Earnings Call: H1 2021

Jul 21, 2021

Ladies and gentlemen, I wish you a very warm welcome to the presentation of our half year results 2021. Once again, my colleague Dieter Enkelmann, our CFO and myself are bringing this presentation to you from our art zone here in Zurich. We are getting used to the pandemic mode now, but are very much looking forward also for it to come to an end. Let me start with 3 key messages. We have delivered outstanding results again in the first half of this year. We have delivered the highest profit in the history of Julius Baer so far. We have delivered robust net new money inflows at an annualized growth rate of 4.6 percent and that's despite our emphasis on profitability. And lastly, we have confirmed our financial strength shown by our very solid balance sheet and strong capitalization. After the transformation of the last 18 months and well into the current strategic cycle, we are operating today from a position of strength. We have a unique and complete focus on wealth management and on high net worth and ultrahigh net worth clients. This minimizes the complexity of our business model. We have demonstrated our high resilience and our scalability throughout the pandemic. Our continued investments in risk management are paying off. These have allowed us to address the main legacy issues and provide excellent risk management in markets and credits and build the platform for future growth. We have already implemented the shift towards profitable growth, both by shifting metrics and tools, but also by embedding it in our behavior and culture. All of these achievements are embedded in a broader aspiration to create value beyond wealth for all stakeholders. We have done this Very consistently over the last 18 months, especially the last half year, we have focused on our clients by constantly adding value to their experience at Julius fair, and we have focused on our shareholders through a compelling equity story. I look forward to sharing more details about all those points during my business update in a few moments. But first, I will now hand over to Dieter Enkelmann, who will take you through the specifics of our half year results. Good morning, and thank you, Philippe. In the first graph on this slide, one sees clearly that After the sharp decline last year in Q1, the stock market started a clear recovery that continued almost without interruption in the first half of twenty twenty one. In the second graph, we see that stock market volatility rose to exceptionally high levels in March of last year, after which volatility started gradually grinding down towards pre-twenty 20 levels at the end of June of this year. The 3rd graph shows that while the U. S. Yield curve has been steepening somewhat in the last 6 months, the short term U. S. Rates Still substantially below the level at the start of 2020. This had ultimately a negative impact on our net interest income. And finally, in the last graph, we see that the U. S. Dollar recovered somewhat versus the Swiss franc in the last 6 months after the sharp loss in value last year. Moving on to the results, starting with development of client assets on Slide 7. Assets under management grew to CHF486 billion, an increase of CHF52 billion or 12% since the start of the year. This strong increase came on the back of continued positive net new money of CHF 10,000,000,000 a positive market performance of €28,000,000,000 and thanks to the mentioned higher U. S. Dollar, a positive currency impact of 14,000,000,000 Monthly average AUM, important for the margin calculation, rose to €460,000,000,000 an increase of 14% from a year ago. Net new money reached CHF 10,000,000,000 or 4.6 percent, which is double the level of a year ago. We saw particularly strong inflows from clients domiciled in Asia and across Western Europe as well as solid growth in the Middle East. Around half of net new money came from RMs who joined before 2018, which partly confirms a further improvement in the client share of wallet. Moving on to operating income on Slide 9. Revenue grew by 8% to CHF 2,000,000,000 mainly on the back of a strong rise in commission and fee income, which significantly outrated decline in net interest income following the year on year drop in U. S. Rates. Compared to the first half of twenty twenty, commission and fee income grew by 12% to almost CHF 1,200,000,000. This was largely due to a strong rise in recurring fee income following not only the rise in client assets, but also an increase in penetration of higher value mandates relative to more basic mandates. In addition to higher fee income, we also saw a further increase in transaction driven commission income on the back of continued healthy client activity, particularly in the Q1 of 2021. Net interest income declined by 8% year on year to just over €300,000,000 This followed the sharp drop in U. S. Interest rates, which drove down credit income despite the year on year increase in average loan balances and also resulted in lower income from our treasury portfolio. On the plus side, despite higher deposit volumes, The interest expense on deposit virtually disappeared, falling to just CHF4 1,000,000. Net income from financial instruments or what used to be called trading income declined slightly by 2% to just over €500,000,000 But this is compared to a period of extraordinary activity in the first half of last year when market volatility reached exceptionally high levels as showed on the first slide. In the first half of this year, particularly in the first quarter, Overall, trading volumes actually remained relatively elevated, been looked at in a longer term historical context. However, client activity in FX and precious metals came down following the lower volatility. Other income went from €31,000,000 negative to €27,000,000 positive, mainly as a result of €48,000,000 year on year decrease in credit provisioning to just €1,000,000 which underlines our continued good long term credit risk track record. Moving to Slide 10, on gross margin. The gross margin analysis shows clearly the effect of the lower client activity year on year, with the trading income margin falling by 4 basis points to 22 bps and in the graph on the right, the transaction driven component within commission and fee income dropping by 2 basis points to 14 bps. However, it also shows that compared to the second half of last year, both of these components improved somewhat. Net interest income margin fell by 4 basis points from the level of a year ago, but essentially stabilized versus the second half. Good news come from the recurring fee component, which rose by 1 basis point to 36 basis points. In terms of the exit gross margin of this half year, in the second quarter, the gross margin was approximately 81 basis points, of which a bit more than 13 basis points comes from net interest income. Moving to the expense side. Compared to the first half of twenty twenty And despite the strong rise in revenues, total adjusted operating expenses rose by just 1%. Personal expenses were essentially unchanged at €849,000,000 The average number of staff fell by 1% year on year despite further internalization as part of the efficiency improvement plan. Personal expenses included CHF 14,000,000 of severance costs related to the cost reduction program, slightly lower than the CHF 19,000,000 booked in the first half of twenty twenty. But at the same time, performance based accruals increased following the strong improvement in revenues and profit. General expenses rose by 4% to CHF 312,000,000 However, excluding the R29 million rise in provision losses, channel expenses actually came down by 6% as the benefits of the cost reduction program more than offset the further rise in non capitalized IT related expenses. Depreciation and amortization went up by 7%, reflecting the rise in IT investments in recent years. And as a result, the costincome ratio improved by 5% points to 61% and the expense margin by 8 basis points to 53 basis points. As a result, adjusted profit before tax improved by 20% to CHF740,000,000 and the pretax margin by 2 basis points to 32 basis points. Adjusted net profit grew by 21 percent to CHF 636,000,000, a new half year record and IFRS net profit by 23% to CHF 606,000,000,000. And in the table on the lower left hand side, you see that the return on CET1 capital improved by 2 basis points to 38%. Our guidance for the adjusted tax rate in the next few years is slightly increased to between 14% 15%. In last year's strategy update, we laid out the 3 year plan to enhance revenues in order to offset the ongoing margin pressure on the industry and to improve cost efficiency. We made progress last year In 2020 and further progress in 2021, and we believe we are on track to deliver the targeted improvements. I start on the revenue measures. Of the targeted €150,000,000 gross revenue improvements over 3 years, we achieved close to half, €70,000,000 in 2020. In the first half of twenty twenty one, we added another €50,000,000 on a run rate basis, of which around a quarter is already reflected in the P and L in this first half. Among the more successful revenue measures we took so far, I would highlight re pricing, reducing cash holdings, smart credit growth, leveraging the capabilities of our derivatives toolbox and the increase in higher value mandate penetration. Further revenue improvements are expected to come from the strengthening of our market specific product and service offering like, for example, the move into real estate advisory here in Switzerland we announced this morning as well as further increasing our focus on serving the ultrahigh net worth client segment. In terms of the cost saving measures of the targeted €200,000,000 in Cost savings over 3 years, we achieved close to 2 thirds, approximately CHF 130,000,000 in 2020. And in the first half of this year, we achieved a further CHF 50,000,000 on a run rate basis, of which again is around the quarter already reflected in the P and L. The main reductions this year and last year resulted from resource optimization, which continued both in the front and in the back office as well as from the ongoing internalization of formerly external staff and last This year also from the sale of our Bahamas Bank and the restructuring of our operations in Montevideo. We expect that essentially all productivity and efficiency measures will be finalized by the end of this year. Last year, we indicated that these measures would entail one off reduction costs of around CHF 60,000,000 and that estimate remains unchanged. We used €45,000,000 in the 1st 18 months of the program and the balance will likely be used entirely the second half of twenty twenty one. Moving on to the balance sheet. The balance sheet remains solid and liquid with a relatively low risk profile compared to the wider banking sector. This reflects our strategy, focus on Wealth Management as well as, of course, our continued conservative and diligent balance sheet risk management. Since the end of 2020, the loan book grew by 8%, mainly on loan book lending, re leveraging, which more than offset the slight reduction in mortgage lending. And at the same time, deposits went up by 3%. And as a result, we have Still a healthy loan to deposit ratio of 64%. Moving on to capital. Since the start of the year, the CET1 ratio increased by almost 2% points to 16.7%. CET1 capital build was €400,000,000 or 13%, Following the strong increase in net profit as well as €75,000,000 positive FX translation differences, which comes mainly from the rise in U. S. Dollar and the Brazilian real and the €59,000,000 positive pension obligation remeasurement and despite the €146,000,000 we already spent on the new share buyback and as well, of course, the higher dividend accrual in line with our dividend policy. Risk weighted assets went up by CHF 300,000,000 mainly on the back of CHF 200,000,000 rise in credit risk positions following the growth in lending. And at these levels, Julisberg continues to enjoy a very strong capital position with a very thick cushion above the regulatory floors. With this, I have come to the end of my part, and I have back to Filip. Thank you very much, Dieter. Today, we stand exactly at the midpoint of our 3 year strategic plan, which we defined in 2020. And as you recall, we built this plan around 3 tenets: the shift to sustainable profit growth, sharpening of the value proposition and accelerating investments. Alongside that, we have made significant progress in our efforts to resolve the issues from the past. I can state with confidence that today, we operate from a position of strength, and I would like to highlight 3 dimensions that are particularly relevant. 1st, Julius Baer has a highly focused, high quality business model. We have a unique focus on wealth management and we are totally dedicated to high net worth and ultra high net worth client service. This means that we can be truly client centric and avoid the complexity of broader and more integrated financial services firms. We also have a strong geographic focus on our core markets, and we continue to drive critical mass in these markets. This focus gives us resilience, as we have proven last year when we had to arrange within a few weeks for more than 90% of our staff to work from home. But also, our infrastructure has become more scalable. On certain days, in the Q1 of last year, we processed almost 5 times the normal daily average of transactions, and we were able to handle those frequencies with no interruptions to the business. 2nd, we have completely renewed our risk framework and invested substantially in a strong risk culture. These efforts range all the way from the top, from the risk tolerance framework to know your client, including the Atlas program and anti money laundering. They also include the implementation of a front risk management function, new relationship manager onboarding procedures, client risk ratings as well as last year's introduction of a new code of ethics and business conduct. We are well advanced also on our journey to resolve legacy issues. In the first half of this year, we reached a final agreement with the Department of Justice in the U. S. On FIFA matters. And on 31st March, FINMA, the Swiss regulator, lifted the ban on large scale transactions that it had imposed on us in 2020. These are important milestones that show that we are on track in closing our remaining regulatory and legal matters in cooperation with the competent authorities. The 3rd element I want to highlight, and it is for me truly a highlight, is that we have accomplished a substantial shift to sustainable profit growth over the last year and particularly over the last 6 months. This is reflected obviously by our adjusted metrics and targets externally and internally, but very concretely, it is reflected by the relationship manager compensation model. We have delivered a groundbreaking compensation model that combines client centricity, entrepreneurial elements and a strong focus on risk management. The model had been rolled out to 6 jurisdictions in last year and is already being rolled out in 11 more jurisdictions this year, and this will put 95% of our relationship managers on this new model by year end 2021. This will also allow us full rollout by 'twenty three. In all of these, we only saw marginal losses of clients and of relationship managers. And more than anything, it has already resulted in a strong change in behavior that has positively impacted our revenue dynamics. We are seeing this in pricing. We are seeing this in cross selling. We are seeing it in the adoption of better sales processes and in the use of a broader set of solutions and revenue sources. All of this together is leading to increased predictability and manageability of our revenue line, Together with our work to establish a sustainable cost base for the future, this creates room for reinvestment and provides the economic foundations for our future success. This position of strength I just described enables us to focus on value creation, and as always, we start with our clients. Our approach to clients is crystal clear. We put clients at the center of what we do. We start with personal relationships and with personal interaction, and we use technology and processes to make human advice scalable. This approach was accelerated throughout the pandemic and has been further enhanced in 2021. We are investing approximately CHF 100,000,000 in digital tools and infrastructure this year just to take our signature private banking experience into the digital age. I'm very pleased that our efforts are being noticed in the industry and we have just been named the best digital innovator of the year by Professional Wealth Management, a magazine published by the Financial Times. Let me show a few examples of the upgrades to the client journey that we have made this year. 1st, in opening the account. This is obviously the critical step when onboarding the client And we have delivered digital onboarding with video identification and electronic signatures in Switzerland, and they're about to do that in more client domiciles. This is not about an industrialized procedure, but about an individual and assisted process, and it will maximize speed while still preserving a private banking experience and allowing it, enabling it through digital means. 2nd, advice is at the core of what we do and it has to be personalized, timely and holistic. To that end and continuing a long series of investments about which we have talked before, we have now rolled out our digital advisory suite, Diage, in Asia. This unified and now global system brings together our open architecture, our client preferences, but also regulatory technology. And in this way, it gives back quality time to relationship managers to spend time with clients. When delivering solutions, we have greatly expanded our capabilities. Let me give you a few examples. This starts in private markets where we have hired last year a direct private markets team and continue to drive our fiduciary private markets activities. We have now established this year, a broad deal pipeline that gives our clients even more access to a greater depth of opportunities. And as we announced today, we have Added a new real estate advisory capability for Swiss Property Investments, a highly relevant asset class for private banking clients and naturally extending our capabilities. We are also working on further exciting additions to our offering in the months ahead. And finally, in that critical last mile to the client, so to speak, we have created new ways to stay connected, creating two way communication and truly networked interactions with our clients, digitally through secured WhatsApp channels in Switzerland and in Asia, where we have also piloted the local WeChat version of this, and we are deepening connections with and among our clients through investments in communities. These are only a few and recent focus areas of continued investments in the value chain that make our client experience both uniquely personal but also scalable at the same time. Creating value for our clients is the prerequisite to create value for shareholders. Our emphasis is on creating sustainable value for investors by specifically addressing 4 factors: revenue quality, the rebasing of our cost structure, growing our asset base smartly and actively managing our balance sheet and capital. We focus continuously on revenue quality, for example, through the adoption of discretionary mandates and fee based advisory service models. And we constantly enhance revenue sources by introducing new capabilities, which we have just highlighted before in private markets or real estate. This also includes a strong emphasis on pricing, and we have been able to successfully implement strong discipline and value based pricing over the course of the last few months. In order to rebase our cost structure, we have already initiated or implemented all measures leading to the targeted cost reduction CHF200 1,000,000 by the end of 2022. This will create the basis for selective investments in growth in the future. We do focus on smart growth of assets under management, essentially the raw material of the revenue generation. And by this, I mean capitalizing on a combination of sources from higher share of wallet with existing clients to client referrals to new client acquisition and ultimately to the hiring of new relationship managers, especially in core markets. We've seen a great Contribution of all these sources in the first half of this year, I'm confident that this momentum will accelerate with the easing of the pandemic travel restrictions and the restrictions on face to face meetings moving forward. And last, our strong balance sheet is critical for our investors and for our clients alike. This is reflected in the disciplined and consistent growth of our credit business, especially with ultrahigh network clients who we assist and advise also in sophisticated transactions. At the same time, we are maintaining a conservative risk profile as risk weighted assets have been growing less than the balance sheet, as demonstrated in Dieter's presentation. And we have proven our reputation as a high quality issuer with the strong demand for our unsecured bond issuances in March June, but also the Moody's rating upgrade just last week. The value we create for clients as we help them to grow, protect and pass on their wealth is at the core of what we do at Julius Baer. But our ambition does not stop there. We think broader than that, which is why we have explicitly made it our purpose to create value beyond wealth to the benefit of all stakeholders. As of 'twenty one, we have articulated 3 core pillars to support our purpose: enabling families and the next generation understanding and shaping the future and taking responsibility as an institution. Julius Baer already serves many families, and we are a family business in our roots ourselves and intimately familiar with the challenges of dialoguing and transitioning across generations. We help families navigate the complexity, advising them today with our family office services, but also supporting generational change through succession planning and education, for example, through our Young Partners program. We have also made a conscious decision internally to accompany families with the next generation of relationship managers and of experts on our side. The second pillar of going beyond wealth management is about understanding and ultimately shaping the future or As we say, how we invest today is how we live tomorrow. The world is at a critical junction with respect to sustainability, but also technology. We want to understand these developments and help our clients make educated decisions, educated choices. We strive to understand megatrends through our own research, but also partnering with world class pioneers and platforms in the relevant fields. Examples include our long standing investments in the future of mobility and Formula E, but also now our association with Nico Rosberg and the Green Tech Festival, which operates at this intersection of technology, entrepreneurship and sustainability. We will drive ecosystems and ultimately Want to co create content together with our clients. And the 3rd pillar is taking responsibility for us as an institution. We have a long tradition as Julius Baer of contributing to society and to communities, and we use many platforms to do so. Two examples are the JV Foundation that is running roughly 30 projects in the areas of replacing plastics and addressing wealth inequality. And J. B. C. A. R. E. Is a grass through its employee engagement platform facilitating, among other things, employee volunteering. All of these pillars and initiatives have a single to create value beyond wealth. At Julius Baer, we recognize the role that the financial industry needs to play in transitioning to a more sustainable and equitable world. Our ambition is to empower clients and employees, but also wider stakeholders to make a positive and measurable impact on the world. And to that end, we have established holistic and integrated sustainability framework. This brings together 2 sides. On the one side, responsible wealth management. This is about accompanying clients on their personal sustainability journey, helping them understand the world, make educated choices also in this area and realize their choices with the right solutions. The other side of the framework is responsible citizenship, and there, we as a company walk the talk. We integrate sustainability in our core processes, we take responsibility as an employer and through our community activities, and we chart the path towards CO2 net 0 as a corporation. Right now, we have 3 sustainability priorities very much focused on our clients. The first is about creating transparency through research, but also through integrated sustainability reporting. The second is about delivering education to clients and staff alike. And the third is about building ecosystems to drive solutions and connections through content. There have been many great highlights just in the first half of twenty twenty one. We have published Earth Matters, a thought leadership publication on impact investing. We have delivered a pilot for ESG reporting that will be fully deployed at the end of the year. We want to make it transparent for clients what is happening in their portfolios as basis for action. We drive ESG learning suites for our staff and a certification for our experts. We have delivered a range of new impact investment solutions, and we're just about to launch an impact community for our clients in the second half of this year. There is more to come. Sustainability continues to be an important focal topic for Julius Baer and one that I am passionate about. Let me finish with looking ahead to the second half of twenty twenty one. We will continue to be focused on creating value for clients and shareholders through wealth management and beyond, and not just for those groups, actually for all stakeholders. Julius Baer has always been a bank that prides itself on personal connections with clients. We have maintained these connections very successfully in virtual mode over the 1.5 years of the pandemic. Now as it gradually becomes possible to reintroduce physical touch points, We will be able to combine the best of both worlds, digital and physical, to take our acquisition efforts and our service efforts to the next level and have even closer relationships with clients than ever before. Products and solutions play a key role in our commitment to innovation, and we are looking forward to a series of highlights in the next half year. As mentioned earlier, we're building a real estate advisory capability Just about now, we are also introducing M and A advisory services for our ultrahigh network clients. Stay tuned for more information about that in the second half. We are driving the enhancement of our sustainability and the impact investing platform. And on top of that, we have a number of exciting ideas on how clients could benefit from the opportunities in the digital asset space. From an investor perspective, our laser sharp focus on strengthening client relationships and innovating our offering will broaden and further diversify revenue sources. This, together with our continued emphasis on pricing and the finalization of our cost program will give us the room for targeted investments into future growth. Let me close with 2 important priorities beyond wealth today. Our employees are critical for our success. We want to remain the employer of choice in Wealth Management. To recruit and to retain top talent, our strong employer brand gives our people entrepreneurial freedoms to make a meaningful difference. We promote a diverse and an inclusive workforce culture that will translate into even better commercial outcomes. And we are introducing young talent to the value chain very consciously through our graduate and junior relationship manager programs. The other priority lies in how we will work in the future. Level, we will begin experimenting with new flexible ways of working, combining working from home with working from the office in a way that creates better outcomes for all stakeholders. On a strategic level, we are running today 2 very successful agile pilot programs involving already a substantial part of the organization. Through these programs, we will gradually scale up faster and more agile delivery of client centric innovations. Both our people and how we work will determine our ability to stay at the forefront of wealth management and shape the next decade in our industry. Based on our strong performance and the shift that we've made to sustainable profit, we are entering the second half of this year from a position of strength and with a lot of momentum, and we are already working on what's next. With this, ladies and gentlemen, I would like to conclude my remarks and open up for Q and A. The first question comes from Jeremy Sigee from Exane BNP. Please go ahead. Good morning. Thank you very much. I just had two questions, please. The first one is on the buybacks and the capital ratio. You effectively are 4 months in, and you've done a third of the buyback program. So I just wanted to Just to understand how you're thinking about the program versus the capital ratio, which is well above your targets. Is your expectation That you'll complete the €450,000,000 program by the end of February. Could you do more than that given that you're above the capital ratio? Just how you're thinking about that? That's my first question. And then the second question, you're indicating that you're near the end of the cost cutting process that you've been through, And there's a little bit more emphasis here on growth and investing. And I just wondered if you could talk a bit more about what that might look like In a practical sense, in terms of do RM numbers start to go up again now? What sort of growth Swins, might you be making that kind of thing? Just paint the picture for us a little bit, please. Should I take the first one? Yes. Thank you. On the share buyback, of course, we will run the program to the end, which is actually by the end of February. And the 450 and 10 awards before the announcement of the full year figures will have to decide whether or not to start a new program going into 2022. On the growth question, we have always had a growth strategy. And even with the shift to sustainable profit growth, obviously, there were growth played a role in that. And you see this also reflected in, let's The ongoing ability of Julius Baer to generate substantial net new money, we are growing today in the old target range of 4% to 6%. As to the future, I think we will create the prerequisites for growth in all the different dimensions. We will continue to work on share of wallet and on expanding our existing network. But obviously, we have always been hiring relationship managers and we'll continue to do so in the future. We might do so in an accelerated way in markets where we see specific opportunities. And obviously, ultimately, I think M and A over the course of the next few years might also be a component one side of the metal of that growth. Growth obviously has always to happen profitably, and it has to happen in the right quality. And so we will be very focused in the investments that we make. Thank you. The next question comes from Isabelle Dobrana from Morgan Stanley. Please go ahead. Hello. Good morning, everybody. Thank you for taking my questions. This is Isabelle from Autostami. So my questions are actually also on costs and the buyback. So let me maybe start with the costs. Looking at the savings you announced about a year ago, the €200,000,000 You are pretty much on track to achieve that by the end of the year. So I am going to bring, do you see scope for another program next year, But also where are you on this digital journey? Is the bulk of the investments now done? Or do you envisage to continue This level of spending on the digital side. And then on the buyback. So your capital ratios are very strong. And also keeping in mind your return target of over 30% and the role that capital return might play in achieving that. So would you consider increasing the buyback or potentially executing it faster? Or would you Consider paying out a special, for example. And then my final question is on M and A. So the ban has now been lifted. So could you update us on your M and A strategy in terms of size, but also what product suites and markets you might be interested Acquire again. Thank you. Thank you, Isabelle. I'll take the first and the third question. I think on the cost side, we've always said that we want to look at productivity from an integrated perspective from a revenue and from a cost side. And we have therefore driven 2 different programs in our early strategy cycle. I'm very glad to see that our cost program is very far at once, by the way, the revenue program too. And I expect that our structural cost reduction program will be finished at the end of this year. Obviously, ongoing cost management is an important priority in our business, but I do not foresee at this stage a need for a structural program as we go again into 'twenty two. When it comes to investments in digital, I do believe that we will have to maintain a substantial level of investments moving forward. I think this is a constant race. It is a constant the set of opportunities is constantly widening. We have said that we want to be the most digital bank for our relationship managers, and we have still plenty of opportunities to go even though we have come a long way. And then obviously also the requirements of our clients are constantly changing and evolving, and we want to make sure that we can meet the expectations at that front too. So we will continue to substantially invest in technology also in the coming years, hopefully doing it even smarter and even better, for example, through our agile program. As to the M and A strategy, as I just said before, I think M and A is just part of an overall growth strategy and has to be seen in this context That's one approach to driving profitable growth for Julius Baer moving forward and driving critical mass. We would be mostly looking at our core markets as we do with everything that we do, where we want to further add to critical mass and to economic profitability. Then it is about quality of the targets. I think after all the investments we have made on the compliance side on KYC and AML, Obviously, we need to acquire high quality targets, but it's also about cultural fit, which is most important and ultimately about the right price. I think in that area, maybe patience is a bit of a virtue, but we will be ready for the opportunities that the market will give us in the few years to come. Yes. And then on the second question, coming back to the program, share buyback program, dividend payout or the payout in total is It's more a yearly cycle. So when the full year results are debated in the board, he will decide on the dividend. And as I said before, better not to launch a new share buyback program. So it's too early midyear to opine on this. The next question comes from Kian Abu Hussain from JPMorgan. The first one is related to advisers. Your adviser numbers are Declining. And I just wanted to see how you're thinking about adviser hirings going forward, Not just this year, but also in the future, somewhat longer term trends and in what regions in particular And how you see the competition developing in advisers as we see from other banks quite aggressive higher adviser strategies, both In Europe as well as international. And then the second question is if you could give me a split of your assets under management Between affluent, high net plus and ultra? And how you see the change In usage of technology, again, more of a longer term trend. You're clearly Focusing on some of the younger generation. And I'm quite interested how they are using Or how the next client base that you're targeting is using technology and how you're competing with that with some of the More fintech type players that are coming into the market. And in particular, if you can give me the split and discuss a little bit the different usage by client base. I'll try to take a stab at the 4 questions and Dieter will further add to it. Let me first start on the adviser numbers. I think the development of the adviser numbers even right now is obviously a net number which has a gross plus and a gross minus underneath. So we have been hiring actually over the course of last year and the course of this year, and we will continue to do so. This is important. I think this has been a conscious decision, as we laid out at the beginning of last year to densify a bit our business and to make sure that we drive concentration and critical mass also at the level of relationship managers. And we have been very stringent in terms of performance management over the course of the last 18 months. I would not foresee a further strategic or systematic decline of the number of relationship managers moving forward, but I think rather a very conscious development of the number in the other direction in the next few years. But very conscious means also that we will always look at profitability, we will be highly selective in growth, and we will not set ourselves a specific hiring target for relationship managers at this stage. When it comes to competition, yes, there is high competitive density out there. I believe Julius Baer is one of the most attractive employers in this space. This is due to the nature of our business and the focus of firm. The reason why clients want to join Julius Baer is also the reasons why relationship managers want to join us. I think our excellent relationship manager compensation Model is adding to the strength of our employer value proposition. And so I think we have good cards. But even in terms of developing workforce, We are using different avenues. We're obviously hiring existing proven talent in the market, but we're also and very consciously developing young talent selves with, for example, the junior relationship manager programs in order to complement our business moving forward. With respect to the segments, I think both ultra high net worth and high net worth clients play a key role. The last published number was still €150,000,000,000 in ultra high net worth from roughly a year ago or a bit more. I think this has been growing since. And so ultrahigh net worth Clients play an important role, but they are not the only segment of Julius Baer. I think we have a very good balance between the 2, ultra- and high net worth. Julius Baer is not focused on the affluent segment. We have a capability, obviously, sometimes to serve also smaller clients within a restricted frame, But our core focus is clearly there on high net worth individuals. Technology plays an important role, but one has to see this in a very differentiated way. I think there is a technology obviously at the interface with clients in communication, And this also includes e banking capabilities, and we have been constantly expanding on that and will be doing so in the future. On the other side, do we aspire a digital leadership at the level of the client interaction? No, we don't, because we believe that other firms out there in the market are much better positioned to do this. And it plays to our favor that our clients accept to have sometimes multiple relationships in the financial service industry, allowing them to play exactly this angle in a very specific manner while retaining a holistic perspective together with us. And so I think this is there's a differentiated way that we approach there. But there's also a way obviously to cater to technology of FIM clients through our research, through next generation and another level of technology, through our views on the digital asset side. And I think on those topics, Studio Spare is clearly on top of things and can offer a strong ecosystem and strong insights to our clients as we go forward. Very helpful. Thank you. The next question comes from Nicolas Payen from Kepler Cheuvreux. Please go ahead. Yes. Good morning. Thanks for taking my question. The first one would be on London penetration and recurring fee income margin. I can see that your recurring fee margin has actually increased slightly versus the end of 2020, but yet Your advisory mandate has slightly decreased, and you have always actually said that managed penetration was one tool to protect Your margin, so if you could actually develop on that trend. The second question will be on KAIROS. If we could have a quick update on outflows, for instance. And maybe a very last quick question. You just touched upon digital assets. And I wanted to know beyond research that you offer through Cyberbank, what kind of services you would be ready to expand to your clients going forward? I'll leave the first one, Peter. Yes. I'll start on the on Kairos. So the outflows Came to an end as of May. So May, June were positive already. The business is running Quite okay. So they're now at around CHF5 1,000,000,000 a bit more than CHF5 1,000,000,000. In terms of the recurring fee, as you say, the recurring fee in terms of basis points contribution went slightly up. Even the penetration of discretionary mandates, For instance, it's stable, but there is a shift from, as I said, from more basic mandates into value added mandates, which yield a higher benefit to us and also to the clients. And therefore, the absolute contribution and in terms of basis points is going up again for the first time since about 2 years. And this trend, this is a focus area, as Filip explained in his part. And so we're working on this to have this trend more sustainable into the future. With respect to digital assets, obviously, it starts with research and with information, but I think there are 4 areas that are important for this. The second area is creating a participation in economic performance of what is happening in the crypto space right now. Even though this is and cannot be part of an asset allocation today, I think still clients are looking for access into this market in a self directed manner, and this is some an area where we can help them. Then it is about supporting sophisticated private banking clients to have access themselves into the crypto space with creating an interface to the Fiat world and taking a broader, more holistic perspective of those activities. We have such clients. And last but not least, and this is maybe the biggest potential for me is the transformation of finance in the medium of long term with The DeFi possibilities with the possibilities for programmable finance, for example, what's possible on the Ethereum blockchain, Smart contracts, the replacement of cumbersome historic banking products through those. And in this field, we as an enterprise need To be on top of technological developments, we need to experiment with them early on and to create new value in our value chain. This is also what we're doing. The next question comes from Anke Reingen from Royal Bank of Canada. The first is just on your targets and your performance shown on Slide 25. Obviously, the targets don't look as ambitious, just looking at the recent performance. Do you think it's also given you're quite close To delivering on your strategy, revenue and cost synergies, is it already time to review your targets when you report full year results So just basically thinking that they still stand and the last half year was benefited from or the last year benefited from the strong markets? And then secondly, on the NII, I think I heard you saying that the exit margin was 13 basis points. I'm just a bit surprised, given the strong loan growth, would that have already helped the 13 basis points? Or is it just basically a function of And then I am not going as fast as the AUM. Thank you very much. Let me first answer quickly on targets. I think I remember our conversation 18 months ago where our target set actually was considered very ambitious by the market and in the discussions. And I think with hindsight at that time, it has still been. Obviously, we have been delivering a very strong transformation throughout At that time, we have greatly advanced our business. And of course, also we've been operating under market conditions that have allowed us to achieve these targets and to exceed them now by mid term of our 3 year strategic cycle. Still, our ambition has to be not just deliver these at a certain point in time, now mid-twenty 21, but sustainably and repeatably over the cycle and beyond. And in that sense, it's important for us to continue sticking to those targets over the cycle, and we'll be looking obviously for the next cycle into a different set of targets. Yes. And then on the second one, you don't have to forget that we have the base effect of Q1 When in U. S. Dollar, the rates in 2020 were much higher. So this now comes through as a negative or came through in Q1 of '21. And then as you mentioned on the positive side, certainly, the average larger lending book contributed positively to the NII. So these were the 2 main factors playing into that. But since the Q1 of this year in terms of basis points contribution, it's more or less flattish. And as so the exit margin is more or less the average of the half year. So the 13 basis points includes probably the benefit of the strong loan growth? Yes. Okay. Thank you. The next question comes from Andrew Lim from Societe Generale. Please go ahead. Hi, good morning. Thanks for taking my questions. So just circling back to the cost question, now that you're reinvesting for growth, can you give us a bit of color On how you expect the absolute cost base to grow annually, should it be about 5 Percent annually year, for example, maybe a bit more or a bit less. And then the second question is On investing for yield. So if I look at your risk weighted assets to asset Density. It's reached quite a low level, below 19%. And then the last time this happened was in 1H 2018. And it was a precursor to you for you investing in the high yielding assets in your treasury portfolio and building out your loan portfolio. And then your credit risk weighted assets grew quite sharply, and that put a bit of pressure on your CET1 ratio. So I was wondering if you are thinking along similar lines now given the similar situation. Yes. Let me first take the second question. I mean, first of all, I think we have clearly enhanced the management of the risk weighted assets. So steering, for instance, on the lending side, the relationship manager to the right kind of collaterals against the lending to the benefit of lowering or optimizing the risk weighted assets that has improved. It's also to a partially linked to the strong compensation program that is rolled out now to all of the RMs in this year. And the second is we had compared to previous years less credit bonds, so less The copper bonds in the treasury portfolio towards the end of the period, which of course also helped The risk weighted assets at that inter entity is higher than on the loan book lending. On the Sorry. So do you envisage continuing with a lower Credit bond exposure going forward? Or do you see indeed the opportunity to This obviously depends. I mean, on the treasury side, as you know, Over a longer period, we are investing according to the market situations. But with credit spread at a record low, We felt it's not the right time to reinvest. So this can go up. We can invest again more on the credit side and then of course That side would contribute more to risk weighted assets. So we more optimize the usage of the risk weighted assets and not the absolute level. I think that's the answer to your question. And then on the first question, in terms of the underlying Cost growth, we always said there is about underlying 1% inflation in the cost base, both on the personnel expenses and on the general expenses. Of course, on the personnel expenses, it depends also on the top line. If the top line goes up, then the performance based contribution or accruals get up. And then we still have some upper pressure And not on provision on amortizations and depreciation coming from the increased investment in technology over the past few years, where now The amortization comes through over the next few years, but of course, that's relatively small in absolute terms. And the growth investments will happen in that context. I don't think we have to give at this stage a specific guidance to it, but it will happen within the framework of our overall objectives. It sounds When you put the balance of those components together, then the cost growth should be lower than your revenue growth In a normal kind of market, would that be a fair assessment? And that being the case, Should you expect the cost income ratio to still trend lower? I mean, with the caveat of additional investments, we do. If we would higher, let's say, again, over proportionally client relationship manager, then I think that's a fair assumption, The next question comes from Stefan Stahlmann from Autonomous. The first one relates to your acquisition, Korni. I was wondering if it's realistic to expect, as a result of this acquisition, that you will Actually, you write more mortgages again. That has been part of your loan book that has been declining for years. Should we expect this to reverse? And maybe also should we expect And more interest in structured lending opportunities as a result of this acquisition. And the second question goes To your treasury, has the duration of your book changed in any material way during the first half of the year, please? Thank you very much. I think on the first question, I think obviously looking at real estate as a complex, and this is something that we have been doing for many years now. We've always been active on the financing side. You've mentioned the two sides of it, the mortgages, but also the structured lending side. Yes, indeed, there could be some impulses from that acquisition, but also a broader range of services that will translate into more service revenues. So this is a broader set of activity than just a tool for lending growth. And it's a natural continuation of the investments in specific services now first, especially in a Swiss strategy context, but also international. Priscilla would expect this bigger focus on real estate as an asset class in the firm here in Switzerland. There should be at least a leveling of the Swiss mortgages as to your question. And then on the second one, the bond portfolio, it's a bit different currency by currency. On the U. S. Dollar bond portion of the bond portfolio. We lengthened a bit the duration. It's now up to 3 years from 2.5 by the end of last year. And on all other bonds, we shortened it to 2 years, down from 2.25 years. Great. Thank you very much for that. The next question comes from Pierce Brown from HSBC. Please go ahead. Yes. Good morning. Actually, a lot of my questions have been asked, but I might just come in with 2 small follow ups. So just on coming back to the question on mortgages. I mean, can you just give us a little bit of Color as to what was going on in the first half? You've obviously seen a 3% contraction in the book, Which just looks a little bit strange given we've seen very high activity levels generally in real estate markets. So if you could just talk to What specifically caused that decline? And then maybe just a follow-up on the question around exit rates For margins, you've talked about the NII trend. But just more broadly on the gross margin, the 81 basis Points you mentioned for the Q2. I don't know if you can give any further granularity as to what that looked like As you exited the quarter and what you're actually seeing sort of real time in terms of client activity through the summer months. Thank you. On the mortgages, I mean, it's as you say, the real estate market also in Switzerland is very hot. Prices increasing, a lot of transactions. It's nothing particular happened in our book. We had a repayment of a few larger, relatively speaking loans, and that's all. We provide mortgages to clients. We do not stand alone mortgage lending here in Switzerland. And so that continued on a healthy basis, but it was offset by these the larger transactions that were repaid. On the gross margin, I mean, the only granularity I said is that around 13 a bit Higher basis points contribution from net interest income. And the rest, I think, we all commented, Activity level went down clearly as indicated in Q2, also in line with volatility in the stock market And the recurring fees, as we indicated before, are trending slightly up. The next question comes from Daniela Brupbacher from UBS. Please go ahead. Yes, good morning. Thank you. Briefly on Lombard loans, I mean, that book grew quite nicely in the first half, I think 11%, CHF 4,000,000,000 or so. Can you talk a little bit about the drivers behind that? Is it the yield curve? Is it the market, market sentiment? And probably by region as well, if you can give some indication? And Lastly, on Lombard loans, what was roughly the impact on net new money overall? And then the second question, You mentioned the new compensation model, which I think is quite important and linked to economic profit. And you did say, Philippe, that this had a positive impact on revenues. Now can you quantify that? And are you ready to share that with us in terms of what impact That had. And did it also have an impact on net new money? Because you make this interesting remark on one of the slides that about half of the flows came from Advisors that joined there before 2018, just out of interest. Thank you. Thank you. Let me start with that question. It's very interesting. I believe the answer is yes, it had an influence also in net new money. Even though I think net new money is weighted in a different way today in the model than in the past, it is essentially just an add on element or a kicker under a condition of excellent conduct rather than just a factor. But I think it still provides Obviously, sufficient incentive for relationship managers to keep growing their books, also in light of having the raw material for further revenue generation. And so I think there's a whole logic to it that is embedded in the model. It's hard to quantify the specific impact on the revenue side of the model. I think that's obviously very difficult as we've been doing different things around this topic of making of managing revenues and making it even more predictable. I mentioned the efforts around pricing. I've mentioned the new solutions and the possibilities that we gave to clients and to relationship managers to broaden the revenue base, But I do believe that the new model was a critical it is a critical enabler on that journey. It has Given the right incentives, it gives the right direction. It gives also the right degrees of freedom, for example, to tackle less profitable client relationships because there is no fear of asset loss essentially embedded in this model. And these freedoms have been used amply by our relationship managers. We've seen those on the pricing side, very active in the last 12 months. So I believe it's an absolutely critical enabler on that revenue journey. Yes. And then on the loan book lending, you're right. It's largely based on the positive sentiment. It's not only positive sentiment towards the stock market, but also about the real economy. So It contributed about 20%, 25% to net new money on a net basis. Most of the lending is for investment in our or a lot in our portfolios, but also entrepreneur that took a longer loan against portfolios that have it as but invested back into their business, which is also, as I said, a show a sign for the positive sentiment in the economy. Geographically, it's obviously the largest chunks coming from Asia and Europe, but also Latin America, catched up quite a bit in the 1st 6 months. The next question comes from Hubert Lam from Bank of America. Please go ahead. Hi, guys. Good morning. I've got three questions. Firstly, on the trading margin. We expect trading margin to fall from recent peak levels as you have Already seen in the latter part of the first half. Do you expect trading margin to go back to pre COVID levels in 2019? Or do you expect it to stabilize higher than that going forward? Second question is on cost income ratio. If the gross margins stabilize at a lower level, say, below 80 basis points, Yes, if activity slows, would you still be able to achieve a cost income target of below 67% in 2022? Because I think the costincome target was set when gross margin was higher. And just lastly, a follow-up question on M and A. In terms in the past, you've mainly focused on M and A and in terms mainly on other private banks. Would you consider M and A in asset management as a consideration? Thank you. Thank you very much. I think I'll give a casual answer on the and second, and Dieter could jump in and then I'll focus a bit on the 3rd. In terms of trading margin, no, I would not proceed this to just drop back to pre COVID levels. Also, we're operating in a completely different economic cycle today than we were at a pre COVID timing. There has been, I think, a structural element to it. Obviously, the degrees, they might vary. I think on the cost income ratio, we should be able to make our target. And I think that's important, the target again on a 3 year cycle, but also beyond that, that is the structural work that we're doing, balancing the cost revenues, but also the qualities of the revenues, so that over a cycle And under different market regimes, this the target cost income ratio that we said can be achieved. As to M and A, I think we have been I've said this at the beginning, we operate a very clear and a very focused business model. We are truly focused on wealth management and serving clients, And this will also be the basic tenet for our business moving forward. This does not mean that we cannot have certain solution Skills are on the way, and this is actually very important that we have them. The acquisition we announced today in terms of real estate Management and Servicing is an important little mosaic stone in that direction. And I could imagine more additions also on the product services and solutions side moving forward, but we would only do it with a complete focus on wealth management and on serving our private clients. I think if it doesn't fit this lens, then this would not be beneficial to the footprint of our business. Great. Thank you. The next question comes from Hermann Nicolaus from Citigroup. Please go ahead. Hi. Good morning. Thank you for taking my questions. I have 3 Four questions, please. The first is on Asia. And then the second and third are quite frankly, along cost and On Asia, which you call your 2nd home market, 20% ago, I think Hello. Can you hear me? Yes. But on off. Please try again. I'll try again then. So I was It looks so 27% of your AUM is from Asia. I'm guessing it looks Your like your larger peers have been growing at about 7% per annum. I'm guessing you're growing at a similar or even faster rate. So I guess that would imply something in the range of 1% to 2% growth across the rest of the franchise. So where is that drag coming from? I'm guessing LatAm. Is there any other places? And when do you expect that drag to fade So we can see the full benefit of Asia net new money. And then also on China, when we last spoke in February, You announced your partnership with the Beijing Wealth Management Institute. There were also reports that Julius Baer is looking to enter China Via a JV, do you have any update there? And then in terms of the clarifications on cost, Can you give us a sense of how much higher variable comp was in the first half versus the second half of last year? And then on the marketplace, can I just clarify what you mean by higher value mandates? Can I just confirm that this is not just, let's say, Equity mandates because of markets have been rising? I just want to make sure that I've properly understood the definition here. Thank you. Let me take the Asian half of the question or the global growth footprint. Yes, indeed, as we said, we have been growing strongly in Asia, but also in Europe, but also in the Middle East. We obviously always take a portfolio approach globally to growth. I think in LatAm over the last few years, as we've communicated, I think a lot of restructuring has been going on. And 1 if one dissects the result, actually, also at this stage, I think turning to a positive contribution overall, but then obviously, let's say, some elements of growth are still superposed with some, let's say, conscious outflows in the region. But I would say, by and large, the restructuring in LatAm has been completed or will be completed shortly. And already our growth efforts in the region, for example, around selective hiring of RMs or the opening of the Brazil advisory office at the beginning of this year, I think we will be seeing the effects of that growth coming through and the contribution of the Americas, therefore, also to increase. But I think that's the overall global strategic view. As to Beijing International Wealth Management Institute, I think this is an important stepping stone for us, one more into the Chinese markets. It is it gives us insight, it gives us relationship building and it allows to strengthen the presence of our brand in the region as one step to, I'd say, further growth that we clearly envisage in the overall Asian region at this stage out of our from in Hong Kong and in Singapore. And on the JV, I mean, are you am I right that you are looking to For a partner, for a JV as well? For China. No. The next question comes from Daniel Regli from Octavian. Please go ahead. Good morning and thank you for taking my question. If I may, maybe one question on the costincome ratio target and then one question on net new money and then one question on the CET capital ratio. Maybe on costincome ratio, I mean, your target Below 67% by 2022. Now you had 61%. Obviously, we're going to see some normalization on gross margin, but it still Seems to me kind of not very ambitious, your target. And what are maybe the points I'm missing? Or why Should somebody fear that you could not even achieve the 67% by 2022? Then on net new money, obviously, what we have seen is kind of a pickup in net new money during the last part of the H1, and I assume that this is In relation to lockdowns, do you have any kind of visibility into H2? What net new money is kind of From prospect clients or maybe net new money you would have taken in otherwise already in H1 in a normal Environment. And then I think thirdly, on CET1 capital, I think we all noticed that you kind of run at A high excess capital ratio, and we all know the negative impact from return capital metrics of having a too high capital base. Do you have any kind of pain barrier in mind where you would take actions to reduce the excess capital on your balance sheet? Let me take a quick stab at those 3. 1st on the costincome ratio, I think it is a nice problem to have that today you can almost confirm that we will be making the target by the end of next year. Still we have to make it, I think, under any given circumstance. But I think this is obviously a better position right now after 18 months, then as if we had conversations that we won't make it. And obviously, we will continue our efforts both on the revenue side and take a conscious approach to cost also moving forward. Net new money is an interesting one because in a sense, we have Been operating in a non normal environment, non normal because our relationship managers could not travel, non normal because also the onboarding of new relationship managers is more complex in a fully virtual world. And there I would foresee, let's say, more possibilities as now the travel restrictions from the pandemic will ease and things will open up. Hard to give an exact timing to this. These things have typically a bit of a ramp up phase, and I wouldn't want to rub the crystal ball on when, which Country will finally open up again. But it's clear that right now, we have to some extent the handbrake still on given the pandemic situation and that handbrake should be loosened at some point. As to the CET1 ratio, I think we've Been alluding to this before, we are using the full potential and arsenal of bringing back capital to the market. We take a conscious approach to managing our capital, and that is an ongoing discussion with the Board of Directors as to when and how to manage please, specifically. Okay. Maybe a quick follow-up on the capital, but just To be sure, that is not likely to be something like RW inflation in Petro or Any other hits to the capital ratio which could threaten the capital base? No, no plans in that direction. I think we've also taken always a conscious approach to RWAs. We've been growing them with or below the balance sheet, and we will not change our risk appetite fundamentally moving forward. Okay. Thank you very much. The last Question for today's call comes from Adam Terolak from Mediobanca. I've got one on fees and one on trading. On Trading revenues. I mean, if you look at your equities trading, print, it's clearly taken a meaningful step up through the past 3 or 4 quarters from pre COVID run rate. I wonder if you could just talk about what's changed with the platform. Have you been internalizing some of your structured products trading? And is this something that we should think about being a bit more sustainable going forward over and above The increase in volatility and the kind of the more exceptional nature of the trading backdrop or the trading environment, what's changed there and why we should be baking that on Basing that into our numbers in a more sustainable manner. And then on the fee income, we kind of talked about the uptick in the fee margin. You've mentioned Kairos AUM. Could you just give us Kairos performance fees? I want to know if that's skewing the fee margin at all. And then could you just explain how that developed H on H, please? Yes. Do you want to start with Kairos? Yes. I'll start on the second one. So on Kairos, as I didn't mention the basis point. It's around 70 bps on a bit more than 5,000,000,000. And as you know from legislation, all the performance fees or most of the performance fees are charged by the end of the year. So there is just a couple of 1,000,000 in the revenues, in the KAIROS revenues in the first half of these 6 months. And as to the trading question, I think that's a befitting close and last question. I think, yes, indeed, there has been a lot of structural development also on the trading side as in all our businesses where we constantly evolve our approach. We have been growing our structured products franchise in breadth, in-depth. We've been further adding automation and value added also to our relationship managers, which has led to a continued development of the penetration. We've been adding capabilities on the Tailored Solutions side. And so I think there is a big structural development also on the trading side that allows us to punch in a higher weight class year on year as a steady underlying development under obviously the market forces which also play a role. With this And as for normal And as for normal So is that internalizing Yes, please. Is that internalizing flow from your existing clients? Or is that Kind of offering it further and wider to 3rd party. We've been continuously using open architecture, but we've been growing internal market shares also constantly over the over the last years. Great. Thank you. Thank you very much indeed. With this, I want to thank you very much For your interest in today's presentation, for being here with us, it's just up to me to wish you a very relaxing holiday period. I hope that you get a great break. Looking forward to talking to many of you, either right now or after a summer break and then to pick up on the Strong momentum again that we have shown in the first half year. Thank you very much indeed.