UBS Group AG (NYSE:UBS) Q1 2019 Earnings Conference Call April 25, 2019 3:00 AM ET
Martin Osinga - Head of IR
Sergio Ermotti - Group CEO & Chairman
Kirt Gardner - Group CFO
Conference Call Participants
Andrew Coombs - Citi
Jon Peace - Credit Suisse
Anke Reingen - Royal Bank of Canada
Al Alevizakos - HSBC
Kian Abouhossein - JPMorgan
Amit Goel - Barclays
Magdalena Stoklosa - Morgan Stanley
Jernej Omahen - Goldman Sachs
Stefan Stalmann - Autonomous Research
Jeremy Sigee - Exane
Andrew Stimpson - Bank of America
Andrew Lim - Societe Generale
Ladies and gentlemen, good morning. Welcome to the UBS First Quarter Results 2019 Presentation. [Operator Instructions] The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Martin Osinga from UBS, Investor Relations. Please go ahead.
Good morning, and welcome to our first quarter 2019 results presentation. I'd like to draw your attention to our slide regarding forward-looking statements at the end of this presentation. It refers to cautionary statements, including our discussion of risk factors in our latest annual reports. Some of these factors may affect our future results and financial condition. Now over to Sergio.
Thank you, Martin, and good morning, everyone. Even before the first quarter started we knew the comparatives would be challenging given the drop in recurring fee asset base in Q4 and the exceptionally strong start we had last year, both on absolute basis and relative to competitors.
In addition, business conditions were particularly tough for a first quarter. Nevertheless, we achieved net profit of $1.1 billion in our main return metric. Reported return on CET1 capital reached 13.3%.
Our capital position remains very strong with a CET1 capital ratio of 13% and a Tier 1 leverage ratio of 5.4% despite further regulatory headwinds and the effects of the French matter. A lot has been said and written about the French case. At this point, there is nothing new to add other than that we are preparing for the next stage.
In the quarter, we made good progress in a number of areas. Global Wealth Management's net new money growth is back within our 2% to 4% target range, supporting a rebound in our invested assets.
In APAC, invested assets past the $400 billion mark for the first time, reinforcing our leading position. Our Swiss business had a strong start to the year with PBT up 8% and new business volume growth the highest in years. Asset Management's invested assets were close to last year's levels and PBT grew.
The Investment Bank delivered a 7% return on attributable equity in one of the most challenging environments in years and FRC revenues were up 9%. I will cover our progress on costs in a moment.
As I said, we faced significant and broad-based external headwinds in this quarter. Clearly, this wasn't the beta environment we planned for. Equity markets recovered from the four quarters sell-off, however, the order beta measures on two slides are below both prior year levels and market expectations.
Investor sentiment was still affected by the four quarter market turmoil. The wait-and-see attitude was reinforced by geopolitical risks and a worsening economic outlook. The IMF card, its 2019 forecast for the third time in six months and the U.S. dollar yield curve suggest more investors see a risk of recession in the future.
In our latest sentiment study, which we will publish on March 7 - on May 7, private investors declared that cash made up to 32% of their total portfolios. Against this backdrop, it is no surprise that clients across Global Wealth Management and the Investment Bank traded less. Additionally, lower volatility impacted appetite for structured products, while declining fee pools in Europe and Asia left a mark on our CCS businesses.
March and April brought some green shots with sentiment and activity level partially buoyed by rising equity markets. It is still early in the quarter, but we should see benefits from higher invested assets, improved sentiment and deal activity.
Reported costs were over $600 million lower if you exclude last year's pensions-related gain, largely offsetting the decline in revenues. A good part of the cost reduction was driven by natural hedges built into our model. We made consistent progress in - on our strategic cost-related measure, further brought down restructuring expenses and benefited from a stronger dollar.
We are on track with tactical cost measures we put in place to mitigate the market headwinds. We had slowed hiring and some IT projects, but we will not halt our investments into growth-oriented initiatives. These actions support profitability without mortgaging UBS's future.
Overall, we expect our tactical cost actions to generate at least $300 million in cost saves incremental to our strategic actions, with most benefits coming through in the second half of the year.
On the capital front, we are exploring ways to accelerate LRD optimization. Thanks to our technology investments, we identified new opportunities to optimize liquidity management.
For example, better balance between assets and liabilities at the legal entity level would also help us free up some trapped LRD. This initiative will reduce energy consumptions by around $20 billion with benefits also expected to materialize in the second half of the year.
We are also executing on the shorter and longer term alpha plans we presented last October. Global Wealth Management continues to invest in its U.S. ultra high net worth segment and is building out its global family office capabilities as we look to increase share of wallet and drive growth.
Overall, we saw over $14 billion in net new money flowing into our global ultra high net worth business in the first quarter alone, and increased mandate penetration across GWM to nearly 34%. We continue to invest in our Mainland, China capabilities and in March, we secured a retail license for our Shanghai branch.
In P&C, our digital initiative for Swiss SMEs is gaining traction, and we saw around $600 million net new loans in this segment in the quarter. Also we just opened a second digital factory in Switzerland, moving nearly 500 employees developing E and mobile banking solutions to agile working environments.
We are making good progress in our growth areas in Asset Management, including strengthening of our position in sustainable investing and wholesale. Investment Bank moved forward with the development of its electronic trading platforms, improving its market share in electronic equities and FX trading.
At the Investor update, we also highlighted the importance of collaboration and working in partnership for the benefits of our clients. We have a pipeline of such projects.
For example, DAB and GWM will partner to operate our U.S. capital markets business in a more unified way. Bringing these teams closer together will enhance our offering and better serve clients in ultra high net worth and middle-market institutions space by leveraging DAB's infrastructure.
Overall, I think we are in a good place with the strategic initiatives, but there is a lot of work ahead of us and external factors have affected the timing of some of our plans. For example, client sentiment has not supported loan growth in GWM. We remain focused on executing these plans and delivering the expected results.
As I said back in March, nothing changed with respect to our capital returns policy. The only open question was related to the size and pace of our future share buybacks.
For 2019, considering our share price, we now expect mid single digit growth in our cash dividend, providing a bit more capacity for buybacks. We maintain our ambition to repurchase up to $1 billion worth of shares this year, but achieving the full amount will depend on the broad-based improvement in beta factors. We plan to restart the repurchases in the course of the second quarter.
We remain very confident that the secular trends underpinning our growth strategy are strong, and we are uniquely positioned to capitalize on them. We are on track with both our strategic initiatives and our short term saving measures and continue to deliver the best to our clients.
Over the last years, we stayed consistent with our strategy and sustainably delivered strong profits. This allowed us to meet capital requirements, address legacy matters and since 2012, return around $16 billion to shareholders without diluting them or tapping them for capital. Our goals of delivering high and attractive returns on capital and off capital remain firmly in place.
With this, I'd like to hand over to Kirt.
Thank you, Sergio. Good morning, everyone. As usual, my comments will compare year-on-year quarters and reference adjusted results in U.S. dollars, unless otherwise stated. As you will note, our adjusted and reported results have largely converged with lower restructuring costs.
In the first quarter, we adjusted for restructuring expenses of $31 million, down over $100 million. For the full year 2019, as we have guided previously, we expect to incur around $200 million of restructuring expenses related to our legacy cost programs.
Our effective group tax rate was 26% for the quarter and a cash tax relevant portion was 11%, resulting in a sizable direct benefit to CET1 capital. We expect our full year effective tax rate to be around 25%, absent the effect of any potential DTA revaluations.
We adopted IFRS 16 effective Jan 1, 2019, resulting in a $3.5 billion increase in both RWA and LRD, as well as an estimated $16 million full year decrease in profits. $12 million of which were realized in the first quarter.
Moving on to our businesses. This was not a typical first quarter for Global Wealth Management. The fourth quarter sell-off that led to lower recurring fees, combined with lower client activity reflecting geopolitical concerns, drove operating income down 5% versus a strong 1Q '18. This partially - this was partially offset by 5% lower costs.
Recurring fee and transaction-based income were both down around $200 million, while net interest income decreased slightly. I'll cover revenues in more detail in a moment.
Cost decrease, mostly on lower variable compensation, the saves from actions taken last year, which we highlighted at our Investor update are being deployed to fund strategic investments. This include hiring in APAC over the past year, building out our ultra high net worth business in the Americas and investing in our strategic platform in the U.S., to name a few.
We're on track to achieve the cumulative $600 million gross cost saves through 2021. Loan balances were slightly down sequentially as the dollar strengthened, net new lending remain muted in the first quarter of 2019, not surprising given client sentiments.
Moving to revenues. Net interest income was down about $10 million versus 1Q '18, mainly due to currency effects, as well as net deleveraging from clients in Asia in the second half of 2018.
We had a benefit from the change in our functional currency to dollars, which was partially offset by higher funding costs. Transaction-based income was down 20% versus a strong 1Q '18, although it increased by 22% from the historic growth at the fourth quarter.
We did see an improvement in the last two weeks in the first quarter with March transaction revenue flat on the prior year and the first few weeks of April have come in better than last year.
Recurring fees were down 8% year-on-year and 7% sequentially, in line with the decrease in invested assets that we saw during the fourth quarter and underscoring the time lag effect that we flagged back in January, particularly for the Americas.
Recurring net fee income should be better in the second quarter as invested assets increased 8% sequentially, although there is some headwind from shifts towards lower margin mandates.
We reached almost 34% mandate penetration on net mandate sales that were positive across all regions. We remain focused on migrating our clients into advisory and discretionary mandates solutions in order to deliver on our ambition of more than 40% mandate penetration.
Moving to the regional view. In the Americas, recurring fees and transaction-based income were down with some offset from higher NII, as well as lower compensation. Higher invested assets and strong mandate sales during 1Q '19 should provide good momentum into 2Q '19. Invested assets were up 3% over the year and 8% sequentially, in line with U.S. peers.
APAC delivered record net new money of $16 billion and together with the recovery in asset prices, invested assets rose 13% from year-end to over $400 billion for the first time.
Client sentiment was particularly negative during the first two months, reflecting trade and broader China economic concerns. This sentiment drove transaction revenue down by a third from a strong 1Q last year.
As I previously mentioned, clients turn more positive in March, supporting a rebound in activity levels. Despite the challenging environment, we have maintained our investment momentum in the region, including a net addition of about 60 advisers over the last 12 months.
Brexit and growth concerns weighed on sentiment in Europe. Despite this, we saw a $3 billion in net new money and over $4 billion in mandate sales. Invested assets grew by 3% in the quarter needed by currency effects.
Switzerland saw a strong inflow at a 6% growth rate and is generally our highest PBT margin region. In terms of net new money overall, we saw $22 billion globally, including some very large inflows.
Looking ahead to the second quarter, we're anticipating the typical seasonal outflows for tax payments in the U.S., which were nearly $5 billion in the second quarter of 2018.
Personal & Corporate had a strong quarter with PBT up 8% from the previous year to CHF389 million. Operating income was up 3% with increases in all revenue lines, as well as credit loss recoveries.
In net interest income, we further improved our product result, offsetting headwinds from higher funding costs and negative interest rates. Recurring fee and transaction income were both up slightly.
We booked $2 million in net credit recoveries in 1Q versus expenses of $13 million a year ago. Costs were broadly flat as higher investments in digitization were offset by reduction in other areas.
Cost income of 59% was in line with our target for this year. Business momentum was strong with net new business volume growth of 8%, the best in over a decade and supported by strong net new personal client intake.
Asset Management had a solid quarter with PBT up 2% to $109 million. A 6% decrease in expenses, which was mostly driven by cost actions we took in the second quarter of last year, more than offset the 4% reduction in income.
Net management fees decreased by 7%, mainly reflecting lower average invested assets but also continued pressure and margins. Performance fees nearly doubled $27 million, driven by equities. Net new money was slightly positive in the quarter, although negative when excluding money market flows.
Invested assets were up 5% or $43 billion sequentially, which should help 2Q '19 management fees. In the IB, PBT was down year-on-year, but up from the prior quarter. 1Q '19 was particularly challenging for us mainly because of three factors.
One, we had a very strong performance in 1Q '18, particularly in CCS. Two, the impact of lower client activity in response to extremely low volatility, and, three, our concentration in Europe and APAC where conditions were more challenging than in the U.S.
Despite this challenging environment, our ICS business has returned their cost of equity. In the month of March, the IB overall made a return on attributed equity of 13%.
Our CCS revenues were down nearly 50% from an exceptionally strong 1Q '18, while CCS was up 22% from 1Q '17. This reduction reflects lower fee pools, particularly in cash ECM and LCM, a smaller footprint in the U.S., as well as lower revenues from private transactions.
Our Equities revenues were down 22% in line with U.S. peers. We saw decreases in all products with lower client activity and response to extremely low realized volatility, which affected derivatives, in particular. In addition, deleveraging by hedge funds clients at the end of last year created a headwind for our prime brokerage business.
We were, however, pleased with our performance in electronic cash trading where we believe we gained market share across all regions. FRC had a strong quarter with revenues up 9%. Credit improved as conditions were more supportive for flow business. Rates performed well benefiting from higher client activity in areas of strength.
FX decreased on low volumes and the weakest FX volatility we have seen in the last four years. Costs reduced by 14% overall, mostly on lower personnel expenses. RWAs came down slightly during the quarter, mainly as market risk decreased with lower volatility reversing the 4Q '18 spike. This is similar to the trend that played out in 1Q '18 and 2Q '18.
In Corporate Center, a number of factors contributed to the result. For example, accounting asymmetries. and hedge accounting ineffectiveness, both of which typically may revert to zero over time, jointly [ph] contributed $140 million gain this quarter compared with negative $50 million in 1Q '18. We also had nearly $40 million in re-evaluation and unwanted [ph] gains in NCL in 1Q '19.
Absent any effects from accounting asymmetries, hedge accounting ineffectiveness and litigation, we expect the Corporate Center loss to average around $250 million per quarter.
Total Corporate Center costs, excluding tax spend, litigation and currency effects, were down 4% year-on-year, as we saw benefits from actions to improve our structural efficiency more than offsetting continued headwinds from regulatory spend.
Corporate Center headcount, including external staff, is down around 1,500. This is driven by our in-sourcing program, which apart from approving effectiveness and reducing risk, contributed to year-on-year cost saves.
Now on RWA movement. In the last three years, we've seen increases of around $50 billion from regulatory model and methodology changes, which were not driven by underlying business risk.
The $50 billion is equivalent to over 3 percentage points of CET1. Put simply, 13% today would have been equivalent to about 16% back in 2015. So at our current CET1 ratio, we're much better capitalized now than we ever have been.
Turning to the first quarter, there are two points I'd like to call out. We had $2.8 billion increase in off-risk RWA related to the French cross-border matter. We also saw a $7 billion reduction in market risk, as mentioned in my comments on the IB earlier. On CET1, going concern and gone concern capital ratios are all above the 2020 requirements.
Turning now to our capital guidance. We've indicated that we will operate around 13% and 3.7% per CET1 capital and leverage ratio. We want to provide some clarity.
For CET1 capital, you can expect us to operate within 30 basis points above or below the 13%, so between 12.7% and 13.3%. This gives us flexibility to meet our capital return objectives and deploy capital to support business growth. On leverage, we expect to generally remain above 3.7% and continue to see this as our binding constraint for now.
To sum up, clearly this wasn't the easiest start to the year, but overall, our performance was resilient with over $1 billion in net profit, and we are fully focused on executing our strategy and delivering our other initiatives.
With that, we'll take questions.
[Operator Instructions] The first question from the phone comes from Andrew Coombs with Citi. Please go ahead.
Good morning. If I could just ask for one update on some guidance you provided at the Investor Day, and that's the NII based on implied forwards. I think at the Investor Day, you said $200 million benefit 2019, $300 million in 2020 and $600 million in 2021. Obviously, forecast has been rebate, so perhaps you could provide an update on that guidance?
My second question would be with respect to the Asset Management business and more specifically, the existing revenue synergies you have in place with the rest of the group. I'm just trying to get a better feel for both the revenue contribution investment management business from the rest of the group. I know 27% of the AUM is from UBS, GWM and P&C, but also working the other way, the contribution to GWM from the Asset Management business to retrocession fees and other revenue sources? Thank you.
Yes. On the update in net interest income, I can't give you specific updated numbers. However, I would mention that since our investor update, we have seen the yield curve come down overall. And as you saw in our beta factory summaries, there was about 67 basis points overall reduction in the longer end of the yield curve. This, of course, will have an impact on our net interest income outlook. Again, I don't have specific guidance for you.
In addition to that, of course, any movement in balances since then will also have an impact. I would confirm, though, that we are seeing the more than $300 million benefit from our investment of equity and so we're confident that that's going to continue to hold going forward. We'll get an update later for you.
In terms of the asset management, as you said, we, of course, see a benefit from distribution across GWM and P&C and as we highlight in our report, that's around 27% of our total invested assets within Asset Management.
Now there are also benefits both ways across other parts of the group. Those benefits would not specifically quantified, and so I can't comment on them specifically.
In addition to the follow-up, I guess a broader question on the asset management business. Would you like to provide any commentary on recent press articles? Thank you.
No. We don't comment on any rumors or speculation.
Understood. Thank you.
The next question from the phone comes from Jon Peace with Credit Suisse. Please go ahead.
Yeah, thank you. So my first question is just on the CET1 outlook. Are there any headwinds to CET1 that you anticipate this year that might affect the timing of the buyback or should we just assume that third of the $1 billion might come in each of the remaining three quarters?
And then a second question is I guess just make it a high level one on M&A, could it ever make sense for you to be a long-term minority shareholder in one of your key businesses? Thank you.
Yes, Jon, on your first question, there's nothing on at the moment on the horizon that would impede our ability to return capital. Of course, we don't know what new developments might emerge as we go through the quarter.
As Sergio highlighted, what we will do is that we'll look to pace our returns based on the evolution of beta factors as we go through each quarter. On the M&A side?
I mean, on the M&A side, I think that you know, we always say that we take a very pragmatic view of the world and look at the best way to create value for shareholders and clients at the same time, but it's quite an hypothetical scenario you're talking about so it's very difficult to comment.
But I mean, at the end of the day, I don't think that anybody is in our position to say that things are sacrosanct, and we always need to consider what is the best. And in that sense, we have to retain flexibility.
Sure. Thank you very much.
The next question comes from Anke Reingen with Royal Bank of Canada. Please go ahead.
Yeah. Thank you very much. Just first questions on the - two questions please. The first is on the operational risk-weighted assets increase of the $2.8 billion in the quarter. Can we conclude from this that the discussions with the FINMA on the potential implications from the French tax case are concluded?
And then on cost control across the various divisions, I saw your compensation flexibilities as the performance there in the first quarter versus the first quarter was very good and flexible. Would you say that is that the trend that continues or its very much a result of your initiatives taken? Or is it more - yes, a function of the void [ph] environment that would bounce back with a better environment? Thank you very much.
Yes, Anke, in terms of your first question, we did go through an ad hoc update of our AMA model, which is the formally accepted model that we use to drive our operating risk RWA. We updated the parameter specifically for the France case. We discussed this with FINMA. FINMA acknowledged the increase, and so, therefore, we're comfortable with the $2.8 billion has been fully acknowledged.
Now we will have an update as we typically do each year in the third quarter that will be a more complete update that could bring other movements to operating risk RWA.
Yeah, on cost, variable comp cost and comp flexibility, yes. The flexibility is there because our model is clearly focused on responding to the underlying trends in the business. And if the profitability is not there to support compensation, we won't be shy of being disciplined in applying it.
So I think that's something that I believe is credible and sustainable. Of course, we need to consider competitive dynamics, and I hope that, at the end of the day, the industry will converge and understand that there is a need to reflect performance in the compensation framework of every bank. And in that sense, we have been showing over the last few years a quite clear discipline in this matter.
Yeah. Thank you very much.
The next question from the phone comes from Al Alevizakos with HSBC. Please go ahead.
Hi. Two questions from my side as well. Good morning. So the first question is basically on net new money, I mean, the performance was very strong for the overall group 4% at the top end of your target. But when you look at the divisions, once again, the U.S. continues to have outflows and it's such a big part of the business.
And also when I note the numbers, the advisers in the U.S. continue to go down. So how do we think about the next couple of years? Are you going to try and increase the hiring there in order to grow the net new money? Or what do you think is overall the problem?
And then the second question is just a follow-up on the compensation. I can see that the user flexibility mainly in the IB where you actually reduced the benefits in line with revenues. However, you didn't do the same in Wealth Management, so do you expect that the outlook for Wealth Management is better than IB for the rest of the year? Thank you.
So on net new money, I think that - first of all, let me reiterate you know, considering the very strong quarter we had that is both a reflection of the performance of the quarter and also our strategy, that I can say that this measure is completely overemphasized and - in general. So I think that we need to continue to look at the quality of net new money and how it is translating to both profitability and invested assets over time.
Having said that, your point about the U.S. is a fair one, but at the end of the day, you need to look at the other side of the coin in respect to the declining number of sales. This is a strategic decision we took a couple of years ago, and we communicated clearly that we were driving the potential FA count below 7,000 and focus more on retention of financial adviser and the same-store net new money dynamics.
Now, if I look at the competitive dynamics in the U.S. in terms of net new money, we are the only one reporting that, but there is a proxy to get back into looking at relative performance and is the asset based calculation. And there, you can see that we are at the top of the performance. So I think that there is a clear market dynamic playing out in net new money for the Wealth Management industry in the U.S. and we should not discount that.
Now of course, we are looking to selective hiring initiatives to reinforce our model, which goes into the high end of the financial adviser. As I mentioned, in the ultra-space, the GFO space, and we see some momentum in those initiatives. And therefore, we will continue to look at ways to balance those growth indicators, net new money with the profitability because the most important issue at the end of the day, our strategy plays out to the bottom line by deemphasizing recruiting as a way to show growth.
That is only good for the top line and maybe - but definitely not good for PBT because the recruiting loans and all the arrangements in the U.S. to recruit people are basically diluting earnings.
I think that we have to do a balance here. And I'm convinced that with our long-term initiatives, we will provide both growth in a sustainable way and protect the bottom line.
And perhaps I can address your second question, Al. If you look at overall our expenses in Global Wealth Management, they were down 5% and that was really all FA great comp and a bit of variable compensation. So very much in line with the marginal change that we saw in recurring revenue and also in transaction-based revenue.
We also highlighted that we generated sales from the actions that we took last year that we highlighted during our investor update. However, as we indicated, we reinvested those saves strategically in the business for future alpha-related growth.
Great. Thank you very much.
The next question from the phone comes from Kian Abouhossein with JPMorgan. Please go ahead.
Yes. Thanks for taking my questions. At the Investor Day, October 25th, you had a slide where you clearly outline the cost income ratio towards 72% by 2021 and there clearly the assumption was made that revenues will grow 9%. You also gave some quite detailed targets around WM. 50% of operating profit growth will come from revenues, i.e., market environment, I should say.
Clearly, the picture looks a bit more difficult today, and I'm not saying that you should change your target and give me an update on the seven - on overall targets. But I'm just trying to understand the flexibility that you have assuming that maybe the revenue environment will actually be different to get to that cost income target.
If you can take a little - talk a little bit about is there a dynamic flex to still achieve these targets with the changing environment or considering what you have said, i.e., you gave exact details, 9% revenue growth. This is off if you don't get there at the end of the day.
And the second question is really more of a general question around share price performance. I mean, you are aware of your performance relative to European banks, and I'm just interested how you interpret that? And how you interpret the de-rating of your valuation and what you think is the cause of that?
Thank you, Kian. As usually, I see you are quite consistent with your focus on cost income ratio and - which is an important measure for us as well. The picture is very simple. Of course, when you look at the dynamics supporting our cost income target ratio target for 2021 are both levers that are in our control. The alpha and the beta that are based on not our - or my opinion or current opinion on how we see the world, but rather from what the consensus of economic outlook dynamics on growth.
So in that sense, we made it all very clear that there is a 50-50 split between how you contribute to growth on the top line of those two factors. If those two factors don't play out in the time that we were anticipating or was forecasted to happen, of course, we may not be able to fully achieve those targets.
But the most important topic will always remain, and we demonstrated in the first quarter how to balance this with our return on capital we deploy. So it's very important to continue to look at that.
And the flexibility, you know, we do everything we can to go through its process in executing on our strategic cost initiatives, that's, by the way, the first quarter indicated that we had flexibility on the cost side, both from the variable compensation, but also from some of the operating cost adjustments. And the tactical measures we're going to take will help us to mitigate the headwinds in achieving our targets.
So overall, I don't see anything that has fundamentally changed in the long-term outlook on the macro picture and the one sustaining our business model. Therefore, I believe that achieving those targets is - while challenging, is not out of reach because we just need the normalization of the market, and I don't consider the last four, five months a normalized environment.
Now in respect of the share price performance, I think that's, of course - I always mentioned, is very disappointing out to look at how the share has been performing. If I look at for sure until the end of 2018 while being absolutely no consolation to any of us, is that if I look at total shareholder return, considering everything in, I think that we have been performing definitely in line or above the peers that we believe are the reference peer for us.
In the second - I mean in the first quarter of the year, my view is that, of course, this macro questions about - and geopolitical issues that have been affecting the industry. In addition to the French matter have contributed to a clear de-rating and underperformance of the stock. I mean it's said - I don't know what you - the way I see it is fairly simple. The market seems to indicate 10% to 12% underperformance in total shareholder return year-to-date as being the $5 billion - $5 billion knock off of our market cap, which happened to be the $5 billion of the French case.
So I mean, now it is what it is. You know, our position. I'm not going to go into that, and we're going to have to work hard to fix that. Now - and again, and it's our relative valuation, while we're being de-rated is still trade - we traded a premium to our peers and we trade not so far away to our U.S. peers, which is our reference level, and we need, and we want to go back into where we belong to. But of course, it's very difficult for us to control the share price, and that's some things that we let you comment and tackle.
The next question from the phone comes from the line of Amit Goel with Barclays. Please go ahead.
Hi, morning. Thank you. And my first question was just actually trying to understand the kind of the trends during the quarter on revenues, in particular, in the Global Wealth Management business.
So there I mean, clearly the business reported broadly in line with the guidance that you gave, although it seems that the transaction revenues were a bit better, offset by perhaps slightly weaker recurring fee margin. So just curious if we could get a bit more commentary in terms of how the progression went?
And also the commentary, I think you mentioned that there was a bit of a shift towards lower margin mandates, so what are you are seeing there and whether that's kind of a temporary thing based on current market environment or is that something that you think may continue into Q2? Thank you.
Yes, Amit. If you look at how the quarter played out, clearly, as Sergio commented, there was a hangover concern from the fourth quarter. And then on top of that, you have the heightened concern regarding recession risk and what played out in Europe around Brexit and then, of course, China trade and broader concerns around China.
And that really was the predominant sentiment that we saw throughout January and February. That drove our transaction revenue down further than the 20% you currently see. So at that point through the end of February, we were down quite a bit more than the 20%.
And in addition, of course, the recurring revenue pattern just played out based on our invested asset balances at the end of the quarter with a little bit of uptick in the international businesses as we saw markets improve month-by-month.
And then in March, particularly towards the mid-part of March, we started to see an improvement in client sentiment, as some of the concerns around China abated. We got closer and more optimistic about China trade resolution. I think overall the risk of recession also diminished a bit, particularly in the U.S. and Asia Pacific. We saw clients a bit more active.
In fact, if you look at March itself, and I mentioned this in my speech, year-on-year, March was rather flat in terms of transaction revenue. So that took us from being down a fair bit more than 20% to bouncing back overall for the quarter to being down just 20%.
Then I also commented in my speech that we kind of seen that same pattern in March continue in April and we're still on a year-on-year basis at an okay place, April month-to-date.
The lower margin comment that I made, I think overall what we've seen is mandate sales were quite strong but there are two overall observations in terms of the mix of those sales.
Firstly, we're seeing sales into lower risk products, and so clients were actually buying contracted products, but they were - the concentration of their investments was much more in the fixed income side, higher concentration of cash, less equities and less alternatives, that overall result in lower margin.
We'll see that fluctuate, depending on whether or not they get more positive and they start to move their mandate concentrations into higher risk products. That will help margin. But then the second trend we saw higher percentage of advisory mandates versus management mandates, that also comes in at lower margin. Now that trend going forward is just going to depend on the mix - on sales.
So certainly the lower margin that we saw playing out in the first quarter will be with us for the second quarter and then we'll have to see how that trend changes beyond the second quarter.
Okay. Thank you. And the second question was just on the CET1 guidance, the plus/minus 30 bps. Again, just curious, I mean, you highlighted you didn't see any particular headwinds over the course of the year. So just curious what could take the CET1 ratio down from the kind of current 13% level towards the 12.7% and/or put that in the Q3 potential update on op risk, could that be one of the factors?
I think Amit, if you look at what we highlighted, we do have some remaining increases from some other Reg [ph] and model updates, although we've absorbed most of those going forward, but we'll see a bit more of that over the next three quarters.
And in addition to that, we actually see that the flexibility around the 13% also related to the pacing and timing of when we return capital, along with any investments that we make in the businesses where we see opportunities are going to be accretive economically.
Conversely, on the leverage ratio, we're indicating that we intend to stay above 3.7%. Now you saw us at 3.8% so that says that we might come down from the 3.8% level a little bit, but still we anticipate being above the 3.7%.
There is nothing specifically on horizon that I would point towards that would suggest that we're - it's going to drive this below the 13%. It's really just indicative of the flexibility that we're highlighting that we're going to maintain as we go through the next several quarters.
Yeah, Amit, maybe just adding on this topic. Because if you think about in the last few years, we've basically always highlighted the fact that the 13% we started to flash in 2011, 2012 was a different nature of what we are today.
And in the meantime, we also say that we would not necessarily always keep the 30% as a sacrosanct reference level despite the regulatory inflation. So somehow, this is related also to that, while as Kirt just mentioned, the leverage ratio is our binding constraint.
But most importantly, I think that, at the end of the day, what is important for us, and I guess for regulators and everybody out there, is the post-stress situation of the CET1 ratio, and that's the measure of quality we need to look. And this is our next level of - how we look at our absolute and relative capital position as always to take into consideration those dynamics by any constraints and post stress.
Maybe just on the post stress comment. If we run our overall stress process based on our regulatory requirements, the LPA, we actually see that our post stress numbers are much better than those published by our peers under ICAP in Europe or ICAP in the U.K. or CCAR in the U.S. And so that also gives us comfort of the strength of our capital position overall.
Okay. Thank you. And just the last point on that was just on the potential updates to get on op risk. I guess, could those be positive or negative? There's no particular bias there in terms of outcome?
No, I mean, as I mentioned, the French matter has been fully incorporated into op risk RWA. I also highlighted the fact that we had discussions with our regulator that, that op risk, the change was obstructed by our regulator. There's nothing on the horizon that would lead to me to assume there would be any further changes that would be a headwind for us. I'm just mentioned that is we do every year we'll do a full refresh our op risk model and the third quarter.
You might recall the refresh that we did last year actually resulted I think in about a $3.5 billion reduction in op risk overall. And so that's going to be the typical process of what falls out based on history and any new external events.
The next question comes from Magdalena Stoklosa with Morgan Stanley. Please go ahead, madam.
Thank you very much. So my first question is on the potential for the upside to the transactional activity actually here, could you help us understand how do you see the potential upside after your very strong net new money print?
So how do you see transactional levels kind of following the net new money print particularly in the Asia developing from here? I know we've talked about March, we've talked about the beginning of April, but I'm interested in your view slightly further out, particularly if we take into account what you see in your asset gathering activity?
And maybe just for us to understand the quarterly evolution of the growth margin a little bit better in wealth. Of course, we all knew about the calculation effect of the U.S. margins in one quarter and how some of it will be changed in the second quarter. But would you be able to give us a little bit of a sense of how that year-end calculation of the U.S. margins impacted the gross margins overall? Sorry, so that's my first question.
And my second question, really Sergio, if we move away from the headlines, more strategically from the perspective of the asset management, and how do you see competitive positioning today versus what you want to achieve on a 3 to 5 year view? And I think on all kind of key comps, so the size, the product mix, the geographical mix and of course, the distribution strength as you see it? Thank you.
I didn't catch the full extent of your first question, but I'll comment on the parts that I did catch and if I missed something, please let me know. I think the upside is - we have consistently indicated there are really two important factors, may be three factors actually.
The first is seasonality. And usually the first quarter is our best quarter, and you didn't see that play out, of course, because of the second factor, which is sentiment. And sentiment was really quite negative.
And I think if you look back on the beta factors slide that Sergio talk to, that's slide three, a new beta factor that we've introduced there is this notion of geopolitical uncertainty, which is quite interesting. And you see how that spikes in the first quarter.
We've actually done a correlation on that index over the last number of quarters and actually there's very high negative correlation between transaction revenue and the geopolitical uncertainty index. So that's indicative of how positive or negative our clients are feeling and then gets expressed as to whether or not they're investing and therefore we see transaction revenue.
Now the third factor is more one that plays out over time, and that's the concentration of mandates. As we continue to increase the concentration of mandates, we are going to see somewhat of a transfer of revenue out of transactions and into recurring revenue, which would be a good thing because it comes at higher margin, there's better risk control, there's less volatility, so that's positive overall. Now I didn't quite get your question about the margin in the U.S., I'm not sure what that was…
Kirt, so sorry. So there was really - I think there were really kind of two points. One, was I was wondering if you see such a strong Asset Management - net new money kind of activity, how does the transaction kind of follow? You've kind of answered part of it and that was particularly Asia was of interest to me.
But the second question was, in the first quarter, of course, there was a negative impact of the way you calculate your U.S. margin because they are effectively calculated on a year-end numbers as kind of AUM numbers.
And I just wondered whether - and of course, we know that almost arithmetically, this is going to look much better in the second quarter. But I just wondered you could give us a sense of how much of a drag that U.S. calculation was in the 1Q?
Yeah. No, you're absolutely right. So the technical calculation on our margins does get impacted by how we bill. And since we bill based on a lag effect, so the balances at the beginning of the year, which were quite low, but we didn't really see the reduction in our - I mean, quite high, excuse me, we didn't see the reduction in revenue play out until the first quarter is kind of have an overall impact on the calculation of our margin. I don't know exactly what the impact was, but it's certainly probably was a couple of basis points. We'll have to get you back on that.
And then specifically I would just comment on the correlation, there often not type correlation between transaction revenue and net new money, net new money is generally going to be driven by other factors, like episodic events, whether or not there's an IPO, there's inheritance or other factors that will drive the levels of net new money, so those aren't always correlated.
Now on your question…
I was - it's just that I think there is a - there is a kind of a little bit more commentary in the market about the re-leveraging of the Asian clients, and I kind of thought I completely understand the big flows, the IPO, the corporate activity-related one.
But I was wondering if some kind of the net new money is more coming out of cash and being prepared into being put in the market. Then may be that would react in a little bit more velocity and transactions that was all I was kind of hoping to get a little bit of…
Yes, one of the - you're right, one of the components of net new money is sort of the flow component, if you will, and that very much is impacted by leveraging. So the deleveraging we saw in the second half of last year, particularly in Asia Pacific very pronounced in the fourth quarter, that did directly impact net new money.
We didn't really see much in a way of leverage movement either way in the first quarter, so it wasn't a big impact either positive or negative for net new money in the first quarter.
Actually according to the survey we're going to publish on May 7. Our Asian investor or in general, all investors are willing to consider putting more money at work in the market that's - as you will see, Asian investors declared cash balances. It's up to 35%, so that's quite astonishing high number and the U.S. is 25% if I remember correctly.
So basically so there is no indication whatsoever of re-leveraging by Asian investors. And actually that's the reason why I mentioned before also in our strategic initiatives, we don't see the effect of loan growth contributing also to net new money, the fact more inflows of cash for the reason that Kirt just mentioned.
The next question…
No, no. It's not the question - it's the next answer. We - in respect of the Asset Management question, I mean, we are very pleased with the transformation we went through in the last few years as we outlined. I think that's - if you look at on the cost side, we are restructuring and it has allowed us to provide a good series of a couple of quarters of stable profits in the business.
We are also happy with our strategic implementation of the key areas of growth in the sustainable space, [indiscernible] space, alternative investments. Of course, we are also investing you asked - if we are happy about our diversification and geographic and distribution footprint. We highlighted that wholesale is one area where we need to develop more and of course, we would like to have a little bit more of waiting into distribution on a wholesale. We are still very depending on institutional money. So I think that's something that we are working on.
But in general, as I mentioned in the past, the Asset Management business is part of an asset gathering story. It fits well into our Wealth Management business and both in Switzerland and in Asia, we have very strong capabilities. So I think in that sense, we will continue to look at ways to maximize our presence in growth.
The next question from the phone comes from Jernej Omahen with Goldman Sachs. Please go ahead, sir.
Yeah. Good morning from my side as well. I actually only have two questions left. So the first one is on this net new money in Asia. Can you just give - can you give us some more sense why the number was so big this quarter? And what I mean by that is what is driving it? Is this all - which booking center is driving it? Whether you had any of these one-off events that you were highlighting in terms of large IPOs that are benefiting this, et cetera, et cetera? And if I understood correctly, there is no loan component within this and if you could just confirm that as well again?
And my second question is this. I was listening to Sergio's explanation before about net new money conceptually and what drives it and how it's important that you get high-quality net new money in order to drive your bottom line.
I'd like to ask a question slightly differently. So in America, there was very little, if any, very few quarters, I think it was two quarters over the past two years with positive net new money figures. Is it possible to grow bottom line in a Wealth Management business without positive net new money dynamics over the longer term? Thanks a lot.
Yes, yes. Thank you for both questions. If you look at Asia Pacific, you're right, as we explained to Magness [ph] question, no leverage effect. We didn't say deleveraging, but we saw that in the fourth quarter that impacted negatively net new money in Asia Pacific.
We saw one particular large inflow that will single stock related where we expect that, that will then eventually translate into diversified investment potentially through leverage.
In addition to that, we saw a broader base of smaller flows. There was a relative high concentration of ultra overall about 80%. We did see a fair bit of net new money inflow in cash, which is consistent with the high cash component that our clients have. But when we saw the cash come in, we generally saw 50% on top of that of other assets.
And generally when the cash does come in, we do see that we retain a high proportion of that. So we're - we feel pretty good about how that's going to translate over time into good business for us. On the U.S. side...
Let me tackle the U.S. side. Let me - say, first of all, if I look at the last couple of years coincide will also change in our strategy on how we look at recruiting and enhancing bottom line for the reason I mentioned before.
So if you put the picture around that, we look at, for example, something internally, and we speak about also publicly about same-store net new money and as an indicator of one of the KPI we look at for growth. Therefore, net new money, as I said before, is important, should not be over emphasized, but the right waiting.
So it is important indeed to have net new money growth in the same-store, but it's also very important to - when we look at the growth of our business in the U.S., to make it broader in terms of what we do with clients and open up all our capabilities that we have in place in the ultra and the GFO initiatives is one of that, the banking products, loans, mortgages, and so on.
So opening up client relationships to the full capabilities of the group is also a way for us to grow sustainability in the future. But of course, net new money will be a component. But during a transformation like the one we had in the last few years is - if we overemphasize on this figure, it's clear that we will compromise the bottom line and not necessarily create long-term value.
Maybe just to add to Sergio's point, I think Jernej, if you look at what happened quarter-on-quarter, invested assets overall up $172 billion or 8%, $160 billion of that was market performance and only 22 net new money. So oftentimes, market movements are going to be a much more important factor for invested asset growth or potentially fall or declines and be much more of a driver of revenue than just net new money.
Thank you very much.
The next question comes from Stefan Stalmann with Autonomous Research. Please go ahead, sir.
Good morning, gentlemen. I have two questions, please. The first one on the Corporate Center where you guide for $250 million normal loss run rate. Is this only for 2019, for the rest of 2019 or is that longer-term guidance? And I remember that the Investor Day, you are aspiring for about $800 million Corporate Center loss in 2021, so is that guidance still relevant or has it been superseded? And if it has been superseded, what accounts for the difference?
And the second point relates to your dividend guidance where you have tweaked the wording a little bit, as you alluded in your presentation, Kirk, from mid to high single digits now to mid-single digit growth. I guess pragmatically, the difference of two and three percentage points of growth amounts to less than $100 million in absolute terms. Why do you bother about changing this guidance, please? Thank you.
I'll answer the first one. Sergio will take the second. In terms of Corporate Center, the guidance from our investor update still holds, so the 250 quarter is what we're indicating for the new three quarters this year. So absent any movements in accounting asymmetries or unusual gains or litigation, we would still expect overall - we indicated we expected today between 900 and $1 billion. We might slightly do better than that this year just because of the outperformance we saw in the first quarter.
And the over the next three years, we expect to see continued improvement, so that $800 million number still stands and there are a number of initiatives and actions and changes in dynamics that gives us pretty good confident that we should be able to obtain that eight - probably better than $800 million over the next three years.
So Stefan, if you look at page seven, on the right side of that, you have a capital return policy and capital returns, which are two different ways. So we haven't tweaked anything about our capital return policy wording.
What we have been talking about clearly, in a very clear way, is our - are we going to implement that policy in 2019. So I hope it's clear the difference between the policy, which is medium to long-term policy and ambition versus how we implement the policy within any year.
Okay. Then maybe as a follow up why do you bother clarifying the difference between a mid-single digit in the mid to high single digit percentage change for 2019 given the difference here is probably well below $100 million?
Because we bother to give you all the data point in order to make accurate forecast.
All right. I should probably rephrase and not ask why you bother, but what has driven it?
The driving force in assessing how much cash dividend we pay versus other form of capital return, in this case is share buyback is also the share price. So I think it's quite clear, at least to me that we should favor at this current share price levels, share buyback versus cash dividend growth.
Having said that, cash dividend growth is part of our policy. Therefore, in this scenario, we favor the low end of a cash growth versus favoring more share buyback. Even if it's not a lot of money and you are right, it's just a matter of principle. This is how the policy should work.
And if the share price would trade up substantiality and then being, you would see us doing the other way around or retain either cash or favor cash dividend, retain capital or favor cash dividend versus share buyback. So we're not going to buy back shares no matter and not be sensitive to still say it, otherwise we could easily change the policy wording in that sense.
So I hope it's clear what is driving one or the other. And I hope it's clear that we also want to make sure that people don't just assume a $0.05 or up in multiplier necessarily, both ways, up or down.
Okay. Thank you very much. Very clear.
The next question comes from with Jeremy Sigee with Exane. Your line is now open. Please go ahead.
Thank you. Good morning. Just a couple of real follow-ons actually. You highlighted transaction revenues flat in March year-on-year and better in April, which sounds positive. Credit Suisse made some similar comments yesterday actually about overall group revenues being up in March and April. And I just wondered if you sort of echoed that view more broadly across your revenue picture or whether there are any bits of your business that require a bit more caution in March and April in terms of the year-on-year trends? So that's my first question.
And my second question link to that a little bit is could you talk about your planning cycle and the timing of decisions as you go through this year about whether or you might need to make more structural adjustments to costs if revenues are tracking below expectations. What would be the timing of decisions you might take on that as you go through the year?
Well, on the second question let me tackle that one. The issue of attacking structural changes and cost and business, of course, we always need to be open and flexible about considering this one. And you now, if and when we get to the situation you just mentioned, we're going to definitely going to take actions and, as you could see us, we already implemented a lot of strategic changes in respect of taking down our cost base and then our business model early - late last year, coming into the year regardless of market conditions.
We will use tactical measures to offset tactical and cyclical movements in the market. But if we believe that there is a structural change in the marketplace, we will think about how to best address it. But it's early to speculate, so you should expect us to react but not to panic. That's the one thing that we need to keep in mind and looking at how to protect both bottom line, but also growth and opportunities going forward.
In respect of the environment, look, the environment, it is what it is. Our view of the world is very realistic. I know in some cases, it gets confused with being pessimistic. But it's quite a view of how things that play out, so I think that, of course, we are very pleased with the fact that the last two, three weeks of March were much more positive than the rest of the year and we are entering into April with a more constructive environment.
But to extrapolate anything out of this is way too early. And I think that anybody who try to do that in the past and also very recently, I mean I think was probably on the wrong side of the equation.
So I would say that being - we need to stay realistic and focus to the fact that the volatility, not only in the sentiment of investor is still very high and people are very cautious. And, as I mentioned before, for me the most important benchmark and when I look at our clients, not only invest their cash in their portfolio, but also how they invest in their business seems to indicate a rather careful approach to how they see things.
So we need to be - work with this working assumption also because, at the end of the day, the opportunity cost to take any other views on this matter are so limited compared to the downsized risk of being overly optimistic, that it doesn't really make a difference.
The next question from the phone comes from Andrew Stimpson from Bank of America. Please go ahead, sir.
Thank you. Good morning, everyone. So first question on the IB and then second one on leverage, please. On the IB, I appreciate the IB performance was probably better than you expected in the middle of March, but still with 7and a bit percent and still away from a target level from what is usually your seasonally strongest quarter.
And I just want to know what happens if the IB doesn't hit the 15% ROA target for the year. I know that's through the cycle target, but I just wondered, because you know, the way you allocate your capital in the past, the IB always made it, so I am just wondering what the - what happens if they don't make the 15%?
And then secondly, on leverage, the liquidity coverage ratio went up considerably in the quarter. And so I just wondered what capacity there is for that to come down again, and so I assume that would be a pretty good help to your CET1 leverage, I imagine. And if that can reduce, is that on top of that $20 billion optimization you already highlighted or would that be double count in that, please? Thank you.
Yes, thanks, Andrew. On the performance of the IB you said is a quarter - the quarter that is not only for us. I guess if you look around the entire industry compared to the largest players, I don't think that you would describe that as a satisfactory outcome.
So we would need to see over the next few quarter, as I mentioned before, to the previous question, is there any structural changes in the industry that goes through or to our business model that requires actions. And we will then evaluate based on that scenario if and how we should take some actions.
But not only on a vertical basis looking at the IB business on a stand-alone, any actions we take has always to take into consideration what is the ramifications to the rest of the businesses, not only for Wealth Management, but, for example, also to our corporate business in Switzerland.
So anything that we will do, we'll continue to be aligned with making sure that the IB, over the cycle, delivers its cost of capital and in good moments and in good cycles can over deliver on that targets.
But also the strategic importance of our capabilities to the rest of the group cannot be underestimated. And in that sense, it's going to be a balance of the two. And so - but again, we are back into hypothetical questioning here, so I think that's - we'll address it if and when we see those trends being confirmed as a long-term hypothesis.
Yes, Andrew in terms of your leverage question, what drove up our LCR was a combination of issuance that we did kind of ahead, to get ahead of our overall funding calendar for the year and take advantage of attractive conditions.
Secondly, the fact that there was low activity across the businesses resulted in an increased level of funding we were holding centrally versus being deployed in the business divisions. And then in addition to that, part way through the quarter, we did do a CD program to raise some cash.
Now overall we would expect our LCR ratio to come down naturally. We would hope that it comes down in line with increased activity, which would mean that we're starting to see again some normalization.
If you think about the optimization, there - would it be a double count if you assume that the LCR ratio comes down, I would, again, I would favor the LCR ratio coming down with an increased usage in the business divisions, which is part of our plans. And then beyond that, we would look to optimize across the business divisions more and the legal entities more structurally.
Got it. That's great. Thank you
The next question from the phone comes from Andrew Lim with Societe Generale. Please go ahead, sir.
Hi, good morning. Thanks for taking my question. And so the first one is going back to your comments earlier, Kirt, on how AUM growth is sensitive to market movement. If we go back several years and I'm looking also to your 2018 Investor Day, we see that that's actually sensitivity to market movement is actually quite limited.
So I think you talked about back then in your Investor Day how net new money growth tends to be about 2% to 4% and this is I think over the period 2014 to 2018. But that your AUM growth is slightly greater than that about 6% to 8%. So the implied sensitivity from, say - sorry, from market movement is only about 3% to 4% a year.
So despite a really strong bull market rally in equities and credit actually, AUM sensitivity to market movement is actually quite low. So I was wondering if you could give any insights as to why you think that's the case?
And then the second question, it's just probing your strategy on buybacks this quarter. You've done no buybacks this quarter despite capital ratios showing excess capital on both the CET1 ratio and CET1 leverage ratio basis. You've had a first quarter, which is typically the strongest quarter of the year, but no buybacks. So I was just wondering what also is factored into I think in there?
Yeah, thank you, Andrew. In terms of AUM, you're right, it's a mix of factors. I think if you look overall at the longer term trends in equity markets, you would expect that about 60, 65, 30, 35 would be the mix between market movements versus net new money.
In addition to that there's another factor, which is dividends, so dividend payments actually does contribute particularly in the U.S. to net new money growth. So certainly combined market moves, plus dividend is going to be a more important factor overall than net new money, but net new money is indeed important. On the buyback side...
On the buyback site, it's aligned to what we said, so the aftermath of the French matter, we made it very clear that we had to come back to you as we did today with our refreshed strategy on how we're going to implement the 2019 capital returns plans. And also because we had to go through internal governance processes and external one with regulators and everybody in assessing what Kirt covered in the respect of risk of - and has used a further consideration that we're part of assessing our capital return capacity.
So starting - continue to implement a share buyback program, while we were still debating this and say that we would come back to you was not convenient [ph] with the language, so very simple. So I think that was just a matter of waiting until all the relevant stakeholders were aligned in supporting and acknowledging our plans.
Okay. That's great. Thanks.
All right. Thank you very much. We'll now close this call.
Ladies and gentlemen, the webcast and Q&A session for analysts and investors is over. You may now disconnect your lines. We'll shortly start the media Q&A session.