Ladies and gentlemen, welcome to the Julius Bär Q&A on interim management statement for the first 10 months of 2024. I'm Sandra, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Alexander van Leeuwen, Head of Investor Relations. Please go ahead, sir.
Yes, good morning, everyone, and welcome to this inaugural IMS Q&A call with our CFO, Evie Kostakis. The reference documents for this call are the interim management statement, or IMS, for the first 10 months of 2024, which was published as a media release earlier this morning. As stated in the media release, the IMS is, as usual, based on unaudited management accounts, and the numerical information provided in the IMS is based on non-IFRS alternative performance measures. The most up-to-date definition of these measures can be found in the alternative performance measures document at the end of the 2024 half-year report. Before we start the Q&A session, we would like to point you to the usual cautionary statement at the end of this morning's IMS media release. That cautionary statement also applies to the information provided verbally in this Q&A session.
We have a hard stop at 8:30 A.M. Swiss time, and with that in mind, I would like to ask you to limit yourselves to one question, please, so that other analysts also get a chance to ask their questions. So, with those technicalities out of the way, it is now my pleasure to hand over to CFO Evie Kostakis for a brief introduction.
Thank you, Alex, and good morning, everyone. No worries, I'm not going to read out the entire interim management statement, but for me, one of the key highlights was the further pickup in net new money, with the underlying pace accelerating to 4.2% in the last four months, supported by a number of our key strategic markets in Europe, Asia, and the Middle East. Julius Bär continues to be an attractive destination, not just for client assets, but also for relationship managers, with another 45 relationship managers on a net basis joining since the end of June. This takes the total net new joiners to 46 year-to-date, but that last number is net of the 21 RMs who left the platform in May when we deconsolidated Kairos. So, excluding the Kairos sale, the number of RMs increased by 67 in the year so far.
The gross margin in the last four months was 81 basis points, which is down from the 85 basis points in H1, but essentially unchanged from the exit rate in May-June, which was also 81 basis points if one takes out the one-off impact in May related to the sale of Kairos. Compared to H1, despite the lower gross margin, despite the strengthening of the Swiss franc since the end of June, and despite the healthy RM hiring pace, the cost-to-income ratio and pre-tax margin remained stable. In other words, we were able to offset those impacts with a reasonably okay cost development, which, of course, partly benefited from the existing cost program. Nevertheless, I'm well aware that we are at a distance from our target, so it cannot be excluded that further cost measures may be needed in the near term.
On the capital side, the CET1 capital ratio continued to strengthen to 16.7%, up from 16.3% at the end of June, underlining the strong capital-generating nature of the group's business model. These capital figures are still on the basis of what we usually refer to as Basel III Classic, with Basel III Final coming into force in Switzerland in six weeks' time on the 1st of January 2025. And a key final highlight for me and all of us here at Julius Bär is, of course, that we can now confirm that our new CEO, Stefan Bollinger, can start a little bit earlier than was originally foreseen. We're all very much looking forward to welcoming Stefan on board on the 9th of January. Okay, with this, I would like to open the call for questions.
We will now begin the question-and-answer session. Anyone who wishes to ask a question or make a comment may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone with a question may press star and one at this time. Our first question comes from Benjamin Goy from Deutsche Bank. Please go ahead.
Yes, hi, good morning. Just a question on the net new money. Could you share a bit more light on the mix between new relationship managers and more seasoned relationship managers? How does this split? Thank you.
Sure, thank you very much for the question, Benjamin. So, the RMs who are still building up their business case targets continue to deliver as expected. In fact, the business case achievement rate has edged up to roughly 61% from slightly less than 60% at the half-year. But more importantly, it was great to see that seasoned relationship managers started contributing again after the lackluster first half of the year, essentially adding a couple of billion to the sustainable portion of the net flows in the last four months.
The next question comes from Anke Reingen from RBC. Please go ahead.
Yeah, thank you very much for this call. I'm going to take my question. I just had a question on the capital ratio. Given the capital generation, I would have expected it to come out a bit stronger. Just wondering, is it largely RWA growth or business growth, and should we still expect, based relative to the end of October, is a step up in the risk density still the 20%-22% with the 1st of January 2025? Thank you.
Thank you, Anke. I think in terms of the capital ratio developments, we're pretty pleased with where we stand, both on the profit side and on the denominator RWAs. In terms of the impact of Basel III Final, there's still some uncertainties associated to this, which we will be able to clarify towards the end of the year. That being said, I think we gave a guidance around two percentage points. Maybe it's two and a half in terms of capital impact, but there's still some uncertainties associated with this.
Okay, so that basically results on RWA growth in the four months?
Yep.
Okay, thank you.
The next question comes from Mate Nemes from UBS. Please go ahead.
I wanted to ask about gross margin. Firstly, if you could give us a bit more color, perhaps, on the interest-driven income, specifically NII. It seems like that line edged down another three basis points from H1. Is that really the effect of term deposits and then perhaps some shift into term and savings, or is there any other reason in there, perhaps Lombard loan repricing, any of that? That would be super useful. Thank you.
Thank you, Mate, for the question. So, there wasn't too much of a change from the exit rate that we had in May and June. I think on NII, it was around eight basis points in May and June, and now it's seven basis points. That being said, there's a countervailing impact from FX swap income, which was 15 basis points in May and June and has picked up to 16 basis points now. In terms of NII specifically and the various factors that play there, yes, there's still a little bit of terming out happening, but not that much. I would say the pace has slowed down significantly. And as you can imagine, on the loan side, we've been quite successful in winding down the private debt portfolio, so there's some impact coming from that as well.
The next question comes from Jeremy Sigee from BNP Paribas. Please go ahead.
Morning, yeah, and thanks for doing the call. Just to follow up on net new money, really, is this a pace that is now building, continues around this pace, or builds further with the new hires? Are you optimistic about that trend improving from here?
Thanks for the question, Jeremy, so first of all, we pointed out that the underlying pace of net new money is 4.2, not 4.8. Of course, that's a very pleasing development. Year-to-date, we stand at around 3% net new money growth until year-end, somewhere between 3%- 4%, and of course, we're hopeful that with the business case achievement rates of the seasoned RMs pointing in the right direction, the larger proportion of, sorry, not seasoned RMs, but RMs on business case, the larger proportion of RMs on business case as a percentage of the total population, which stands right now at around 25% and will likely edge up to 27% by year-end, and the trend reversal we saw in the contribution of seasoned RMs, yes, we're hopeful for a better print next year.
Fantastic, thank you.
The next question comes from Krishnendra Dubey from Barclays. Please go ahead.
Thank you. Sorry, just a small clarification on the last question, actually. Did you say the year-end NNM would be like 3%- 4%, and the question is regarding the buyback announcement? So, I think given you're talking about Basel III impact, how should we look at the buyback announcement in the full year?
I said in just to level-set expectations for the next two months. Right now the underlying pace of net new money flows is 4.2%. Year-to-date, we're at 3%, so somewhere between 3%-4% by year-end, and in terms of buyback, the buyback will be sized based on Basel III Final numbers.
The next question comes from Hubert Lam from Bank of America. Please go ahead.
Hi, thank you for taking my questions, and I really appreciate the new disclosure on both IMS as well as this call, so thank you. Just a question on activity in November, just given the US elections and also what's happening in China, the stimulus in October, just wondering, how have you seen activity so far in the final two months, or the final month in November so far? Thank you.
Thanks, Hubert, for the question. So, I would say that in terms of volatility, you know, it's pretty muted in November post the U.S. election. That said, I think stock markets globally, save for Asia, have enjoyed a so-called Trump bump as stock exchange volumes have picked up. So, you know, I think that's what we're seeing right now. It's hard to forecast, as you know, what will happen in the next couple of months.
Thank you.
The next question comes from Michael Klien from ZKB. Please go ahead.
Yes, good morning. I just had a follow-up on the activity-driven income. So, you mentioned it was 21 basis points. There were some seasonal, Q3 somewhat slower, and you also mentioned now the Trump bump. So, if you look at the exit rate at end October, maybe what you're seeing in November, has activity-driven income moved towards 24? Is it maybe even better than that, or is it closer to the 21 that you had, that you mentioned? Thank you.
The July to October activity-driven gross margin is 21 basis points, and that split 10 basis points between transaction-driven commissions and trading income of 11 basis points. What we saw in October is a total activity-driven income exit rate of 22 basis points. Like I mentioned in my previous comments, it's not coming so much from trading income, but more from brokerage activity as stock exchange volumes have picked up.
As a reminder, if you wish to register for a question, please press star followed by one. The next question comes from Giulia Miotto from Morgan Stanley. Please go ahead.
Good morning, and thank you for taking my question. I actually have a question on the FINMA review. I'm wondering if you have any update for us on this topic. Thank you very much.
Thank you very much, Giulia, for the question. We are, as we've said, in active and very constructive dialogue with our lead regulator, FINMA, but I cannot tell you when the review will be completed or essentially what drives this timing. However, please note that we were able to redeem our $300 million AT1 dollar in September without pre-financing that.
Can I follow up? Does it need to be completed before you can launch the buyback?
I think that the board of directors believes it is prudent to wait until our regulator has completed its review. And as I said, we are in active and constructive dialogue with FINMA, but I cannot tell you when the review will be completed. Given that it's almost December, I think it's fair to say that an off-cycle intra-year buyback is no longer on the table. Our base case assumption is that we will resume normal capital distribution policy again next year.
Okay, thank you.
The next question is a follow-up from Michael Klien from ZKB. Please go ahead.
Yes, thank you. Just a quick one on deleveraging. You mentioned that sort of slowing down. Some of your peers have highlighted that some clients are starting to re-leverage. Are you seeing something similar as well, or is it really still more for deleveraging, just at a slower pace?
I think it's fair to say that deleveraging has essentially ground to a halt after already materially declining in H1. Regional developments, I think, were pretty similar. I would even say that Asia has started to see some green shoots, a little bit of re-leveraging. However, as we've said in the past, we do think that to see broad-based re-leveraging rates must come down further and yield curves need to normalize. So, in that context, it's very interesting to see that the U.S. curve has flattened after the U.S. elections earlier this month. And, you know, if you look, for example, at the difference between the three-month and the five-year and the dollar curve, as of 1H, it was 98 basis points. As of the end of October, it was 39 basis points, and as of the 19th of November, it was 26 basis points.
Headed in the right direction, but for sure, we need more sustained improvements in order to see market-driven re-leveraging kick in in earnest.
The next question is also a follow-up from Anke Reingen from RBC. Please go ahead.
Yeah, thank you very much. I just wanted to clarify on the interest-related margin. Did you say the trends you are seeing are in line with the guidance you provided with the first half results on the interest-related margin? Thank you.
Yes, yes, I think that's accurate. Interest-driven margin is around 23 basis points. That's more or less where we expect it in the next couple of months. And in terms of further guidance, we're in the midst of, for the next year, we're in the midst of finalizing our planning. And of course, as you saw in my answer in the previous question, you know, the interest rate curves are moving quite a bit post U.S. election. So, let's see where we land by year-end.
Thank you very much.
Ladies and gentlemen, that was the last question. Back over to you for any closing remarks.
Thank you very much for joining the call today and for all your questions. Of course, the investor relations team is available to field any more questions after this call. Thank you and have a nice day.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.