that therefore same store value money and I do think that when you look at also the base is increasing. I mean as I mentioned during my remarks, our asset base has increased by 360 billion this year and of course if you combine a focus on quality of growth in net new money, so profitable net new money and the asset base I do think that’s aiming to grow at those range, is a credible target for us. So, it's not a total indication on how the year has start, I think you will appreciate that we are planning little bit longer term on those kinds of metrics.
The next question is from Andrew Lim from Societe Generale. Please go ahead.
Hi thanks for taking my questions. First one is on the Corporate Center, could you give more guidance on how you expect the operating metrics to develop as specially with respect to total cost that you talked about earlier?
And then the second question is regarding Wealth Management Americas. And when you talked about your net new money outflows there due to relationship managers being lost, and this comes up the same time that you’re investing in remuneration cost have changed in the payment grade. And my question is, is your relationship manager payment structures that materially lower than your competitors, is that why you’re suffering these issues and perhaps you can give some context of that?
Yes. In terms of your first question, I guess I would just re-guide you to side 20, you see the reduction in the Corporate Center drag from about 3 billion to 1.3 billion -- 1.3 trillion, it’s billion. And as I said very clearly, I expect this to come down further over the three years. I would also add some additional guidance at some point in the future. But we would expect that to continue to come down, barring litigation. And that’s very important because we do both litigation and Corporate Center. Yes, non-core legacy, in Corporate Center.
In terms of your second question regarding outflows. Firstly, to be very clear, actually the change that we made in the pay grade, what that does is we actually pay our more productive FAs more. And in fact, those pay grades are among the most attractive in the industry and that allows us to focus on retention. And indeed, if you look at our attrition levels, they’ve come down considerably year-on-year.
And also, what you see in terms of the outflow, that’s more reflective of the fact that we’re recruiting less, and we’ve brought down the packages that we’re paying to those that we are recruiting considerably. And so, with that we’ve seen some more net outflows from recruiting. Also, as I’ve highlighted in my speech, since we exited the protocol we saw an acceleration of some FAs that left that otherwise would have left during the course of 2018.
Your next question comes from Kinner Lakhani from Deutsche Bank. Please go ahead.
Yes, hi. Good morning. Apologies for switching back to the capital generation versus usage debate where really Kirt you mentioned that the surface could be utilized by way of additional share buybacks which I can see.
I guess a part of the puzzle that is missing to me is litigation, given that I think UBS still has some quite substantial issues outstanding whether it’s US or RMBS the French cross-border issue. I understand a DOJ investigation into Puerto Rico FX et cetera. So, in giving the guidance that you think the risk is on the upside on share buybacks, are you also saying that you’re very comfortable with the existing reserves on litigation? So that’s the first question.
And the second question is just a small technical one. Just in terms of the kind of Wealth Management gross margin guidance, especially kind of post the 6 billion regularization that we had in Q4, should we expect any kind of follow through in Q1 like we had a year ago and then obviously a rebuild as you increase mandate penetration? Thank you.
Yes, thank you Kinner. Let me tackle the litigation part. I think in order to avoid any misunderstanding, I would only refer and ask you to look at our litigation report so that there is no confusion about which matters are open and which matter are off relevance for our litigation. I do think that it's true that we still need to resolve a couple of important matters. As I mentioned in my remarks it’s likely that it’s going to take time to resolve them. We are confident that we will be able to master those challenges in line with what we just communicated in terms of its impact on our capital generation and our ability to return capital. And in that sense, when we talk about our dividend and capital return policy being a lead to the outlook for in general it’s also including resolving those issues.
But again, litigation is being part of journey in the last few years to a less or much less than extent will be part of next couple of years. And I don’t think it’s putting in question what we just communicated in terms of capital build up and capital returns.
Just to reiterate we actually have no gross margin guidance and we haven’t had gross margin guidance for some time, in fact we have no net margin guidance. The only target that we have for the Wealth Management business is cost to income and we think that’s the most critical driver of the performance of the business. And just to put that into the context, if you can take the Wealth Management business, in the fourth quarter they’ve reduced year-on-year our cost to income ratio came down from 71% to 66%, despite the fact that our gross margin actually came down from 73% to 68% or five basis points. Our net margin went up from 17 basis points to 23 basis points.
So, what we would expect going forward is the combined businesses currently have a cost to income ratio of 74%. We’ve indicated a range of 65% to 75% and so you should expect to start to see us improve and begin to push towards the middle to the lower part of that range overtime.
That’s clear. And maybe just ask the same question slightly different way. Should we expect any impact on fees from the 6 billion regularization? Or is it just a rounding error these days?
Well, no I think as also I have indicated, there should be a slight dampening in our recurring fees into the first quarter, but then what you should see is a quarter-on-quarter more normal trajectory of recurring revenue for Wealth Management. I think you also saw for the first time in this quarter strong recovery of recurring revenue for Wealth Management up 7% year-on-year and that’s the first time it’s been up sharply. So, I do think that trajectory of that part of the business will be much more positive going forward. It’s a consequence of substantially completing that program.
The next question comes from Al Alevizakos from HSBC. Please go ahead.
So, my first question is regarding the DTA on Page 29. You say at the bottom that you will review your approach to periodically measure the U.S. DTAs and the timing for recognizing the deferred tax in the income statement. Does that mean that you potentially looking to get an extension into using your existing DTAs? And is that even possible?
And the second question, much more relating to the fourth quarter. When I look at your divisional numbers per geography, I noted that the IB revenues declined primarily in Europe and Switzerland. However, after seeing the U.S. peers last week, we thought the big issue was the U.S. What do you think happened here?
Yes, Al, in terms of your first quarter on DTA, now that absolutely does not mean that we’re looking for any extensions. In fact, it’s not a possibility, there were some anticipation that perhaps there would be an ability to do so but it wasn’t part of the tax law change. What that says specifically is during the course of the year we will look at how we measured DTA and we will consider whether or not there should be a change at all methodology of how we recognize DTA. And I think as usual we will of course have more clarity around that later in the year.
I think that the next one is on segmentation. Of course, if you look at the big chunk of this various develops to the fact that we are running our effects and a big chunk of our FRC business effects out of Switzerland, so that’s one of the reason of the downturn. So big parts of our FRC the operation are the factor between Europe and Swiss [ph] and London and Zurich and therefore you see in that representation I think, if I understood correctly the question.
Yeah, it was just on the underperformance of Europe and Switzerland versus peers, including IB.
Yes, that’s due to the fact where is our basically center for managing certain businesses -- that’s probably the reason why is clearly a difference between us and US base.
I would also note that last year we had an outstanding fourth quarter and advisory and in CCF, in fact it was our best fourth quarter since accelerate and some of that performance certainly came in the Americas and Europe and so you also see that, that comparison contributing to the overall reduction year-on-year. We’ll get back to you with some details.
The next question comes from Piers Brown of Macquarie. Please go ahead. Mr. Brown your line is open.
Yeah, good morning. A couple of follow-ups from me. The first one coming back to the performance in the Investment Bank, the IBD revenues. I mean, you mentioned the Q4 last year was pretty high base, but you're still down 40-odd percent in advisory. And I think the overall Corporate Client Solutions is known about 9% year-on-year, which is considerable what we've seen from peers. So just wondered whether you could talk to pipelining outlook in that business? We've heard from a lot of peers, some fairly positive outlook comments just particularly in terms of the business trends in the U.S., so I wondered if you could talk to that. And secondly, just coming back to the buyback. I mean, committing to a program for three years, I'm just interested in terms of the thinking behind that because obviously one of the reasons we are applying for a buyback over special dividends is to give you flexibility, and that flexibility I guess would be maybe a little bit more constrained, if you're talking about three-year program by the than just looking at this on an annual basis. And related to that, I wondered if you could just tell us when you comes to reassess the level of the buyback annually? What are going to be the key factors you're looking at that may lead you to either, well, I guess to increase the size of the program? And is litigation one of those key factors? Thanks.
Thank you, Piers. Let me address your second quarter first. Basically, the three-year period is essentially the current six legal frameworks in Switzerland as they grant you three years for a buyback so hence we announced the three years with the initial target of 550 but the total amount of 2 billion. We’ll reassess that every year and that will be based on what we anticipate in terms of excess capital available in the following year during which we make the buyback. And at that point if we feel confident about the amount of excess capital, we potentially might revise that 2 billion amount going forward.
I think on the question on CCS, I think first of all, of course we are very pleased with the progress we have been making with CCS over the last year. I think that is quite clear during the year and in this industry that each player has different pipelines and they may cross quarter-on-quarter. So, it's very difficult to do a comparison quarter-on-quarter. As you know the overall feed pool in the industry was down 20%, we were down more than that. And also, there is a high degree of activity levels in US which if you look at our portfolio, we always say, in the US we are under weighted in part of our CCS business, we are more weighted towards EMEA and Asia and that’s something that we want to correct in a sustainable way without rushing it.
And of course, as long as you have CCS activities being driven by US activity, we will somehow -- we’ll have to take position on a relative under performance. But at the end of the day, we are very focused on advisory, giving the best services, we can without deploying and having to deploy capital or grant loans and balance sheet in order to achieve those kinds of mandates. So, I do think that our business model is also very disciplined in that front and explains some of our performance.
Your next question comes from Kian Abouhossein from JPMorgan. Please go ahead.
Yes, hi. Just coming back to 2 billion buyback question and the process around it. Thanks for clarifying the three-year process. But what I am trying to understand is, is it going to be purely mathematical. So, if you’re making more than 4 billion of retained, can you pay that out right away.
Secondly, is it related to any other aspect that you can discuss and in that context what is the process in terms of FINMA sign off -- is there any sign off from the DOJ, is it related to any way to any of your litigation cases at this point?
And the second question that I have is just on page 10 on the capital, 35 billion. Can you specify exactly what that number of risk weighting would be ex the multiplier -- including the multiplier, i.e. is a growth number rather than the net number that you’re giving me. What is the process around the multiplier decision making, are you confident you can get to that net number? And is this a fully loaded number, was it phased-in number, you actually don’t say that in this report? Thank you.
Kian, let met tackle the first question. Whether we needed, of course we always need that regulatory approvals in the respect of our capital plan and our capital plan will include both the element of growing our base dividend and any problems we have to buy back shares. So, if we have capacity -- as I mentioned in my remarks that once we build up the extra 4 billion, Kirt and I have mentioned about, the exces capital is there to re-return to shareholders and as we have any consideration about the outlook for the business and the outlook may include litigation. So, I can't understand what you mean by the DOJ's signing off on a capital return plan. So, what we need is our regulator sign out.
Yeah. Just to address your second question. So, the 35 billion we calculated off of projection of where we anticipate that we will be including the existing regulatory multipliers increases that we’ve highlighted on page 10 and the business growth. And that is input for related. Frankly the output floors are not really much of an impact for us overtime. It is the input floor that is going to be 95% of the impact for Basel III that we currently anticipate. Now beyond that, what we also highlighted that this is before any mitigation or any other changes that we might make internally.
Just to clarify, so the 35 billion is a net number, I’m interested in the growth number if you could give it. Or if you don’t want to give it you must feel extremely confident that the FINMA multipliers will fall away.
So, the 35 billion after we absorbed, I highlighted the 20 billion on the page.
15 of that 20 so, basically if we had not absorbed 15 of that 20, that could have been additive to the 35. And so, I’m confident that this is the gross amount including the multipliers that we expect to have to absorb from FINMA between now and when the Basel III roles comes into effect.
And this is fully loaded, this 35?
I’m not sure that it is by fully loaded.
Basel IV fully loaded rather than phase.
Oh, yes that this is the input for upfront, but then the output for phase into 2027. As I mentioned so the output we don’t expect to be a major, a significant impact for us.
Okay. Okay. And just on the dividend, why do you state up to then this is I think that’s a confusing part, you’re saying you’re going to pay dividend up to, why the up to, I think that’s what it looks like that’s a maximum?
No, to be clear our dividend is 65 wrapping [ph], it's not up to, it's exactly what we will pay. The up to....
I’m I mean the buyback.
Yeah. The up to refers to the buyback program, what we’re acknowledging is there might be things that are introduced in the market, things that happen that we’re not aware of now. And so naturally it’s a flexible program. So, that’s what we intend to do.
Okay. That’s very helpful. Thanks for clarifying everything.
The next question comes from Amit Goel from Barclays. Please go ahead.
Hi. Thank you. So, most of my questions have been answered, but just one I guess on the target. So, this is slide 13, and maybe one part of that’s clarification. But it seems like the investment bank's return on actually to equity stays the same or is going up on a net basis. Where the group return on tangible is still coming down to that, 15% excluding DTAs. So, just wanted to understand a bit more in terms of, sort of Wealth Management business because the IB is seeing some of the FRTB impact. And in terms of structural profitability going forward, it feels like we’ve been getting some downgrades overtime. How you’re seeing that and is that more a cost issue in terms of the cost income ratio going up or what are the kind of structural or parts of actions and how do you see the profitability of that type of business evolving as you go forward? Thank you.
Part of the investment bank target of greater than 15% and we’re comfortable that, that’s nicely above their cost of capital which of course we expect from all our businesses. I think overall the structural performance of the business is going to very much in line with the targets that we’ve indicated. Importantly what we expect over the next three years is our businesses to show positive operating leverage and that’s going to contribute overall to the group bringing down its cost to income ratio below the 75% and for us improving our return on tangible equity excluding DTAs to what we would anticipate aim of course to be eventually above that 15%.
That comes to the end of the questions. Actually, this morning I sent a note to the analyst this morning, Kirt will be hosting a meeting for you tomorrow morning at 10’o Clock in London, so hopefully we will see a lot of you there. Thank you very much.