Julius Bär Gruppe AG (JBARF) CEO Philipp Rickenbacher on Q2 2022 Results - Earnings Call Transcript

Jul. 25, 2022 1:15 PM ETJulius Bär Gruppe AG (JBARF), JBAXY
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Julius Bär Gruppe AG (OTCPK:JBARF) Q2 2022 Results Conference Call July 25, 2022 3:30 AM ET

Company Participants

Philipp Rickenbacher - CEO

Evie Kostakis - CFO

Conference Call Participants

Jeremy Sigee - BNP Paribas

Nicholas Herman - Citigroup

Kian Abouhossein - JPMorgan

Anke Reingen - RBC

Jon Peace - Credit Suisse

Nicolas Payen - Kepler Cheuvreux

Hubert Lam - Bank of America

Izabel Dobreva - Morgan Stanley

Amit Goel - Barclays

Andrew Lim - Societe General

Adam Terelak - Mediobanca

Piers Brown - HSBC

Daniel Regli - Credit Suisse

Philipp Rickenbacher

We will present our results for the first half of 2022. You can see our presentation on the screen, and our participants who dialed in over the phone will have the opportunity to ask questions at the end.

I'm joined by our CFO, Evie Kostakis, who presented at our recent strategy update on May 19 and has now been in charge as of July 1. Good morning, Evie, and a very warm welcome to you.

Before we head into the results, let me summarize 3 key points. First, Julius Bär has delivered a resilient performance in extraordinary market circumstances. I would like to thank the Julius Bär staff for helping our clients navigate this challenging period and thereby ensuring the unwavering strength of Julius Bär.

While we were inevitably affected by the historical market corrections in the first half of 2022 as already announced in the 4-month interim management statement, net new money has recovered meaningfully since April. We are encouraged to see this positive trajectory continuing also in the first 3 weeks in July.

Net interest income has been strong as predicted, benefiting from the rate hikes delivered by major central banks, but offset by weak transaction and trading-driven income due to the latest market movements.

Here also, we have seen a rebound in activity in July. Our cost discipline has continued to be strict and in light of the current environment for the second half -- we have accelerated our efforts to minimize discretionary spending and froze non-relationship management hiring. Our capitalization continues to be rock solid, and our risk management remains robust, and you will hear the full details of our financial results from Evie shortly.

Second, I want to once again underline the safety and stability of Julius Bär's business model and our actions in the first half to further build on this. The strength of our business model can be seen in how we have handled the fallout of the war in Ukraine and the resulting sanctions regime with only minor additional impact since our 4-month update.

In the first half, we also closed a major legal case, which was our largest remaining potential legal liability as part of our efforts to resolve legacy issues. And we also continued to simplify our setup and streamline our legal entity portfolio in the first half with the strategic sale or wind down of specific entities. Third, we are well positioned to both navigate what's ahead and to benefit alongside our clients from a potential market recovery. We are also well positioned for future growth, as we outlined in the 23 to 25 million strategy update.

We have the most valuable wealth management brand in the world, and this translates into a strong loyal client base that keeps growing. Our focus to maintain and build on this solid reputation that also makes us the employer of choice in wealth management.

ESG is crucial, and we are making steady progress towards our goals as a company with our climate strategy and staff education and what we offer to our clients. This is also reflected in the latest MSCI rating upgrade.

And while we remain focused on delivering our current 2020 to '22 targets, as we closed the strategic cycle this year, we are already gearing up to the next one. We have laid out a clear strategy and ambitious targets for '23 to '25 at the strategy update of May 19, as you all remember.

Now let me hand you over to Evie for her deep dive into the numbers.

Evie Kostakis

Thank you, Philipp, and good morning, everyone. Let's start with an overview of the extraordinary market developments on Page 6 of the presentation. It is indeed an interesting time to be starting as CFO. Almost irrespective of what benchmarks one looks at, I think we can all agree that the first half of 2022 was one of the worst 6-month periods for capital markets in 5 decades. Global stocks have essentially gapped down to the tune of 20%, and bonds are down minus 14% in sympathy, as you can see on the left-hand side of the page.

The last 2 months of May and June since the IMS and the strategy update were particularly brutal with the MSCI being down almost 9%. There were from a Julius Bär P&L perspective, also some positives though. The dollar strengthened by 5% against the franc, and U.S. rate hikes kicked in meaningfully in the second quarter and are expected to keep rising with the next rate decision due on Wednesday.

And just last week on Thursday, the ECB surprised with a larger-than-expected 50 basis points rate hike, thus ending the 8-year era of negative rates in the euro zone. As we discussed extensively at the strategy update in May, Julius Bär is well positioned to realize a further gross margin benefit from these rate hikes. I will come back to this later.

Moving on to the AUM development on Slide 7. The market drawdown had a significant impact on our assets under management, which declined by 11% in the first half to CHF 420 billion. There were further but much smaller impacts from the divestments we completed in the first 6 months, which took out CHF 6.2 billion; net outflows of CHF 1.1 billion, although with a strong recovery towards the end of the period, and reclassifications of CHF 0.9 billion from AUM pertaining to sanctioned Russian clients.

We saw a net positive effect from currencies, mainly from the strength of the U.S. dollar, which more than offset further declines in the euro and the pound.

Despite the larger year-to-date fall in assets under management, monthly average AUM important for calculating the margins at CHF 458 billion was only very slightly below the level of the first half a year ago.

Assets under custody also declined by 15%, leading to a total client assets down 12%, just below CHF 0.5 trillion.

Let me touch on net new money. As already said, markets corrected very significantly in the first half. Many clients reacted to the environment of increased uncertainty by derisking their investment portfolios, which was also in line with our advice and our house view on the markets. And in the case of a number of larger clients, especially in Asia, this also led to a reduction in leverage. Combined with a slowdown in net inflows in other regions, this led to net outflows in the first 4 months to the tune of CHF 2.7 billion, as we already discussed extensively in May.

Deleveraging did not yet come to a complete stop by the end of the second quarter, but the pace of deleveraging had demonstrably slowed down, and thanks to a CHF 1.5 billion net new money recovery in May and June, the net outflow number for the half year period was limited to just CHF 1.1 billion.

Throughout the 6-month period, we saw good inflows from clients domiciled in Western Europe, especially in Germany, Luxembourg and the U.K. and the recovery in May and June, we also saw a pronounced improvement in flows from the Middle East. It is still early days, of course, but so far, we are encouraged by the improved momentum, which has continued into July, with so far positive net new money in the first couple of weeks of the third quarter.

Operating income. Let's move on to Slide 9. Given the state of the markets and the increased uncertainty, clients moved into a risk-off mode, which led to a decrease in client activity-driven income, especially when compared to the still very strong first half of last year. However, this was partly compensated by higher net interest income, as Philipp to before, which grew by 11% to CHF 342 million as the initial benefits of the U.S. rate hike cycle drove a strong increase in income from loans starting in the second quarter despite a slight decrease in average loan balances as well as an increase in interest income from our treasury portfolio, which additionally benefited from higher reinvestment volumes.

These interest income benefits were to a small extent offset by a slight increase in deposit costs, albeit from low levels and a year-on-year increase in average cash balances with the Swiss National Bank, subject to negative rates as excess deposits went up.

Clearly, the recent 50 basis point rate increase by the Swiss National Bank will massively reduce the negative rate impact in H2. And our euro cash, we will no longer be charged at all after this month.

You may have seen from our press release last Friday that we will now also stop charging negative rates to our clients. Net-net, these changes should contribute positively to the NII development in the second half and should be regarded as a tailwind to gross margins.

Net commission and fee income fell by 10% to CHF 1.045 billion. Recurring fee income rose in relative and absolute terms despite the small year-on-year decrease in average AUM and also despite the sale of a number of large recurring fee businesses. However, this was offset by a significant decrease in transaction-driven income.

Net income from financial instruments at fair value through profit and loss or formerly trading income decreased to CHF 474 million, a decline of 6% compared to a very strong comparable period half a year ago in the first half of last year.

As you know, this line also includes our treasury swap income, which is essentially a quasi net interest income stream. And so also here, we saw the initial benefits from the U.S. rise in U.S. rates, but this benefit was more than offset by lower income related to the issuance of structured products from our own balance sheet. Other income fell to CHF 4 million as dividend income on financial participations declined.

And as we saw a small increase in net credit provisions following some IFRS 9 driven changes in input parameters for the macro outlook in our models.

I would like to reiterate that despite this challenging environment, we still have a rock solid loan book, and we've carefully managed our credit risks, and we've indeed had almost no credit losses related to Russia and Ukraine.

Moving on to Slide 10. In gross margin terms, one can see the different moving parts in a different and perhaps a clearer way. The left-hand graph shows the development of the gross margin over the last 5 half year periods. The light blue stack at the top of each of the columns represents the NII gross margin, which shows clearly the impact of the decline in U.S. interest rates from the first half of 2020 to the second half of 2020.

And now again, the benefit of higher U.S. rates beginning to kick in, in the first half of 2022. The right-hand graph shows how commission and fee income benefited from high client activity in the first half of 2020 and again in the first half of 2021, but slowed down a lot in the first half of this year.

And finally, the gross margin from net income from financial instruments is now 5 basis points lower compared to the very high levels in H1 2020, but only somewhat lower than a year ago and in fact, recovering from the second half of last year helped by the increase in U.S. dollar treasury swap income.

With the contribution from swap income to the gross margin rising from 4 basis points a year ago to 6 basis points in the first half of this year.

Looking at the development within the period that just ended, the earlier mentioned decline in client activity was particularly pronounced in the last 2 months of the period when the gross margin dropped to the mid-70s, a level we haven't seen since July to October of last year. And this was despite a rise in the NII gross margin to 18 basis points in May, June. However, we currently do not believe the gross margin will remain at this low level as clients eventually will return to the markets. And indeed, what we can confirm here is that based on the first 3 weeks of July, the second half of the year has started much better than the first half ended. And again, it's early days, but in combination with the further rate hike benefits still to come through on the NII side, there is clearly a positive momentum moving into the second half.

I presented an analysis of our interest rate sensitivity at our strategy update in May, and we indeed already saw a nice uplift from higher rates starting to kick in, in the second quarter. I thought it would be good to provide an update showing the annualized impact on the gross margin under setters power bus conditions based on the balance sheet and AUM figures at the end of June.

Starting with U.S. rates. As we move into higher rates territory, the incremental benefits will start somewhat diminishing. From where we stand today, we see a further 100 basis point rate hike, adding 3.5 basis points of the gross margin and around 5.5 basis points for a 200 basis point move.

Given that we already are benefiting from the increase since April, the incremental benefit of further rate hikes is naturally a bit lower than the 5 to 8 basis points indicated in the IMS. In other words, this is already in our run rate.

As we discussed in May and as we also saw in the first half results, in the P&L, these higher revenues will show up partly in NII and partly in income from financial instruments measured at fair value through profit and loss or trading income. In terms of the expected switch by clients from current accounts into colored time deposits, our assumptions from here are broadly still the same as back in May.

On the euro side, the ECB rate hike of 50 basis points, which happened last week, should all else equal, lift gross margin by 1 basis point. Furthermore, if the ECB increases by another 50 basis points to 100 basis points versus the end of June, we expect an uplift of another 2 basis points for a total of 3 basis points. The assumed switches from current accounts of time deposits remain unchanged at these level of rate hikes from what I showed you in May.

And finally, on the Swiss franc side, things have changed slightly following the -- to many market observers surprising 50 basis point rate hike last month. From here on, we would expect a small 1 basis point benefit from a further 50 basis point rate hike and a 2 basis point benefit from a further 100 basis point rate increase. As was the case before, and all this, the rate increase assumes a parallel instantaneous shift to the rate curves.

Now let's turn to operating expenses on Slide 12. As we already announced recently, on literally the last day of the period, we reached a settlement in what was on paper the largest quantifiable contingent legal liability in our annual report for the last many, many years. The potential liability had grown to over EUR 0.5 billion. In the end, we were able to settle this legacy litigation of which the underlying matters date back to more than 10 years ago for EUR 105 million. Of this amount, CHF 50 million was covered by preexisting provisions and the remaining CHF 55 million is charged against the first half results, mainly due to the rise in provisions, total operating expenses increased by 6% year-on-year to just over CHF 1.3 billion.

Excluding provisions in both periods, operating expenses went up by 2% to a little over CHF 1.2 billion. Personnel expenses decreased by 1% to CHF 842 million. The average number of staff rose by 2% year-on-year, but the bonus accrual declined following the decrease in pre-bonus profitability.

Staff costs were also impacted by a rise in pension fund-related expenses including a one-off CHF 7 million following a Swiss pension fund plan amendment that will become effective in January of next year.

Excluding provisions in both years, GE, our general expenses rose by 11% to CHF 317 million, mainly due to IT-related projects and software expenses as well as a small increase in costs related to travel and client events following the relaxation of COVID-related restrictions in certain key jurisdictions, except, of course, for Hong Kong.

Depreciation and amortization went up by 5% to CHF 95 million, following the rise in IT-related investments in recent years. So while the increase in pre-provision costs was rather limited, the drop in revenues meant that the cost-to-income ratio went up to 67% and the expense margin to 55 basis points.

So where does this leave us going into the second half? Given the challenging environment, we have already reexamined our plans to ensure the best use of our resources. Specifically, we have focused the whole management team and organization on cost control with selected initiatives. You will recall that in my presentation in May, I provided an outlook for full year cost-to-income ratio in the mid-60s. Clearly, that outlook was provided before we saw the rather extreme market move in June. Nevertheless, given the positive early signs so far in July and in combination with the cost control initiatives we have initiated, I believe our cost-to-income target is still in line of sight, unless, of course, we see a further massive market drawdown later in the second half.

Moving on to profit development on Slide 13. Adjusted profit before tax declined by 27% to CHF 542 million and the pretax margin to just shy of 24 basis points. If you further adjust for the CHF 55 million litigation provision, profit before tax was CHF 597 million and the pretax margin 26 basis points. Adjusted net profit decreased by 25% to CHF 476 million. Without the net of tax impact of the litigation provision, it would have been CHF 44 million higher at CHF 520 million.

Our usual guidance for the adjusted tax rate is largely unchanged versus what we indicated in February, albeit that for 2022, it could now be somewhat lower for the simple reason that due to the CHF 55 million litigation charge and other impacts, the profit contribution in Switzerland was relatively low in the first half. For that reason, the tax rate in H1 was at 12%.

On to the balance sheet, our balance sheet remains a fortress. Since the end of 2021, loans declined by 6%, mainly on Lombard deleveraging with the Lombard loan book shrinking by 7% while the mortgage book was only slightly smaller. At the same time, deposits increased marginally and as a result, the loan-to-deposit ratio declined to 57%.

Perhaps worthy of note is the -- including of a new asset item, other financial assets at amortized cost. Until the end of 2021, all of our treasury portfolio investments were recorded as financial assets measured at fair value through other comprehensive income. We saw in the first 6 months how large declines in the bond market can lead to OCI-driven fluctuations in capital. Therefore, in order to reduce this potential capital volatility going forward, as already indicated during the IMS and strategy update, we started booking a large portion of our new treasury investments at amortized costs, which amounted to CHF 3 billion at the end of June. This is a nice segue to the next page.

Here, we now show a bit of a different graph with respect to capital development from what you are used to. The old style slide is still available in the appendix, but here, I would like to discuss the change in ratios by breaking it down into the different moving parts.

Starting with the CET1 ratio on the left-hand side. Above the graph, you see the RWA increased slightly by CHF 03 billion, mainly following an increase in market risk positions and operational risk positions, and you can find the details in the appendix. CET1 capital came down as the profit for the period was more than offset by the combination of the dividend accrual, the share buyback and a group of other impacts, mainly the negative OCI move following the sharp rise in rates and the resulting fall in bond valuations in H1.

As I mentioned in the balance sheet discussion, we have started to make a change in how we book these bonds in our balance sheet, which should dampen short-term volatility going forward.

In addition, approximately 30% of our treasury book matures within 1 year. So as these bonds mature, they pull the par and the OCI impact will vanish.

So looking at the development in CET1 ratio terms, you see that from a starting point of 16.4% at the end of the year, profit contributed 220 basis points. The dividend detracted 140 basis points, the buyback, another 60 basis points. The increase in RWA, another 20 basis points. And finally, the other components, larger portion of which was the treasury portfolio mark-to-market and OCI, minus 140 basis points, taking the CET1 capital ratio to 15% as of the end of June. That is, of course, still very significantly above our group floor of 11% and also still above the buyback threshold of 14%, which becomes relevant at year-end as it will determine the size of a possible new buyback next year.

On the right-hand side, for the Tier 1 leverage ratio, the logic is similar. The development in Tier 1 capital is the same as for CET1 capital, except the Tier 1 capital benefited from the net CHF 0.2 billion increase in additional Tier 1 capital. This followed the redemption of a SGD 325 bond in April, followed by the issuance of a larger USD 400 million bond in June. The bond issue in June took place in rather choppy bond market conditions, but the successful result was also a testament and a reflection of our solid corporate credit and our excellent standing in the market.

With that, I now hand back to Philipp for the business update.

Philipp Rickenbacher

Thank you very much indeed, Evie. Now that you have explained the results for the first half of '22 in detail, let me provide you with some color on how we achieved them and how they fit into a larger strategic context.

Our primary focus is on our clients and now in particular, helping them navigate through a challenging environment. One could say a good wealth manager is made for times like these. It is not the first time that Julius Bär and our clients witness a market crisis or one triggered by geopolitical events. What distinguishes our people is that we use these times as opportunities to further strengthen the trusted long-term client relationships we have built over the years.

As you know, we have seen clients taking risk off the table in the first half deleveraging their portfolios in line with our cautious approach of managing credit exposures. This has especially happened with larger clients in Asia and the Middle East. This deleveraging peaked in March as previously reported. It has happened with no credit losses and essentially no client attrition.

Also, as both Evie and I highlighted before, after April, we have been able to considerably turn around the outflow trend seen at the beginning of the year and generate CHF 1.5 billion of net new money over 2 months.

We already are starting to see first moves to releverage investment-grade bond portfolios in Asia, and the recovery we have seen in July is broader based across our regions.

Let me underline that this turnaround in net new money flow has not been achieved at the expense of profitability or by compromising on our risk discipline. We have said in 2020 that we would not pursue asset growth for the sake of it and we continue to be tightly focused on profitable growth.

At the same time, we place emphasis on the quality of our revenues and continue to strengthen our ability to generate recurring revenues through client advice and the broad product shelf.

In addition to continuously improving the appeal of our fee-based mandates, we are making further use of our manufacturing capabilities for our competitive in-house fund range.

Also, let me mention our extended offerings in alternative asset classes such as private assets, where the secondary markets could offer attractive opportunities in the coming months in light of liquidations triggered by the current market environment.

Another positive impact on our recurring revenues run rate comes from our ability to steer our pricing. We have both a clear framework as well as tools in place that allow our relationship managers to find the right balance between recurring and transactional fees for each client, ensuring pricing discipline and maximum client value at the same time.

Cost discipline is key in uncertain times, and Julius Bär has demonstrated over the past years that we can execute reliably in this dimension. We are benefiting today from an optimized personnel cost base that has been achieved over the past years and has been reduced slightly further in the first half despite considerable additional efforts related, for instance, to managing the risks from the war in Ukraine.

General expenses have picked up as would have been expected in a post pandemic recovery when we started to travel and entertain clients again in a controlled frame.

In light of current market developments as a precautionary measure, we have now even further slowed down on discretionary spending and instituted a hiring freeze except for relationship manager hiring for the second half of this year. This is a commitment to cost discipline, while at the same time, investing in future growth.

The same cautiousness is applied to how we manage our risk profile. I would like to highlight our roughly CHF 50 billion credit book on which we have recorded extremely low credit losses to date. It also reflects a deep knowledge of our clients and the quality of our relationships. Our consistent risk appetite is also shown in the fact that our risk-weighted assets are essentially unchanged. And our strong capitalization, as Evie has shown, allows us also to continue with our share buyback program as a means of returning capital to our shareholders.

In times of uncertainty, the safety and stability of our wealth management model are key to reassure clients, but also to create long-term value for our shareholders. As mentioned earlier, total reclassifications to assets under custody in connection to Russia-related sanctions amount to CHF 900 million to date, a minor addition of CHF 100 million since the interim management statement despite the significant enhancement of the international sanction scope. This underlines again the quality of our client base.

I would also highlight that as of today, we see no significant settlement risk with counterparty related to Russia-linked transactions.

Looking ahead, we expect sanctions in the context of the war in Ukraine to continue. That is why we have started to institutionalize some of the sanction handling processes along the entire value chain of Julius Bär with a clear long-term view. This will afford us additional protection in an environment where requirements keep changing at a high pace and in complexity.

Second point, legacy cases. We have put strong emphasis on resolving legacy cases for Julius Bär in the past years. These cases are transparently reported in our annual report. Earlier this month, we resolved the largest remaining litigation matter, a case dating back more than 10 years which due to accrued interest, as I said before, it could have had a maximum economic downside of more than CHF 0.5 billion. We closed this case with a charge of CHF 55 million in these half year results.

And together, we previously made provisions settled for a total amount of CHF 105 million. This is an important step to further strengthen our reputation and minimize future risk.

At the same time, we keep both eyes on risk management, continuing the successful work to fundamentally revamp and strengthen our approach to risk and compliance over the last years.

In this half year, we invested further. For example, we have continued to augment our robust client documentation standards and risk-creating methodology. And we have launched a strategic transaction monitoring solution in the large booking centers of Switzerland and Luxembourg, with the remaining booking centers to follow. Together with our investments in risk culture, I am convinced that this positions us strongly for the future.

In 2020, I also announced we would gradually simplify our setup. We have advanced considerably starting with the sale of our Bahamas operation, the closure of small offices, for example, in Cairo and Beirut and the ongoing restructuring of Kairos in Italy, where we remain a shareholder, but have established a new and strong management team.

Now in the first half of '22, we continue to strategically streamline our portfolio and have reduced our stake in NSE Asesores in Mexico and sold 2 small subsidiaries in Switzerland, Wergen and Fransad, all steps with the conviction that these businesses will benefit from greater independence and in an effort to free up our own capacity to focus on growing our core business.

And as mentioned earlier, in line with the business outlook for Eastern Europe after the war in Ukraine, we have initiated the closure of our small offices in Moscow and now also in Vietnam. As we are moving towards the end of this strategic cycle, we are already setting the stage for the next growth phase. Amidst the current macroeconomic uncertainty, we enter this next cycle from a structural position of strength. This is evidenced by our brand, the most valuable wealth management brand in the world. It has been valued by an independent third party at CHF 1.6 billion, reflecting our strong profitability to date and the market's perception of innovation as well as the high quality of our client services and of our product range.

A strong brand is relevant for our clients but also for our attractiveness as an employer for wealth management talent. Our hiring pipeline for RMs in the second half looks promising. And as I said in May, we will ramp up the recruitment of front office staff in our key markets.

For example, we have recently hired 2 new group heads for our APAC business in Singapore, while intensifying our hiring efforts, we will also complement them with the internal development of our front office talents. I confirm our ambition that our relationship manager base will return to a positive trajectory in the near term.

Our employees make our brands strong from within and our brand partnerships such as Formula E and the recently concluded [Montes festival] help us post brand awareness and our image across the globe. I am glad we can work together with these iconic ventures and together with them, develop new forward-looking ideas and formats just as we will evolve wealth management towards the next generation.

The strength of our franchise is shown by the proximity to our clients. Since the pandemic, we have perfected the multichannel outreach to our clients. Digital interaction is complemented by our strong personal ties as embodied by our successful client communities. After the well-established community of young partners encompassing the next generation of clients, we have recently launched a client circle dedicated to sustainability, where we bring together clients and thought leaders. The strength of our relationships is always confirmed by our regular client surveys.

We are just concluding the 2022 cycle, and early results are strong. Client feedback is particularly positive when it comes to our front-facing personnel of which I am very proud as well as our commitment to provide proactive advice key under these difficult market conditions. These are truly differentiating factors for Julius Bär in a world where wealth management for high net worth individuals in particular is becoming more and more industrialized, route we do not intend to follow.

Finally, let me turn to our sustainability strategy and the progress we have made just in the past couple of months. We have introduced a proprietary ESG methodology to classify client investments, along with the related ESG reporting that all our clients will receive and our relationship managers have been traded on. This has been a massive effort in the first half of 2022, and it will spark new dialogue on sustainable investments with our clients, giving them the transparency needed to align their portfolios with their values. This is also fully consistent with our strategy to achieve Net Zero greenhouse gas emissions as a company by 2030 when it comes to our own operations and to achieve the net zero treasury mortgage and corporate credit portfolio by 2050 and as well as driving an engagement-led strategy with our clients for all the assets they own and control, helping them to express their views and convictions.

I'm very proud that MSCI has decided to recognize our efforts with an upgrade to our rating to AA. This is just an interim step, and our action-oriented work will continue.

We communicated on May 19, our long-term vision for Julius Bär by 2030. Our strategy for the '23 to '25 cycle and the ambitious targets associated to this. Let me recap and reaffirm this today.

Julius Bär's strategy for the next cycle is a strategy of growth, founded on 3 pillars. Focus, our relentless focus on wealth management and our clients, combined with the simplicity of our business model and the continued focus on sustainable profit growth with a strong eye on quality of revenues, driving a 2 to 3 basis points long-term uptick in recurring revenue as well as focus on efficiency and cost management in order to finance our investments in the future.

Scale. Our clear ambition to drive growth for Julius Bär, in particular, in our important markets across the globe in Switzerland, Germany, the U.K., Iberia, in the Middle East, in Asia, Singapore and Hong Kong, in India and Brazil. Growing to scale organically through hiring and through people development, but also through value-creating M&A.

And last, innovate. Innovate wealth management for the benefit of our clients and shareholders. It means digitalizing wealth management from to back, building even better front ends, freeing up our people's time and making human advise scalable and creating versatile and scalable back ends. It means exploring new possibilities for greater digital delivery of a wealth management experience, and it means exploring the possibilities of digital assets in the context of our core business, an area that today is experiencing a dot-com bubble burst moment. But we believe this will only accelerate the establishment of regulated value-generating businesses in this business.

Against this strategy, we have set some very ambitious targets, as you all know. We will use the remainder of 2022 to focus on delivering on our current 3-year targets and conclude the work initiated in 2020, but also and are ready to prepare for this next and exciting step for Julius Bär.

To finish, let me recap the key message. Julius Bär is providing its resilience -- is proving its resilience in challenging market conditions, and we are ideally positioned for continued profitable growth. We have demonstrated resilient performance and are focused on delivering against our 2020 to '22 targets, managing all the factors that are under our control as uncertain as this environment may be, we are using it to further strengthen client interaction and are rewarded with long-term trusted partnerships.

After a short period of deleveraging recovery in asset growth and client activity has been encouraging for our outlook into the second half. Our revenue growth potential is significant and will be further compounded when client activity resumes driven by, for example, greater clarity in the macroeconomic outlook and improvement in geopolitical stability and as pandemic restrictions in Asia may be lifted.

We put strong focus on efficiency and cost management in this environment as a matter of prudence without affecting the growth of our franchise. And we have a crystal clear strategy for 2023 to '25 against which we are starting to execute already this year.

This concludes my remarks, and we are now ready for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Jeremy Sigee from BNP Paribas.

Jeremy Sigee

Firstly, a sort of nitty-gritty numbers question. Is there a pull to par effect on the OCI? You showed us a 140 bps hit in the first half. And I just wondered if some or all of that gets pulled to par. And if so, what sort of how many basis points per year would you expect as a sort of rough guidance? So that's the sort of numbers question.

And then I just wanted to ask more of a kind of strategic question. around both the divestments that have happened here and also the shrinkage in adviser numbers. You've been talking about a pivot to more of a growth emphasis. And so I just wondered where we are in that process. Have we finished the divestment or are we finishing the RM shrinkage? What does the growth position look like?

Philipp Rickenbacher

I'll start with the second half, and I'll leave the first one to Evie. I think we're truly now coming to an end of the strategic realignment that we announced back in 2020 when we said that we want to look into our portfolio. I think these last steps, all the 3 companies, NSE, Wergen and Fransad were sort of independent asset manager like models that the bank had acquired in the context of, let's say, a consolidation in this space that was foreseen in the market in the last decade, a consolidation that never truly happened. We believe that we've done the right thing by setting those companies free and letting them to develop them on their own, allowing us to focus our resources on growing our core business. And I think this now broadly concludes the work that we've started and puts us in an excellent position that we really have focused moving forward on growing our business.

Maybe Evie, on to the first.

Evie Kostakis

Thanks, Philipp, and thank you, Jeremy, for the question. What I can tell you is the following. First of all, about roughly 30% of our treasury portfolio matures within a year. The duration of the portfolio is just slightly above 2. And as you have seen, we have started reclassifying bonds as they mature into amortized cost for a total of CHF 3 billion by the end of June. So you should indeed expect the next few quarters that 140 basis points of OCI impact through the pulling to par to disappear.

Operator

The next question comes from Nicholas Herman from Citigroup.

Nicholas Herman

Yes, three for me, please. Firstly, on net interest margin, I do a little bit more numbers apologies for that. First on the net interest margin. Can I just confirm the exit NIM? Was it -- am I right that it's approximately 17 basis points? And then, I guess, factoring all the rate hikes to date, where does that take you to, please?

Secondly, on the fee and commission margin, the recurring fee margin fell by a couple of basis points so that's the second half. Can I just confirm, is that really all due to the sale of the businesses? Or was there any other compression effect in there such as a latter performance fees or asset mix shift?

And then finally, moving to costs. How much is variable comp down year-on-year? Because pre profits were down about 20% year-on-year. Maybe I'm wrong, but it doesn't look like variable comp is down anywhere near that much. So I guess that also kind of brings into question the sensitivity of the comp model to earnings, I think.

Evie Kostakis

Thank you, Nicholas. Let me start with the first question on net interest margin. In May, June, the exit margin related to NII was around 18 basis points. When all is said and done, given all the effects and the sensitivities that I presented, I think on Slide 11, you should expect that the full year margin should be north of that exit margin that I just indicated. In other words, we expect a significant uptick in the NII-related margin in the second half of the year.

On the fee and commission margin, indeed, the bulk of the delta of 2 basis points, you see from the end of the second half -- the first half of this year is indeed related to the divestments. There is a small 0.5, 0.6 basis point effect related to performance fees primarily from Kairos. And on other personnel, on variable comp, the question around the costs, variable comp is down around CHF 22 million H1 versus H1 of last year.

Operator

The next question comes from Kian Abouhossein from JPMorgan.

Kian Abouhossein

Two questions. The first one is on cost income. You're clearly still sticking to your target, and I just wanted to see how you think about that. Considering you are your target level now in the first half, because clearly, we normally have seasonality in the second half. And was wondering what assumptions you make around revenues in order to hit this 67%. And in that context, clearly also cost flexibility if there's an offset because it doesn't look like there's too much cost flexibility from what I can see. So maybe you can just explain to me how you get to the year-end target.

And then the second question is, if you can just discuss hiring process. How do you see competition for advisers at this point, considering we had a material market correction, as you said, unprecedently to some extent, how do you see competition in terms of hiring, in terms of cost of hiring advisers. Has there been any reduction and breakeven levels? And sorry, if I may, one more question. The 6 basis points on the treasury NII gross margin impact. As you're moving OCI to held to maturity, how does that get impacted?

Evie Kostakis

Thank you, Kian. Let me take the first question. I'll leave the second one to Philipp, and then I'll come back to the third one. So in terms of how we think about our cost-to-income ratio, as you know, we manage the business based on the cost-to-income ratio. The main driver is really the gross margin. It fell to the mid-70s in May and June. It's a very low level. Last time, I remember that type of level was in Q3 of 2021.

So what was driving this? And where do we see it going from here? First of all, this was impacted by the extraordinarily negative market development, especially in June. This really drove clients to the sidelines and you see this across the industry. So this is number one.

Number two, where are we going from here? We don't see the gross margin staying at this low level. And I can indeed confirm that based on the first 3 weeks of July, client activity has picked up, returned to more normalized levels. And in addition, we see some further gross margin benefits that will also come in from the further rate hikes. I showed the sensitivities. So we expect the tailwinds from that.

So I think in summary, we expect a good probability of reaching a decent overall gross margin in the second half. And based on that, I still believe that the cost-to-income ratio target that we laid out is still within the line of site.

I can also pretty firmly state that Philipp and all our colleagues and the management team, the entire organization is extremely committed to cost control in the current challenging environment. This is very, very important for us, and we've put in the right measures in place to deliver. So I think that's question one. Philipp, to you.

Philipp Rickenbacher

As to hiring, I think this is all about quality. And I think quality hiring has been following the same logic for now a relatively long time. The main factor that has been present has obviously been the velocity of hiring. I think in pandemic times and also war-like times, typically, it's harder for relationship managers to change careers. It's also harder to bring clients across, and this has been felt very strongly, especially still in Asia where the hiring market has, to some extent, the hand break on given the pandemic restrictions that are still in place around Hong Kong and China.

When it comes to cost, I don't think this has fundamentally changed. Quality always had its price. I think with the upgrade of our relationship manager compensation model, we've again confirmed our leading position in this market. We made sure that we are able to properly reward the best entrepreneurial talent in the market, with the right balance of entrepreneurial reward but also risk management. And I think the recent moves and successes in our hiring pipeline confirm the validity of this model. And on this basis, I think we're very confident that in the next quarters, we will be able to continue on that path.

Evie Kostakis

And on the third question, Kian, thank you for that question, giving the chance to clarify. There's no impact on 6 basis points if we move from other comprehensive income to amortize costs as the 6 basis points are based on the swap balances, which again are based on cash balances.

Operator

The next question comes from Anke Reingen from RBC.

Anke Reingen

The first is on the exit margin. I mean, you gave us the 18 basis points on the net interest margin. And I just wondered is the other part if I did the math correct, I get to about 75 basis points versus the 85 in the first 4 months. Is most of it due to other fees or the transaction part, given your comments about June? Just trying to understand how we should think -- obviously, is that July started at an encouraging level. But what should be based on our H2 estimates given the exit ratio, exit margin?

And then the second question on the OCI. Thank you so much for the detail. If you're looking at your forward rate expectations, -- should we -- if those play out, should we expect further OCI headwinds? Or are they basically not coming through given the reclassifications and also offset by the pull-to-par effect.

Evie Kostakis

Thank you for the question, Anke. On the exit margin, you're correct. If I look at May to June, it's 75 basis points. And if you want to further break down of that commission and fee margin was 44 basis points, 36 recurring transaction 8, NII, 18 basis points and trading, 13 basis points, getting us to the level of 75 for the 2-month exit margin. And the second question on OCI. Can you repeat it, please? Was weather...

Anke Reingen

Yes, if the rate -- if your forward cost plays out, should we expect further headwinds or that will be offset anyway by the pull-to-par effects?

Evie Kostakis

No, we believe that they will be offset by the pull-to-par effect unless, of course, we see a much further increase from where we are today and what's baked into the forward rates.

Operator

The next question comes from Jon Peace from Credit Suisse.

Jon Peace

So my first question, Evie, when you said that you thought that the mid-60s cost to income was still feasible for this year. Do you mean sub-67% or a bit more optimistic, sub-55%.

And then my second question, please, is on the share buyback and just how mechanical do you envisage the process being? So if, for example, your CET1 ratio was above but close to 14% at the year-end, having completed this year's buyback would you be happy with no buyback at all for next year because announcing a small number is not really worth it? Or would you consider that with the OCI losses reversing, you would take that into account in declaring next year's buyback?

Evie Kostakis

Thanks a lot. So on the first question with respect to the CET1 ratio, obviously, when we gave our guidance in May, we hadn't seen the 9% drawdown in the markets in May and June. What I can say today from today's vantage point is that our target of less than 67%, which is part of the capital markets targets of our '20 to '22 strategy is within the line of sight.

Now with respect to the share buyback. What I can say is that the sizing of the share buyback is related to timing. So if we end up the year at 14.5% or 15%, we probably won't take a full year to execute the share buyback, but we'll do it in a much smaller time period.

Operator

The next question comes from Nicolas Payen from Kepler Cheuvreux.

Nicolas Payen

Sorry to come back on this, but why don't you talk about the client activity in May, June. And I wanted to know if there is any structure client notes loss that took place in May and June, partially explaining the big drop in transaction-based income. And the second question would be on costs. And I wanted to know where do you see the biggest cost pressure going forward? Is it on compensation? Is it on technology? And regarding this, what is the future of personnel expenses in particular?

Philipp Rickenbacher

Maybe just the overall picture on the cost side. I think the pressure comes not so much from the personnel side, we haven't seen much inflation there. obviously, I mean, linked to tech our previous investments that now come through into operating mode. There has been some pressure on general expenses. Obviously, now with the post pandemic recovery, but this is happening in the controlled space. So I think cost is moving in a narrow trajectory.

Evie Kostakis

And on the structured client notes losses, no, we definitely have not experienced any structured client losses. What I can say is that we did see structured product issuance volume slow down, and you can actually see this on our balance sheet. On the liability side, at the end of the year, we had CHF 14 billion of structured products issued we ended up June with CHF 11 billion.

Operator

The next question comes from Hubert Lam from Bank of America.

Hubert Lam

I've got a few questions. Firstly, on the recurring margin, which fell to 36 basis points due to divestments. Is this the new level we should start -- we should think of where you to start off with. And also, do you still expect to get to the 39 to 40 bps by 2025 or expect this target to be lower now just given to the lower starting point. Second question is due to deposit behavior. Are you still -- are you starting to see deposits move to term deposits or money market funds due to the higher rates? Have you seen that trend already? And last question is due to many penetration. I saw in the first half that your managed penetration fell to 65% from 56% at the start of the year and discretionary mandate also fell as well. Can you just explain what's driving this?

Evie Kostakis

Thanks a lot. Hubert, let me start with the first question on the 36 basis points recurring margin. We are still firmly guiding towards 39 to 40 basis points in the next strategic cycle. I mean 2 months doesn't change the world. So we do think that this was a temporary blip.

Secondly, on deposit behavior, what I can tell you is that at the end of last year, we had 90% of our deposits were current accounts. The number of call deposits and time deposits at the end of last year was 7%, and the balance was in precious metals accounts. End of June, that number of current accounts was 82%, calling time 14%, so had roughly doubled in the 6-month period and precious metals at 4%. I hope that helps.

Now on mandate penetration, I wouldn't read too much into that. The vast majority of -- it's basically rounding, it's in the basis points, the difference between what we reported last time and now. And most of that is related to the divestments that we mentioned, which were primarily discretionary in nature.

Operator

The next question comes from Izabel Dobreva from Morgan Stanley.

Izabel Dobreva

I have 3 questions. Firstly, I had a question on your NII sensitivity in U.S. dollar rates. If I compare the sensitivity disclosed today, it's for 5.5 basis points, 200 basis point shift, which has come down since the sensitivity you gave in April, which was 8 basis points on a larger AUM base. So my question is, could you first confirm whether the overall sensitivity is unchanged, but we have essentially already consumed 2.5 basis points of the headwind or has it actually come down?

And if so, what are the key drivers in terms of balance sheet structure, which have driven that? So that's the first question on NII. Then secondly, I had a question on the brokerage income fall. Brokerage margins look to be back to the pre-COVID level. And I think in the past, you have talked about how they should be sustainably higher than 2019 due to the various investments.

Do you think that is still the case? Or would you expect the suppressed level of activity going forward?

And then my final question is a little bit bigger picture regarding the disposals of Wergen NSC and Fransad. Together, they look to have been about 1% of the AUM and I guess, a little bit more revenues given their impact on the various indicators. So could you explain the strategic rationale of why you decided to exit these investments in particular? And also, should we assume that there is probably another 5% of AUM in the lower tail, which could be rationalized?

Philipp Rickenbacher

Very much, Izabel. I'll start with questions 2 and 3. I think on the brokerage side, as Evie said, I think this is more a short-term blip than a longer-term structural element. I don't think that our previous statement has been invalidated by a very inactive phase, which just linked to, I'd say, quite extraordinary moves out there in the market. As to the disposals, I believe let's look at it this way.

I think all 3 businesses have the character of what I would call an independent asset manager was a multi-booking approach where the advisers were managing money that was booked partially to a smaller extent with Julius Bär but to a large extent also with third-party banks. And I think these businesses after the 2010 are now coming into 2020s operate typically in a different regulatory framework and a different regulatory density than a fully vertically integrated bank, albeit FINMA in Switzerland is now substantially ramping up the regulatory part and the entire industry should enter into a regulated state at the end of this year. There's still going to be a differential moving forward. And we believe, and I think we have been confirmed time and again that consolidation in this space by integrated banks makes little sense. It's actually a direction that the entire industry has been taken in the last decade is now moving off from.

We have been able to round these things off in the first half year. We're glad about that, and that allows us to focus on our core business. And in that sense, conclude a lot of the alignment we had to do over the last 3 years.

Evie Kostakis

Izabel, on your first question, thank you for that. So for dollar sensitivities, we now see lower incremental upside from 100 basis points parallel yield curve shift as the U.S. Fed funds rate has moved up since April by 125 basis points from 0.5 to 1.75. And we are expecting the incremental forward benefits to become slightly smaller. Having said that, the benefits of the first rate hikes have already started to materialize in our P&L with run rate benefits becoming visible in the second half of 2022, as I mentioned earlier. And last point. Obviously, we have updated the sensitivities with respect to our balance sheet as of the end of June and our assets under management.

Operator

The next question comes from Amit Goel from Barclays.

Amit Goel

So I've got kind of 2 questions or one on kind of related. I just wanted to check, I mean, obviously, you talked about July activities improved substantially from May, June and in some areas normalized. I'm just kind of curious where you're seeing that? What's driving that because the market environment doesn't seem to have improved that much. So just some color there. And also just curious then in July have has some of that deleveraging then reversed? Or is there still a bit of deleveraging going on?

Philipp Rickenbacher

Nothing that the movement -- the market movements have been exceptional. If you just look at MSCI in June alone has been down 9%. And I think it's these extremely large market movements that make investors go to the sidelines, take risk off and actually wait for -- seeing what things to happen. But I think this also creates new opportunities afterwards and at least the more aggressive ones or the more risk secret among the investors are clearly looking for buying opportunities once these big movements are over.

And so typically, you have relatively short phases of very strong absenteeism from the market. followed by sort of a step-by-step constructive engagement. That's why this pattern happened the way they happen.

Operator

The next question comes from Andrew Lim from Societe General.

Andrew Lim

So if you look to your financial report, it seems like not only have you switched bonds from how to -- sorry, towards amortized costs, but you've also upsized the quantum of those bonds. So I'm just wondering about the opportunity to upsize bond investments to lift your NII going forward because it does seem historically that the size of your bond portfolio is still a bit on the small side given the size of the business? And then secondly, it's not to see an uptick in net new money coming through in the last few months or the half. Could you give a bit more detail on where that's coming through on a geographical basis?

Philipp Rickenbacher

The geographic focus in the last few months has been, as we said, mainly in Western Europe again and to some smaller extent in the Middle East. But I think we see now signals of a broader-based net new money recovery also in other markets as we move into July.

Evie Kostakis

And on the first question, yes, indeed, you're absolutely correct. The size of the treasury portfolio has increased. As you can imagine, we look at our overall liquidity position and our treasury carefully tries to navigate between capital, liquidity and returns. As you know, for our liquidity coverage ratio, we need to hold high-quality assets. So maintaining a strong cash balance remain key to be in line with our liquidity ratio targets. It's also, I think, fair to say that we've seen some strong deposit inflows. And this has obviously helped our liquidity position, and therefore, we have invested proportionately more in the first half of 2022.

Andrew Lim

So if I could just follow on that. I mean what buffer do you have basically do to work in to increase the size of your bond portfolio? I mean ratio, a constraining factor here? Or do you still have some upside there to switch things around and then gain an NII uplift.

Evie Kostakis

Look, I mean, first of all, we have a very comfortable liquidity position and the amount of bonds we are purchasing is very much depending on the cash balance we have and the market opportunities as well as the redemptions we have in our portfolio. So it's possible that we stay sideline for weeks as we see better chances materializing later on. Credit spreads were very, very tight, and that's why we're staying a little bit in the sidelines. Now they've started to expand, and we might be seeing some more opportunities to deploy our treasury portfolio in that regard.

Operator

Next question comes from Adam Terelak from Mediobanca.

Adam Terelak

I actually wanted to follow up on that treasury comment. I just wondering the timing of the kind of the sizing up of the bond portfolio so to think about whether that's post the April numbers you gave us or not. I'm thinking about kind of run rate and the NII benefit that's come through, but also whether there's a capital impact to worry about for May and June from adding that volume.

And then another numbers question. Can you give us the size of the swap that you've got outstanding at the minute for the dollar, Swiss franc swap? I know you've had kind of a big reduction in the loan book. Has that increased the kind of the size of the swap as well? So is it volume plus rate impact to think about on a year-over-year basis? And then finally, can we just have a bit more color of the FX-adjusted loan book for the half. I just want to size some of the deleveraging impact in Asia to get more of a clean underlying net new money figure.

Evie Kostakis

So on the first question, I mean, we had just started booking bonds in amortized cost in April. We ramped up in May and June. What I can say, which might help you with your capital impact assumptions is that the duration of the bond portfolio that is booked and amortized cost is slightly higher than the fair value through OCI. Secondly, with respect to the size it was just a little bit north of CHF 20 billion. And on the FX adjusted loan book, I think it was -- what is it, CHF 14 or so? Yes. I don't have the number off the top of my head for the FX adjusted loan portfolio.

Operator

Next question comes from Piers Brown from HSBC.

Piers Brown

I've just got a couple of clarification points, actually related to the last 2 questions. But can you just give us a little bit of color just on where the Lombard demand is currently? I mean it sounds like deleveraging is still continuing. So it sounds like that book is probably still shrinking into the end of the first half. But if you could just give any color on what you're seeing in terms of appetite for taking all the different additional Lombard loans to your clients? And then secondly, just on the treasury. Again, I mean, what actually determines whether you book a new asset purchases in treasury book as OCI or amortized cost. Is that purely at your discretion, in which case, I guess, it would make sense to do all of the new purchases in amortized costs. But if you could just share any thinking on that?

Evie Kostakis

Sure. On the -- let me first take the question on Lombard lending. I think as we mentioned in our opening remarks, the pace of deleveraging demonstrably slowed down in the last 2 months of the second quarter, and what I can tell you is that the credit pipeline buildup that we're seeing right now, especially in areas such as Asia is quite healthy. And on the second question with respect to the treasury. We don't have an intention to move the entire treasury bond portfolio from fair value to amortize costs because there's limited possibilities to sell, but we do intend to keep a portion of it there.

Operator

The next question comes from Daniel Regli from Credit Suisse.

Daniel Regli

Just one question on the movements in your staff. Obviously, your RM number has come down quite a bit, partly because of the disposals you have mentioned, but can you maybe talk about the other reduction in the RM number where this kind of intended departures or with these regretted departures? And was there any kind of impact sensible on the net new money number? And then on the other hand, the number of back-office stuff, obviously has increased at least the total number of FTEs has increased the back-to-front ratio if you want -- has also increased over the past couple of periods. Can you kind of talk a bit about how this number will look in a couple of years' time?

Philipp Rickenbacher

Happy to give you a bit of a strategic perspective on that. I mean, the first piece -- the second piece first. I mean, back to front for me is a bit of crude ratio. And I think that the way I'd like to look at it is client-facing staff versus non client-facing staff. When you go to the front, obviously, it's our relationship managers, but it's also the assistance, it's account managers.

It's the new profiles that we created in the frontline teams, plus most of our investment personnel has a client-facing role and is involved in day-to-day client interaction. And in that sense, I'd say the old measure is probably relatively crude. What we want to have is a good balance. But we also need to have, obviously, a very strong value chain. Our focus to drive scale in key markets will actually help us keeping those balances in check.

Some of the bases investments, some of the basic functions can be covered with a limited amount of people and then the business is becoming more scalable. I think that's where the strategy is coming together.

With respect to relationship manager numbers. Yes, as you rightly pointed out, I think the biggest part of the movement was obviously in divestments. There is always a bit of natural attrition, obviously, on the basis of roughly 1,300 relationship managers. There are sometimes effects of timing in that of when you have someone leaving, which may happen in the shorter term versus when you hire someone, which has to follow a longer notice period. So there's nothing exceptional in that. What I can say is that the number of regret losses that we had has been extremely small actually over the course of the last 3 years. And in that sense, this is a healthy basis to start from.

Evie Kostakis

I think Philipp gave you the strategic perspective on the non-RMs. Let me just give you a little bit more the nerdy technical one. 121 of the additional FTEs come from cost neutral or cost saving internalizations. Another 20 FTEs come from our next generation of employees by which I mean the graduates, the trainees and the apprentices, which Philipp referenced in his opening remarks. And for the rest of the year, I do not expect the non-RM number to grow significantly, especially since we've introduced a hiring freeze for non-relationship managers.

Operator

Our last question for today's call is a follow-up from Nicholas Herman from Citigroup.

Nicholas Herman

Yes, one more if it's okay. Just 1 just maybe on M&A. One would expect the large market drawdown this year to have ramped up pressures quite significantly on smaller managers. You still have sizable dry powder. So just curious what you're seeing in the market? And if there's any signs of sales becoming more open and willing to engage.

Philipp Rickenbacher

Well, the short answer is not much yet. I think in times like these, when you have so large market movements, obviously, I believe, there's a lot of positioning and a lot of analysis, but transactions typically do not really accelerate. We're coming out of a particularly dry phase in the last 3 years, but I think which we have seen I'm confident that the next years will offer materially better opportunities in the M&A space as some of the tailwinds will subside and some of the real, let's say, cost pressures and investment pressures in this industry will come through in effect, especially some of the medium-sized players, but also the wealth management franchises of large integrated players. And so in that sense, I'm confident that the opportunity space for us is fully intact. Obviously, we have both eyes on that, and we'll be ready when opportunities arise.

Philipp Rickenbacher

With this, we come to our conclusion today. Let me very quickly recap the most important points of today's presentation again. I think Julius Bär has demonstrated resilient performance, and we are focused on delivering against our targets 2020 to '22. We are using this environment to further strengthen our client interaction and we are rewarded with extremely strong long-term partnerships are potentially strong, and I believe we will see compounding effects when client activity resumes. We have placed strong focus on efficiency and cost management in this environment.

And as a matter of prudence without affecting the growth of our franchise, and we have a very clear strategy for the next 3 years, '23 to '25 against which we already start to execute this year. Thank you very much indeed for all your questions, for your time with us this morning. Thank you, Evie, and I wish all of you a great summer and look forward to speaking to you soon again.

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