Ladies and gentlemen, welcome to the Q&A for analysts and investors following the release of Julius Bär's interim management statement. I am Mathilde, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The introduction 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. Please go ahead, sir.
Good morning and welcome to this IMS Q&A call with CEO Stefan Bollinger, CFO Evie Kostakis, and in light of the completion of a credit review, our CRO, Ivan Ivanic. The reference document for this call is the interim management statement, or IMS, for the first 10 months of 2025, which was published as a media release 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, or APMs. For that, I also refer you to the APM section at the end of the release, where you will also find the usual cautionary statement. That cautionary statement also applies to the information provided verbally in this Q&A session.
We aim to end the call at the latest 9:00 A.M. Swiss time, and therefore we would like to ask you to limit yourselves to maximum two questions, please, so that other analysts also get a chance to ask their questions. With that, it is now my pleasure to hand over to Stefan.
Thank you, Alex, and good morning, everyone. Today's IMS is an important milestone in managing through our transition year 2025 for two reasons. First, we delivered strong operating performance, which confirms we are on the right path in the execution of our strategy. Second, we concluded our credit review, which allows us to put legacy credit issues behind us and turn the page. Let me start with a few remarks on the results of our credit review conducted under the leadership of our new CRO, Ivan Ivanic. As you know, we announced additional loan loss allowances of CHF 149 million. These relate to a subset of positions amounting to about CHF 700 million, predominantly within our income-producing residential and commercial real estate book. All these loans were originated before 2023, and we have decided to manage them down.
As for the size of those allowances, they are appropriate and adequate and reflect the thorough review which was undertaken. Most importantly, they are fully in line with the overall shift in our strategy as announced in June and with our revised risk appetite framework, which we finalized over the summer. I am personally very pleased that this marks the completion of the credit risk review and allows us to draw a line under our legacy credit issues. The credit risk review is behind us. We have a well-defined risk framework and a strong risk management team in place, which will be completed with the arrival of our new Chief Compliance Officer, Victoria McLean, by the end of February next year. As a result, Julius Bär is simpler, stronger, and fully focused on the future. Our results are underpinning that.
As you can see, we have delivered strong operating performance in the first 10 months of the year. Our assets under management reached a record CHF 520 billion, the first time in our history that we have crossed the half-a-trillion-franc mark. We managed to attract net client inflows of about CHF 12 billion, despite the further de-risking of our business. We continue to optimize our footprint with the opening of Abu Dhabi and Lisbon. Our operating leverage is back into positive territories for the first time since 2021, and our capital position has further improved, with the CT1 increasing 210 basis points since the start of the year. Today, thanks to the decisive actions taken, we can now put our energy back where it belongs, into serving clients and delivering sustainable, predictable, and high-quality growth.
With that, I'll give the floor to Evie for her take on the operating performance.
Thank you, Stefan, and good morning, everyone. In the first 10 months of the year, we generated close to CHF 12 billion of net new money, despite the further de-risking, driven by continued inflows across our key markets in Asia, Europe, and the Middle East. Together with rising global equities, and despite the headwind of a much stronger Swiss franc, we saw a record client asset print and strong underlying year-on-year revenue growth. Our gross margin has remained broadly stable year-on-year at around 83 basis points on a like-for-like basis, and importantly, operating leverage has improved, with the underlying cost-to-income ratio at 66%, down a full five percentage points so far this year.
This partly reflects disciplined cost management and the early benefits of our efficiency program, which remains on track to deliver CHF 130 million of gross savings on a run rate basis by year-end, exceeding our original target by CHF 20 million. Very importantly, as Stefan mentioned, our capital position strengthened further, with a CT1 capital ratio of 16.3% at the end of October, up 210 basis points since the start of the year. Let's leave it at that in terms of introductions, and in the interest of time, let's now move straight to Q&A.
We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their 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. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Anke Reingen from RBC. Please go ahead.
Yeah, thank you for taking my question. Firstly, can you please clarify your comment you seem to make on Bloomberg about when you would be ready to start discussion about share buybacks? Are you basically saying you could start before February, or you would only ask, not ask before February? If you can maybe just clarify what you're specifically referring to. On the net new money trends, are we still very much on track around the 3% for this year, and what are relationship manager trends in the last couple of months? Thank you.
Hi, Anke. Good morning. Maybe I should start, and then Evie can add. In terms of the share buyback, what I was saying earlier at the media call is that we have completed some important milestones. Obviously, the conclusion of the credit review, we have done significant upgrades to our risk organization and processes, and with the appointment of our Chief Compliance Officer, we are going to have completed our new risk organization at the end of February. What I was referring to is that this means that we are not quite there yet to ask FINMA for a share buyback, and the earliest we will do so, if you can think about this, is end of February, that will even be a position to contemplate. From my point of view, there are a number of things that we still need to work through on our side before we can ask them.
Ultimately, of course, it's their call when to let us do this again.
Anke, good morning. Also from my side, on your questions around net new money and trends in relationship managers. Net new money landed at 2.8%, a little bit short of our 3% guidance. It is possible that we will land at similar levels for the full year. Let's see how the next couple of weeks stack up. Since the end of October, we have seen some more inflows above that CHF 11.7 billion, but let's see what happens until year-end. As you know, our net new money does continue to be impacted by ongoing client de-risking, which is continuing on a linear basis, as well as the stringent low-performer management we have been deploying in the context of the efficiency program. As you know, we purely focus on onboarding high-quality net new money with ensuring long-lasting client assets. We reiterate our guidance.
Given the strategy update in June, we aim to gradually improve our net new money growth potential to 4%-5% by 2028, supported, of course, by continued efforts in hiring quality RMs and, of course, a reactivation of our seasoned RMs. That is a good segue into the relationship manager trends. On a net basis, the number of RMs remains stable since June, and it would be fair to assume we will end the year at a similar level. However, on a growth basis, we continue to execute on our strong hiring pipeline in the last four months. We have added 50 high-quality relationship managers and another 30 associate RMs, as this is very, very important to build internal talent.
As we already indicated in the first half, based on today's outlook and current pipeline, I think it would seem fairly reasonable to assume a gross onboarding number of around 130 for this year. For next year, as we disclose in the strategy update, on a growth basis, our current plans are to hire more than 150 RMs per year over the strategic cycle.
Thank you.
The next question comes from the line of Roshan Ahmad from JP Morgan. Please go ahead.
Yes, hi, good morning, and thank you for taking my question. The first one is on the credit review. If I read the statement, it says the charges reflect a forward-looking risk, possibility of tighter customer refinancing during the process. Should we see these charges as conservative with potential for write-back, etc. in the future if these things do not materialize? The second one is on costs, where the cost-to-income ratio progression is quite positive. Can you please talk about some of the drivers here? Has the advisor compensation model been approved? Any other things which are driving this positive progression, please? Thank you.
Good morning, Ahmad. Thank you for the question. Look, I would be very hesitant to characterize any provisions as conservative. That's not an IFRS term. As you know, we've characterized these provisions as appropriate, adequate, and forward-looking. I will pass on to my colleague, Ivan Ivanic, to give you a little bit more color, and then I'll take the cost-to-income ratio question.
Yes, hello, good morning, and thank you, Evie. Look, we benchmarked our entire credit book against our new strategy that has been announced in June and against the revised risk appetite that has followed on after that announcement and strategy. We decided to manage down a subset of residential income-producing and commercial real estate mortgages. These positions will be managed down in an orderly and disciplined manner, respecting our contractual obligations, working in a consensual way with our clients, with the main goal to protect shareholder value. On that basis, I would say, and would just repeat what Evie said, we consider them adequate, appropriate, and forward-looking.
Thank you, Ivan. On the cost-to-income ratio, Ahmad, the underlying cost-to-income ratio improvement over July to October is a result of both strong revenues and lower costs. On the revenue side, it mainly comes from treasury swap income, where we had 22 basis points of gross margin contribution, and other commission and fee income, where we had about 11 basis points of gross margin contribution. On the cost side, this reflects the positive developments from the cost program, which we are executing at pace, including a lower average number of full-time employees, very stringent non-personnel expense management, including better demand management and tight vendor control, as well as internalizations. Please note that over July to October, we have also seen lower costs to achieve, including restructuring costs than expected, and some seasonality in the summer months, things like lower holiday accruals.
Hence, the 63% cost-to-income ratio for July to October should not be extrapolated for November to December, as the seasonality effect will be reversed, and we will likely book higher CTA versus July and October.
Ahmed, on your question on the new compensation framework for relationship managers, we have revised the compensation framework as part of our culture transformation. In the summer, we implemented a new relationship manager compensation framework. Basically, it aligns the incentives of the relationship managers with that of the bank, and hence with our shareholders. We have also updated our scorecard for senior managers, all in light to make sure that we have the right incentives and we create the right accountability and ownership in the first line of defense.
Thank you.
We now have a question from the line of Ben Kaven Robbins from Goldman Sachs. Please go ahead.
Morning all. Thanks very much for the presentation and for taking the questions. Just two, please. First, a follow-up on the credit provision. Could you please just shed a bit more light on the CHF 149 million effectively, and how you expect that to materialize, what you really see driving that provision in terms of how it would materialize into loan losses, and then comments around your level of confidence regarding the rest of the loan book, just given I see you note that it's predominantly related to those income-producing residential loans, but the rest of the book seems resilient. Maybe second question would just be just to reconfirm on the DOJ, that that is still something that you're expecting to get the benefit of in operis in the CT1 that you'll book at the end of this year. Thank you.
Hi, Ben. Good morning. On the credit provisions or the loan loss allowances, we will be booking them all in November. I pass on to my colleague Ivan for some further color on the loan book.
Thank you, and good morning. As we said in the statement, this approximately CHF 700 million book is predominantly income-producing residential and commercial real estate. The collateral is mostly located in Switzerland. The rest is in Western Europe, and there are several positions, let's just say about a dozen. The spread here is somewhere between 100 and 150 basis points. The reason why we are doing this is because since these loans have been initiated before 2023, the wealth management business case did not materialize, and these are mostly or at large lending relationships. The provisions are considered adequate and appropriate, as I keep on repeating, and we are planning to manage them down in a consensual way, working with our clients, respecting our contractual obligations. As I said before, our main goal is to protect shareholder value.
Now, with regards to the rest of the book or to the other parts of the book, the total book size is about CHF 42 billion, so not much has changed, of which Lombard is CHF 34 billion, and a subset of those CHF 34 billion, about CHF 4 billion, is in structured Lombard. The difference between standard Lombard is that this is listed, diversified, and liquid collateral, whereas structured Lombard is also listed, but more concentrated and less liquid. When I look at the remainder of the mortgage book, which is CHF 9 billion total in size, the LTV in that book is overall just below 50%, and it is at large a residential owner-occupied mortgage book in Switzerland.
Thank you, Ivan. On your second question, Ben, as we said in the full-year results earlier this year and the half-year results, we do expect the operational RWA that is associated with the loss from 2015 to roll off of our operational loss database as of December 31, 2024, and this will have a positive CT1 performer impact of more than 100 basis points.
Thank you.
The next question comes from the line of Giulia Miotto from Morgan Stanley. Please go ahead.
Yes, hi, good morning. Thanks for taking my questions. I have two. First of all, the new Chief Compliance Officer who starts in February, what is the risk that the first thing she does when she starts is launching yet another review of client books, which may lead to, let's say, some further clients leaving and therefore impacting the net new money rate for next year? Secondly, on the FINMA enforcement action, what is left there? Because now the credit review is complete, you have a Chief Compliance Officer, changed the remuneration policies, what is left? A small ask, since you are changing things and improving things, in case you are considering moving to quarterly reported, that would be welcome from our side. Thank you.
Okay, Julia, let me start with the easier with the three questions. On quarterly reporting, it is under consideration. However, we haven't yet decided to pull the trigger yet. I leave it to Stefan to comment further with the full-year results, if and when we might move to that. It is something we have been discussing, and we have taken your feedback. Maybe Stefan, you want to address the first question?
Yeah, absolutely. Look, on quarterly reporting, it's just a matter of prioritization, and I hope you understand that we were focusing on other things and will want to be more of a steady state before we contemplate doing that. I mean, in terms of your question on the new Chief Compliance Officer, I would say first, of course, I'm very pleased that we're going to have our risk organization complete with a distinct risk, compliance, and legal functions, and that's a really important step forward. Second, I would say de-risking is an ongoing and continuous process in wealth management, particularly if you think about AML risk that is inherent in cross-border wealth management. You're never done. I would also highlight that we have done a lot already.
Think about our new risk appetite statement, where we naturally have self-imposed some constraints on what type of risk we want to take. We have created a lot more accountability and ownership in the first line. I talked before about the compensation changes and all the culture transformation we are doing. Overall, we feel very good about the status of where we are and where we're going.
Maybe on the second question, I mean, look, it's hard for us to comment. What we can say is that we continue to have a very active and a very constructive dialogue with our regulators, and we're working very hard to build a relationship of trust by being proactive and transparent. It's a top priority for Stefan since his arrival, but I think it would be not appropriate for us to comment on any enforcement proceeding.
Thanks. We now have a question from the line of Hubert Lam from Bank of America. Please go ahead.
Hi, I've got two questions. Firstly, on flows. If I look at the July to October flows and I back it out, it's about 2%-2.5% annualized. How much of this weakness here is due to de-risking and deleveraging? As we probably expect, Asia would probably be pretty strong. I am just wondering around what's going on, dynamics within the last four months. Also, where are we in the client de-risking process? Should we expect more to come in for the rest of this year and also into 2026? That is it, questions on flows. The next question is on the credit provisioning. Any assets under management that are associated with the loans winding down, and will there be any impact on risk weightings just because of the losses you are experiencing in 2025? Thank you.
Good morning, Hubert. I'll start with the second question. In terms of, A, you are attached to this subset of loans in the portfolio we have decided to manage down as de minimis. In fact, it's less than CHF 170 million. In terms of the risk density of these exposures, it's around 100%. Ivan before referenced that most of these have a spread between 100 and 150 basis points. You can well imagine that by managing these down, we are freeing capital to redeploy in our standard Lombard book, which has a risk density of around 10%, or a traditional mortgage book, which has a risk density of around 38% and comes at a spread at the lower end of the portfolio we're managing down. Much better risk-reward in terms of profitability going forward.
Now, your questions on flows, you're right, in the July to October period, we did about CHF 3.7 billion, which is 2.3% on an annualized basis. We still saw some releveraging. In fact, we saw about CHF 0.9 billion of releveraging from July to October, and year to date, we're about CHF 1.3 billion. I wouldn't read too much in terms of idiosyncratic de-risking. As we've said, de-risking will continue on a linear basis, and it's something that's hard at times. I wouldn't read too much into that.
Thank you.
The next question comes from the line of Mate Nemes from UBS. Please go ahead.
Yes, thank you. I have two questions, please. The first one would be still on the credit review and the provisions. It sounds like the CHF 149 million charges came out at least partly from the finalized credit framework and risk appetite that you did over the summer, after the June Capital Markets Day. Could you confirm better that this new framework and risk appetite, you are not doing any, let's say, lending activities without a strong wealth management case? That's number one. Number two, if you could talk a little bit about the delta between gross and net hiring, perhaps also beyond this year. It seems like you are on track for 130 RM hiring this year, but Evie, you mentioned that on a net basis, it's probably flat in terms of RM numbers, and the situation should remain the same by the end of the year.
When can we expect to have net hiring also going substantially higher? Is that simply a function of the de-risking exercise that you are doing this year, and that means next year you should be on a firmer footing and you can grow RM numbers sustainably? Thank you.
Thank you very much, Mate. Good morning. On the first question, with respect to our new risk appetite tolerance framework, which we finalized over the summer, indeed, one of the key tenets is that we lead with wealth management and not with lending. I'll pass it on to Ivan to give you a bit more color.
Yes, thank you, Evie. First of all, you asked whether these provisions have happened after the June Investor Day, and the simple answer is yes. The reason why is because we have benchmarked our entire book against the new risk appetite framework, which has followed the announcement of that new strategy. Probably, rather than going into too many details with regards to what exactly has changed in the policy, maybe let me give you an example. Imagine we have a client with, say, CHF 50 million in assets under management, and they want to diversify their investment strategy into commercial or income-producing residential real estate, and they request a loan of about CHF 20 million. That is certainly a deal that we would look at.
However, if there is a client with, say, CHF 5 million, and they want a similar loan amount of 50 or 20 or whatever else, this is a business that going forward we will no longer entertain. That is probably the main change and the best way to explain this.
On the gross and net hiring dynamics in the outer years for relationship managers, Mate, let me just remind you that we have been running a pretty substantial cost program this year, which has entailed an intensification of low performer management. We have also radically transformed the front operating model, and that has led to some moving pieces, and hence the numbers that I quoted before in terms of relationship managers on a net basis for this year. For the outer years, as we said in the June strategy update, we are looking to hire in excess of 150 RMs per year, and that will translate to a positive net number of RMs year on year. That is what I can say right now.
Maybe to give you a little bit more color in terms of our relationship manager base today, we have about 401 RMs that are on business case, so that's roughly 31% of the total RM population. We're very pleased with the business case achievement rates of these relationship managers on business case. They're tracking at around 71%, and as you know, we planned the numbers at 60%. If we can continue to excel in doing quality hiring, I'm confident that next year things will look good.
Thank you very much.
As a reminder, if you wish to register for a question, please press star and one on your telephone. We now have a question from the line of Jeremy Chang from BNP Paribas. Please go ahead.
Morning, thank you. Can I just press you a bit more on the comments you're making about seasonality and costs? Just either qualitatively what you're expecting the pickup in cost to be in November, December, or I don't know if you want to give us a sort of idea of a run rate that the second half, so if it was 63% in July to October, what should we normalize to for the second half as a whole?
All right, thanks. Thanks for pressing me further, Jeremy. Okay. Look, definitely you should not extrapolate the 63%. There will be some seasonal costs that hit in November and December. My best case from where we stand today is on an underlying basis somewhere below 69%.
For the half year, that's for the second half?
For the full.
For the full year.
Yeah.
Okay, brilliant. Thank you very much.
The next question comes from the line of Stefan Stalmann from Autonomous Research. Please go ahead.
Good morning. Thank you very much for the call. I wanted to get back to the credit risk provisions. Are the loans actually stage three, pentahouse stage three provisions? And are those new stage three loans?
Stefan, sorry to interrupt you. Your line is not very clear. Let me try and translate your question because you're cutting off a little bit. You're asking whether these loans are stage three?
Yes, indeed. If there were already stage three loans or whether those are new stage three loans. I hope you can hear me, but I also wanted to ask about the recent media reports about Bär using Temenos for its new core banking platform. Can you give us any hint on the investment volume of that project and the timing? Thank you very much.
Yep. Super. Thank you. Let me start with the loan loss allowances. These are predominantly performing loans with increased credit risk. There's a small balance that are impaired, hence stage three. You will see the movement of exposures, loan loss allowances by lending products, so mortgages and Lombards in the equivalent of note 21B in our annual report. That's question number one. Question number two on the IT infrastructure. As we said in our strategy update in June, we intend to upgrade our core infrastructure in Switzerland and Guernsey. As you know and appreciate, we don't comment on individual vendors, but we are looking in the long run to harmonize our operating model, hence you can draw your conclusions from that.
With respect to investment volumes, they are embedded in the cost-to-income ratio targets that we laid out as part of our midterm plans in the strategy update.
All right. Thank you very much.
One final reminder. If you wish to register for a question, please press star and one on your telephone. We now have a question from the line of Nicholas Salomone from CD. Please go ahead.
Yes, good morning. Thanks for the call and for taking my questions. I have a couple of questions, please. Thank you for the clarification on the four-year cost-to-income ratio of less than 69%. Can I just ask you, that still implies a level of cost that is notably below consensus for the second half? I appreciate the July to October costs are always seasonally lower, and we should not extrapolate this, but just wondering whether on a full second half basis, whether that is a good base for future years or whether variable compensation is particularly low, for example, in terms of accruals. My second question, please. You said that by year-end, the number of relationship managers will be stable versus the end of October. Clearly, the rate of turnover of relationship managers has remained elevated.
Can I just confirm that you still expect double-digit attrition next year, please? Thank you. In percentage terms, that is.
Yep. Super. Thank you, Nicholas. On the second question, I would say high single digits in terms of attrition. We have intensified low-performing management this year, but I expect that to normalize next year. High single digits. In terms of the outlook for costs, look, we are currently finalizing our planning cycle, and we will provide a comprehensive update on strategy and financial outlook at the full-year results in February. Until then, I think it is good to reiterate the framework that we shared both at the strategy update and the half-year. Transformation and franchise investments will be front-loaded with associated costs coming through in 2026 and beyond. Of course, while the recent cost-income ratio developments are very encouraging, the road to sub-67% remains back-end loaded. The biggest steps in both investment and payoff lie ahead in 2026 and 2027.
Got it. Thank you.
We have a follow-up question from the line of Ben Kaven Robbins from Goldman Sachs. Please go ahead.
Hi, there. Apologies. It was just a clarification to check that below 69% for 2025 was on an underlying basis. I think you've already answered that.
Yes, it is.
Perfect. Thank you.
We have a follow-up question from the line of Nicholas Salomone from CD. Please go ahead.
Yes, thank you. Since we're at the tail end of the call, I just thought I'd sneak in a third question, please. Just how much income-producing real estate is remaining in the book following the write-down of this CHF 700 million? Thank you.
The total amount of residential income-producing and commercial real estate is about a quarter of the mortgage book. This includes the CHF 700 million.
Very helpful. Thank you.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Stefan Bollinger for any closing remarks.
Thank you all for your questions and your attention. As I said before, today, Julius Bär is stronger, simpler, and fully focused on executing on our 2026 to 2028 strategic cycle. I'm looking forward to speaking with you again at our full-year results presentation in February. Thank you and have a good day.
Ladies and gentlemen, the conference is now over. Thank you for choosing conference call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.