Earnings Call: H2 2018

Feb 4, 2019

Good morning, everyone, and welcome to the presentation of our full year results at 2018. I'm pleased to say that Julius Baer has closed the year with stable profits and robust net new money. And we did this in a market environment that was very challenging for the whole industry. Strategically, we have made good progress to sustain profitability and grow well into the future. Our updated medium term targets are ambitious, yet realistic, just like the strategy that will help us to achieve them. Our plan for the coming 3 years will be centered around 3 elements: 1st, smarter market coverage 2nd, holistic and personalized advice and thirdly, technology and digital transformation. And I look forward to share this with you later today. But now let's look at the key figures for our 2018 result. Adjusted net profit for 2018 was €810,000,000 It's 1% up from 2017. And you remember, 2017 was actually the record year for Julius Baer in its history. According to IFRS, it was up 4% year on year at SEK 735,000,000 For the full year, gross margin was 4 basis points lower than in 2017. Market developments starting with the fall in Asian stock markets midyear and ending with the sharp drop in stock markets in December impacted the more volatile component of our revenues, such as client activity and performance based fees on investment products. On the other hand, the core of our asset based fees went up and rose by 8% at the same pace as average assets under management. The cost income ratio we reported for 2018 is above our target range. It's at 17.6%, and this was driven by the decline in transactional income, as I explained before, and an increase in costs. We already took some steps in 2018 to respond to the current revenue environment, and we will be more rigorous in 2019. And as announced this morning, we will structure lower our expenses by SEK 100,000,000 while continuing to invest in line with our strategy. Among other things, we are looking at the net reduction in our workforce by around 2% by the end of 2019. And Dieter will give you more information on this in his presentation. Net new money inflow for 2018 was robust at more than SEK 17,000,000,000, actually the 2nd highest figure we report in the almost 130 year history of Julius Baer. This corresponds to an annual growth rate of 4.5%. And we saw strong contributions across mature and growth markets and stable inflows throughout the year. This is demonstrating the healthy mix of markets we serve and the strength of our brand in these markets. Assets under management declined by 2% to SEK382,000,000,000 as net new money growth was offset by adverse market performance and also currency movements. However, the market headwinds we faced since July have not compromised our financial strength and our commitment to our shareholders in any way. We propose to distribute 41% of our adjusted net profit to our shareholders. At CHF 1.50 per share, the proposed dividend for the 2018 financial year is up 7% and actually the 5th consecutive increase over the last years. Further, we target to increase the return on CET1 capital from currently 30% to above 32%. We have the aspiration to continue to grow sustainably and profitably. This is demonstrated by our updated midterm targets, and we have a clear plan on how to achieve them, which I will gladly present later today. Now before Dieter provides more color on our financials for 2018, I would like to highlight the non financial progress we made last year. Much of what we have done in 2018 paves the way for our future. First, we have undertaken our uncompromising review of the markets we cover. On the one hand, we have invested and formed partnerships in strategic markets like Brazil, Germany, the U. K, Thailand, Japan and others. On the other hand, we have discontinued our physical presence in subscale locations like Amsterdam, Panama and Peru based on commercial considerations in order to be able to concentrate efforts elsewhere. I will tell you more about our plans on smarter market coverage in the second part of my presentation. Secondly, we created a separate unit for intermediary clients. This B2B segment requires a dedicated offering that goes beyond custody services with distinct products and solutions. We are a leading provider in this segment, and I'm convinced that the renewed emphasis, combined with our capabilities, will be an important driver for future growth. Thirdly, we have achieved a number of milestones in our technology transformation roadmap. The most prominent milestone is the replacement of the Asian core banking platform. It is the cornerstone for future growth in this region. In addition, we continue to invest and progress substantially the digital interfaces to our clients and the tools for our front office teams. This will remain a priority well into the future. And of course, we have also invested in risk management and further strengthened our risk framework. These steps ensure an ongoing improvement in the quality and sustainability of our business. For instance, the upgrade of our client documentation to the highest industry standards is on track and will be completed by the end of 2019. This 3 year program was started in 2017 with the aim to elevate all our client records to the highest standards. Now approximately twothree of client records are updated, so we are well within our plan. The responsibility to do this lies with our front office teams. It's a big effort. I won't deny it, but it's worth it. It improves risk control, yes, but it creates also the basis for data driven client servicing and advisory. Furthermore, we have enhanced the leadership and incentive structures of our front office teams to create stronger accountability for the rewards and risks inherent in our business. And I'm very pleased to confirm that the U. S. Department of Justice will file a motion to dismiss the charges from the deferred And my expectation is that And my expectation is that the DPA should be gone by the end of this week. All these achievements were crucial to position Julius Baer for the future, and I would like to thank our staff for making them possible. With this, I hand over to Dieter for his deep dive into the numbers. Thank you, Bernard, and good morning from my side. As usual in our presentation, the results are shown on the adjusted basis. That means excluding acquisition related expenses and the amortizations, and a full reconciliation is provided in the appendix of the presentation. When looking at the 2018 market environment, 2 developments stand out: the stock markets and the U. S. Yield curve. In the stock markets, we had a relatively calm 1st 5, 6 months with the exception of the short correction in February. But after May, the Asian stock markets started to underperform significantly as shown by the Hang Seng Index in the upper chart. In the market turmoil in December, auto stock markets suffered sharp declines, too. This had an impact on assets under management and also a considerable impact on transaction volumes of our clients. The other key changes was U. S. Interest rates. While the U. S. Discount rate was raised 4 times in 2018, the U. S. Yield curve continued to flatten. This is the red line, which at the end of 2018 was more or less flattish, which for some clients decreased the attractiveness of leveraged fixed income strategies. Now to the results, starting with assets under management. ARAM declined by 2% or CHF 6,000,000,000 This was the result of robust net new money of over €17,000,000,000 a €3,000,000,000 net acquisition impact, a €22,000,000,000 negative market impact and a €4,000,000,000 negative currency impact. Despite the year on year decline in assets under management, the monthly average AUM, important for the gross margin calculation, was still up 9%. Moving to Slide 7, net new money. Net new money, as mentioned, was over CHF 17,000,000,000 or 4.5 percent. And with this comfortably inside our 4% to 6% target range despite some modest further deleveraging going on in the second half. Flows were again nicely balanced between European markets, such as the U. K, Monaco and Germany and growth markets on the other side, including in Asia, the Middle East and Brazil. Our continued success in attracting top private banking talent to our pure private wealth management platform is an important driver of net new money. In 2018, the number of RMs increased by 105, of which 13 via the acquisition of Reliance, that's in Brazil, and 92 from net hiring and internal talent development. The RMs who joined during 2018 contributed about a quarter of this year's net new inflows, and RMs that joined in 2016 2017 contributed 60% to the net new money figure. Slide 8. Revenues grew by 4% year on year but were down 12% in H2 versus H1. Commissions and fees were down slightly year on year by just 1%. Asset based income was flat due to lower Kairos performance fees. Excluding these Kairos performance fees in both years, '17 'eighteen, asset based income was up 8%. Activity resulted in brokerage commissions declining 6% year on year and 26% lower in H2 2018 compared to H1 2018. Moving on to net interest income. Excluding dividend income on the trading portfolio decreased by 6%, but this was impacted by a shift from interest income to trading income, which I will explain in a minute. Credit income rose 36% on higher average loan volumes and rising U. S. Rates, but this benefit was more than offset by the 3 following items. Number 1, the average size of the treasury portfolio was lower after it shrunk significantly in 2017 as we had no deposits growth that year. But the portfolio grew again in H2, which should help in 2019. Secondly, with rising short rates and a flattening yield curve, U. S. Dollar term and coal deposits became more attractive for our clients, leading to higher interest expenses on deposits. And 3rd, also important for the overall revenue analysis as the longer U. S. Rates rose much more slowly and we have no access to the Federal Reserve window, it became more attractive for us to swap our growing U. S. Dollar excess deposits into U. S. Swiss francs and then deposit those francs at Swiss National Bank. Importantly, by placing it at Swiss National Bank, there is no credit risk and there is daily liquidity. But what is important here is that the swap income from U. S. Dollar into CHF 6, despite its interest like nature, is accounted for as trading income. It's therefore important to look at the development of the sum of net interest income and debt swap income, which we provide at the end of this slide. One already understand when looking at underlying trading revenues, which were up 42% or over €200,000,000 in a year when the currency markets were relatively dull. This increase came partly from the benefit of the further internalization of structured product issuance, but a large increase in trading income was helped by the just discussed treasury swap income that is accounted for in this line in trading revenues. Debt treasury swapping comment up from €103,000,000 in 'seventeen to €194,000,000 in 2018 and was therefore responsible for almost half of the growth in trading income. If this treasury swap income had been accounted for as interest income, then the underlying net interest income would have been up 4% to €935,000,000 instead of down 6% to 7 €41,000,000 And by the way, given the interest in this topic, already discussed at the half year conference here, we added some additional slides on the net interest income in the appendix of the presentation. As a result, on Slide 9, the gross margin came down by 4 basis points year on year. The commission and fee margin was down 5 basis points, of which around 2 basis points were due to the fall in brokerage commission and close to 3 basis points from the lower revenue contribution from Kairos. The contribution from net trading was up 4 basis points and from net interest income down 3 basis points. But as I discussed extensively on the previous slide, that was to a large extent due to the treasury swap income, which by nature is essentially interest income but is accounted for as trading income. If one were to add that swap income back to net interest income, then the alternative gross margin breakdown, as shown in the box at the bottom, it would show that the pro form a net interest contribution was essentially stable and that the main cause of the year on year gross margin decline was the drop in the commission and fee income contributed contribution in H2. Moving to Slide 10, expenses. Operating expenses grew by 6%, what is less than the increase in average AUM, which is why the expense margin improved further to 60 basis points. That's the red line in the graph. However, expenses increased more than revenues, so the cost income ratio rose to 60 to 70.6%. It is worth noting that there were approximately €54,000,000 of additional expenses, including €34,000,000 related to the 3 year client documentation upgrade project Bernard mentioned before. This project will end this year, and these costs will therefore fall away in 2020. Without these additional expenses, the expense increase would have been 4%, and if you like, normalized costincome ratio would have been around 70%. Looking at the half year development, one clearly sees the impact of the worsening revenue environment in H2. In H1, the 67.3 percent costincome ratio had moved nicely into the target range. But in H2, due to the significantly lower revenues, it went up to 74% or 72% were normalized for the additional cost items mentioned above. As a result, on Slide 11, the adjusted pretax profit decreased by 1% to CHF 977,000,000 and the pretax margin declined to just below 25 basis points. The tax rate came down to 17.1%. So as a result, adjusted net profit for the group went up slightly to €810,000,000 But following the buyout of the Kairos minorities, the adjusted EPS to shareholders of Julius Baer grew by 2%. And as the M and A related adjustment items came down significantly, IFRS net profit grew actually by 4% to CHF 735,000,000 Slide 12, cost program. To mitigate the changed revenue environment, we have launched a new cost program. We will continue to invest in longer term growth and in strengthening the franchise. But at the same time, we are targeting a €100,000,000 reduction in costs on a run rate basis. This is to be achieved through, 1st, the further implementation of our enhanced market focus and the related regional presence and resources. In 2018, we already closed, as mentioned before, offices in Lima and Panama City and announced the sale of our Amsterdam business while expanding our presence in Germany and the U. K. And into South Africa secondly, by leveraging our ongoing investments in automation, digitalization and robotics, which Bernhard will talk about later. And lastly, stricter performance management, also with the aim to increase AUM per relationship manager over time. This measure will enable an approximately 2% net reduction in headcount by the end of the year, whereas without these measures, the headcount would probably have increased 3% to 4% points. Please note that we had a 6% increase in staff in 2018, So bringing levels down by 2% in 2019 will mean that the average staff levels will not yet come down versus 2018. And that means while the benefit of the measures will start accruing in 2019, the full benefits will be visible in 2020, with then also the additional benefit of the costs related to the client documentation project falling away in 2020, as I mentioned before. With this, we aim to reach 68% costincome ratio in 2020, assuming no meaningful deterioration relative to the average 2018 market conditions. I move on to the balance sheet, Slide 13. Balance sheet grew by CHF 5,000,000,000 to CHF 103,000,000,000 by the end of the year, driven mainly by a CHF 4,000,000,000 increase in client deposits and a CHF 2,000,000,000 increase in structured products issued from our balance sheet. On the asset side, the loan book decreased slightly so that the loan to deposit ratio declined to 63% from 69% a year ago. Meanwhile, the treasury portfolio started to grow again by more than SEK 2,000,000,000, essentially all in H2, and the cash position at the central banks went up by SEK 5,000,000,000 in line with the trends I commented earlier in the context of the interest and the swap income. You find the corresponding risk weighted and leverage positions on the lower part of the page, which, as always, more details available in the appendix of the presentation. Capital ratios on Slide 14. They remained well above the minimum regulatory requirements and the group's own floors. CET1 capital went up by €100,000,000 net of the €300,000,000 dividend accrual and the impact of the 2 acquisitions we completed in 2018. That was the acquisition of Reliance earlier in the year and the buyout of the 20% Kairos minorities. The risk weighted assets went up by SEK 1,700,000,000 on higher credit risk weighted assets, mainly from the reinvestment in the treasury portfolio in H2. And on higher market RWAs, not surprising, after the increase in market volatility towards the end of the year. The result was that the CET1 ratio came down 70 bps to 12.8%, well above our own 11% floor and significantly above the 8% regulatory floor. When excluding the impact of the 2 acquisitions, it would actually have gone up, thereby underlying the naturally capital generative nature of our business model. Total capital ratio declined by more than 2% points as we redeemed 1 of our A Tier 1 bonds last March. And the leverage ratio came down slightly to 3.9%, also impacted by the 8 Tier 1 bond redemption, but still comfortably about the regulatory minimum of 3%. Page 15. The proposed dividend is up 7% to CHF 1.50 per share. This will be the 5th consecutive dividend increase. Since 2013, when we started the acquisition and integration of Merrill Lynch's International Wealth Management Business, we have grown dividends at a compound annual growth rate of 20%. It is again proposed that the dividend will be paid out of the statutory capital reserve that means free of Swiss withholding tax. The total distribution will be €336,000,000 in line with the 40% payout ratio target we set 3 years ago. And as a reminder, as you can see in the box on the lower half of the slide, we have reconfirmed our dividend and capital management policy. With this, I hand back to Bernhard. Thank you, Dieter. After this update on our 2018 financials and the near term measures we are taking, let me explain you how we will master the future. Wealth Management remains a growth industry, and Julius Baer is in an excellent position to benefit from this growth. Investable assets of high and ultra high net worth individuals are expected to grow at the pace of 4.7% annually until 2021. In mature markets, growth will be slightly lower. In Asia, almost 6% in the Middle East, over 7%. Capitalizing on these growth rates is not a given for any wealth manager. In order to do so, clients will have to be served in a different way going forward. Digitalization and regulation create new benchmarks for advice compared to 3 to 5 years ago. These changing dynamics will actually play to our strength. Now how do we want to do it? Our strategy for the next 3 years is designed to, 1st, enhance client experience secondly, improve efficiency and of course, increase revenues. We will do it with 3 elements, and I will elaborate on the 3 elements in more details. 1st, as I mentioned at the beginning, we call it smarter market coverage by allocating resources and growth efforts to the markets that make up over 80% of our assets under management secondly, holistic and personalized advice by ensuring best in class offering in these target markets. And thirdly, technology and digital transformation. So let me go into more details for these three elements. 1st, smarter market coverage. We are taking a multicycle approach to the markets we cover. This allows us to allocate resources and investments in a smart fashion. We have divided the world in 3 categories. The first category is composed of our core markets. They represent roughly 2 thirds of our assets under management. In total, that's a set of 17 markets, which we are disclosing here for the first time. There are substantial pools of wealth, which we want to capture with a local Julius Baer presence and a 360 degree holistic offering tailored to country specific needs. In some of these core markets, we are almost there, like in Switzerland or Germany or the U. K. In others, such as China, more work needs to be done. In Latin America, our expansion plans are already in full swing. We have a leading position in Brazil with GPS and Reliance. In Mexico, we have a strong partner with NSC with the possibility to increase our participation soon. And we aim to add new teams for our refocused Argentinean business. The markets to develop are attractive in terms of size or growth potential, be it in absolute terms or because Julius Baer's market share is still small. Here we are looking at about 20 markets. Our position in these markets is not as strong as in the core markets. Hence, we need to look at the most effective way to affirm it. Such strategies could entail partnerships, joint ventures or simply a solid tailored cross border strategy. And some of these developed markets may actually over time become core markets. So we'll concentrate our growth efforts on core and developed markets, be it organic, by evolving our offering and services, by hiring new teams or through M and A or strategic partnerships. On the other hand, we will curb our investments elsewhere. Maintain markets represent roughly a bit less than 20%. There are countries where we benefit from long standing client relationships. We will serve them with a standardized cross border offering and will further continue to review these countries as a matter of business discipline. We may, at some point, decide to close or sell local presence if we can't scale it. We did so in the Netherlands last year and going forward, serve our Dutch clients exclusively cross border. ORE will discontinue serving such markets altogether if cost or complexity of doing business exceeds the benefits as we did last year with Venezuela. Let me show you how we serve core and developed markets with 2 examples. So the first example for a core market is Germany. Germany is one of the most attractive wealth markets globally and the largest in Europe. An important source of wealth are small and midsized enterprises. They form the backbone of the local economy and entrepreneurs are one of our key client segments. The local wealth management market is highly fragmented, and Julius Baer enjoys a strong brand recognition. Thanks to our long standing presence in Germany established back in 1989. Germany served cross border from Switzerland in a tax compliant fashion, domestically from 10 local offices to ensure maximum client proximity. Our persistence and long term commitment to Germany has paid off with significant net mnemonic growth rates, In line with our strategy in 2018, we have invested into 2 newly opened offices and hiring new teams. Let me give you an example of a market to develop. Thailand is a relatively young wealth management market with rapidly growing demand for sophisticated advice and access to global investment solutions. It's a market that we could not have entered on our own. Therefore, we choose to partner with the largest domestic commercial bank. I announced the joint venture with the Siam Commercial Bank in March 2018. And since then, we have obtained the license for the joint venture, hired already more than 15 relationship managers in Bangkok to serve the joint venture and opened the 1st client accounts in late 2018. I'm very excited about the potential of this partnership. It's a great fit for Julius Baer, and it's a blueprint on how we can advance our coverage of markets that we want to develop. The second element after the smart market coverage is the holistic and personalized advice. For us at Julius Baer that means wealth management, it means wealth planning and it also means wealth financing. Today, I will focus on the first element, wealth management and in particular, the fee based mandates. In contrast to transactional services, which are volatile and exposed to commoditization and margin erosion, investment management and advisory have been and will continue to be the bedrock of our margin. With the rate exceeding 50% of total assets under management, our mandate penetration is already high and has been growing nicely over the years. Now once you look only at relevant asset under management of private clients, this penetration actually goes up to 2 thirds. We aim to increase the penetration of total assets under management to over 70% by 2021, and we estimate that this will add roughly 2 to 3 basis points to the gross margin of the respective client relationships. In advisory, growth in 2018 was fueled by the rollout of our service models in Europe and the U. K, and we are now looking at bringing them to our clients in the Middle East. The advisory mandates are backed by digitalized investment content and automated regulatory navigator, and I will give you more information about this and our in house robo assistant, we call it, in a minute. We are continuing to invest in data analytics to enable faster, more proactive and more relevant advice tailored to client needs. On the discretionary mandate side, the demand will be supported by suitability regulations like MiFID II or FIDLAC, and we are investing in our offering, operating model and systems to ensure high quality and scalability. Recently, last year and the year before, we have also strengthened the capabilities of our investment teams in Hong Kong and Singapore and launched a number of new dedicated Asia focused mandates. Let me talk about another 3rd dimension, the technology transformation. Over the past 5 years, we have invested over CHF 1,000,000,000 into technology and digitalization, and we will continue to do so in order to equip Julius Baer for the future. The overarching principle is again to pursue a smart approach and create flexibility by design. That means the ability to serve different markets, client types and generations according to their needs, responding swiftly and efficiently to emerging trends, be it commercial, technological or regulatory and embracing regional flexibility through the 3 processing hubs in Asia, Luxembourg and Switzerland. Our transformation agenda, therefore, has 3 elements, and you can see them here. 1st is the digital experience for our clients and the delivery of our services in today's and tomorrow's digital world. 2nd is our 3 Hub model, everything in the background, creating the foundation required for a digital business model. And thirdly, it's all about innovation. And let me stick with innovation for a second. I'm convinced that creating an agile and open technical platform is the future. This starts with active participation in the FinTech and RegTech ecosystem. Together with our COO, Nick Dreckman and our Chief Digital Officer, Christoph Harkins, I'm pursuing this for years and will continue to adopt a smart approach, picking only what adds value to our business and for our clients. For instance, we have a number of direct investments in international fintechs and in cross stage venture funds. As a founding member of F10, this is a Zurich based fintech incubator and accelerator, We have access to innovation that we plug directly into our business. I'll give you two examples that we did recently. We rolled out an actively managed certificate platform, co developed with the start up Vestor. It was also in the context of F10. The second one, we ourselves incubated a Julius Baer specific solution on client retention based on predictive algorithms and artificial intelligence. So this shows that all of this keeps us on our toes. And you don't need big pockets or bells and whistles to be up to speed. Well, let me go back to the first two points, digital experience and the 3 hub model in a bit more details. The client experience is at the core of our technology investments. We are giving our front office teams sophisticated tools to serve their clients better and more efficiently. I give you three examples. The first one, we call it the digital advisory suite or DIAS. It's our robo assistant or robo advisor that combines suitability checks with investment proposals and portfolio monitoring. It's a proprietary tool that we developed over the last 3 years, and we have tested it with our relationship managers, improved it, rolled it out in Europe and are rolling it out now in Switzerland. DRC uses data and digital technology to support our relationship managers to provide advice that is personalized for each client, compliant with new regulation, proactive and event driven. It generates investment ideas and integrates order entry, reducing the administrative burden for the front teams. For employees that operate under MiFID II rules, Vias reduces the time to advice and execution by around 75%. 2nd example is our foreign exchange and derivative toolbox, we call it. It's an additional cutting edge application for our front office, but also for the intermediary clients. So it's directly in the offices of our intermediary clients. They improve time to market and therefore client experience. They offer fully fledged customization for structured products and automated end to end processing for derivatives and currencies. And last but not least, we are also investing into new digital touch points and process that connect client and prospects directly to Julius Baer. The goal is to combine personal and digital interfaces in a seamless fashion. We have started to refine and align the digital journey for our clients across all regions with the upgrade of digital channels, the introduction of smart analytics, improved direct client reach and digitally supported client onboarding. Our operating engine is powered by 3 hubs, as we explained last year, in Asia, Switzerland and Europe to give us full strategic and geographic flexibility. Each of the hubs has specific requirements driven by the booking centers it serves, but all of them have one in common to enable the transformation agenda I discussed before. This 3 hub model works perfectly for us because we harmonize what makes sense, but remain nimble so that we can always address regional necessities and preferences. In Asia, the new banking platform enabled us to support our ambitious growth plans and to fully connect the Asian business to our global digital front office tools, as I explained before, and client channels. In Luxembourg, we have created a scalable hub for our European operations, supporting greater volumes across different regulatory regimes. And Luxembourg will also be equipped for the open banking requirements of the future. In Switzerland, which is the biggest hub we have, euros 250,000,000,000 We continue to invest into agility. We are establishing a service integration layer with flexible API interfaces to support our digitalization road map and to open up our platform for 3rd parties, for instance, the high paced fintech ecosystem in order to dock on to innovative solutions and services. We continue to invest into enhanced data platform in order to support next generation analytics to serve our clients better. And finally, we continue to reduce complexity and redundancy by harmonizing our order management system. So substantial investments that we did in the past and that we will continue to do. What we will not do is replace our core transaction platform in Switzerland. It has much less reliability of nearly 100% and straight through rates of above 90%. It is highly performant and with extremely fast response times. It's extremely scalable with fast and can easily support greater business volume. When I talk to my COO, he tells me he can easily load €50,000,000,000 to €100,000,000,000 more volume on this very scalable platform. And as evidenced by Dieter in his presentation, it is very efficient, and it helped us to improve the expense margin since 2014. We have reduced the cost per transaction on this platform by 40%. It's our most efficient platform we have at Julius Baer. With that, let me come to the updated medium term targets. I'm convinced that Julius Baer has the right strategy to be the world's most personal and pioneering pure wealth manager with smarter market coverage, as explained, by focusing on holistic and personalized advice and accelerating technology transformation. Over the next 3 years, we want to achieve the following targets With a clear focus on these core and developed markets and the commitment to organic growth, we are confident that we can continue to grow net new money at the rate between 4% 6%. So we confirm that target. In terms of efficiency, we aim to push our annual cost income ratio down below 68%. And as Dieter explained, in the current operating environment, this will be challenging to achieve, but we have the discipline to navigate the current cycle and to structurally improve operating leverage and efficiency in order to reach this target by 2020. Taking into account structural and cyclical trends, we are reducing our previous annual pretax margin target to new 25 to 28 basis points. And finally, we are introducing an additional target to ensure disciplined capital allocation and returns by striving to increase our already impressive return on CET1 from 30% to over 32% over the next 3 years. I believe these targets are ambitious, but realistic, and I'm highly confident in Julius Baer's ability to deliver on its commitments. Thank you very much. With that, let's move to the question and answer session. Let me sit down first. So please note that we have reserved 45 minutes for the Q and A session. And to ensure that we can cover as many participants as possible, Please respect the timing and ask one question at the time. Let's start in the room, please. Daniel Reicke from MainFirst. Thank you for the presentation and for taking my question. I have a question regarding your targets. And maybe could you give us some kind of indication what you expect in terms of the gross margin development? Obviously, you say that you do not expect a substantial deterioration from current levels. So you would expect 2018 to be like a normalized environment going forward? Or would you maybe say that gross margin can come back a bit from the rather depressed levels we've seen now in 2018? Thank you. Look, if we look at 2018, it was a year of 2 halves, very clearly, right? The first half was very good, very strong. And then the second half, really the transaction levels, the brokerage income was quite low and depressed, specifically November, December. So our expectation for 2019 are actually higher. If I look into the 1st month, obviously, there was we benefited a bit from the strong equity markets. But also if I look at the transaction volume, it's definitely higher than November, December. So it picked up, but it's not at the level of the first half twenty eighteen. You. Holger Alich from Tagels and Siegel, Tamidio Group. Two quick questions. First, about the staff reduction, 2%. Will that be with layoffs? And how many? Perhaps if you can figure out that. And secondly, about the IT. I'm a little bit surprised that you said that you will stick to the Swiss platform as it is or invest in it. I think 3 years ago, you announced that you will roll out the T24 Timino system in Switzerland, too. So why that rollback? And secondly, how many how much did you invest into the rollout in T24 in Switzerland yet? Thanks. Yes. First, the cost measures, we have already implemented some cost measure, more tactical cost measures in 2018, slowed down a bit the pace with regard to hiring, reduced a bit marketing expenses or projects that were nonstrategic. Now very clearly, we have started a more strategic cost and efficiency program, which should bring SEK 100,000,000 general expenses, but also personnel expenses. Your question with regard to redundancies, we will not be able to do it without redundancies. So yes, there will be redundancies. I cannot give you the exact number because we also want to grow in certain areas. The second question with regard to the IT, we clearly looked at the 3 hubs. We never confirmed that we will implement T24 in the Swiss platform. The transaction engine that we have in Switzerland, as I explained, is very efficient, very robust. So we don't want to replace something that works well. By the way, it's exactly the same strategy that UBS and CS is following. And we have not invested yet anything into T24 in Switzerland. Maybe one more, and then we go to the phone, please. Johannes Rutte, Frank Rutte, Eigen Mainen. The measures you announced concerning cost cuts and layoffs, are these, in fact, the price for an all too aggressive expansion policy by your predecessor? And secondly, looking at Matthias Kroll, who is sitting in a prison in Florida, a former manager of yours, what learnings do you see from this case? And do you still stick to your view that there's no risk arriving from this for UHUSPA in the future? Yes. Look, the first question is no. And the reason is what we do here has a lot to do with the environment. And I don't think we grew too fast and have now to curb costs. It's the environment has a bit changed. And then as a management team, you have to react to this changed environment. With regard to your question of our former relationship manager, we are really doing 2 things. 1 is resolving legacy issues, and I instructed my teams to do it comprehensively and speedily. And here, one of the case in point is what I mentioned before, we fulfilled all the conditions for the deferred prosecution agreement and it will roll off our books. And the second thing we do is to continue to obviously invest and improve the platform to improve also the culture. And there, I think, case in point is very much also this Know Your Client upgrade that we are doing to the highest standards. Specifically, Matthias Krull is a former employee. He I told you in June or July that we're starting an investigation. The investigation is not yet finished, but there is no allegation against Julius Baer at all. It's against Matthias Krull. We have found nothing that would show that there is any activity that touched our platform, and we have found no evidence that any other employee would be involved in this case. Let's go, I think, to the phone and give our guests on the phone a chance to ask some questions as well. We'll come back to Duane. The first question from the phone comes from Hubert Lam, Bank of America Merrill Lynch. Please go ahead. Hi, good morning. I got a few questions. Firstly, on your net interest income and the swap income. On the slide you showed that is 24 basis points has been pretty stable over the last 3 years. I was wondering if what your outlook is on this? Do you also expect it to be stable in the coming year? And also if you can give the split between the first half and the second half on this number for the net interest income and swap income, that would be helpful. So that's the first question. The second question is on capital. So you haven't announced any additional capital return, even though you're well above your regulatory minimum and your own target. Just wondering what's the reason behind this? Is there a reason why you haven't announced a buyback or anything like that? And the last question is on the mandate penetration. So you're targeting from 50% today to 70% in 2 years' time, 2021. That's a pretty big jump. What gives you confidence you can do that quickly? Thank you. Thank you, Hubert. Good to have you. I would say the first question for Dieter, and I'll take number 3. Okay. On interest income, trading income, split H1, H2 is more or less it's more or less the same picture, if you decompose that. And of course, the outlook, it's difficult to say. There is an additional benefit in 2018 2017 when we swapped from U. S. Dollar into Swiss francs. So we picked up a few basis points as opposed to investing in the U. S. Dollar money market. And so whether or not we will do swap these amounts again is depending a bit on the market circumstances. Capital. That was a question for capital and share buyback. Yes. I mean, the policy stays in place. And as we said before, the Board from time to time will assess the excess capital position. And then, if justified, decide on a share buyback on or special dividend. Yes. The question with regard to the mandates, a couple of points here. One is I'm quite sure that the discretionary mandate penetration will go up. We have seen that in markets that are heavily regulated from the suitability side that clients over time prefer to be in a discretionary mandate. So that's one element that will contribute to the 70% goal in 2021. The other one is advisory. We are specialized in advisory for our clients. We have invested successfully rolled it out across Europe and Switzerland. So there we have very high penetration. When we started and I got lots of question marks. Is it possible? Is this something the clients want? It turned out that, yes, it is possible. So from here, we will go into Middle East. We'll roll it out in 2019. And then we will look into Asia and also Latin America. So I'm optimistic that this is yes, it's an ambitious call, but it's a realistic call. One more question from the phone. The next question comes from Giulia Aurora Miotto from Morgan Stanley. Please go ahead. Good morning. Thank you for the presentation. A couple of questions for me as well. So the first one concerns your geographical portfolio. So of course, you have exited some countries like Amsterdam, Panama, Peru. And I would like to understand what's next. In particular, there are some press reports regarding Kairos. In the past, you were planning to IPO it, then of course, evaluation didn't make sense. So I was surprised to read that, that is potentially back in the table. And also in light of Euros Nide saying that Italy is a core market. So any comments on this? That's the first question. Then secondly, I would like to go back to gross margins. So 2018, of course, was a special year in terms of negative market performance and so a lot of negative cyclical elements. But the presentation you gave this morning, you seem to talk a lot about structural changes in terms of digitalization, regulation. So can you elaborate a little bit more on those? And given these trends that you see, how do you see the trajectory for gross margins? And then thirdly, more of a technical question. So you talked about €100,000,000 of cost savings. What's the restructuring charge associated to that, please? Thank you. Yes. Let me take the first one and then 23 for the CFO. I don't know if I fully understood you, but I think it's about our portfolio, the way we cover the world. And I think it's very clear that we want to focus more on the core and developed markets. We have done that already last year. And hence, we really review some of the smaller markets. With regard to Carlos, we don't comment on rumors. Italy is a core market. We disclosed it this morning. It will continue to be a core market for us. So maybe about the margin and the costing. On the second question, gross margin, obviously, there are many, many impacting factors to the gross margin. As we said for 2018, client activity was one of the major negative impacting factor. The size of clients overall since the Marlinx acquisition, we have more larger clients, which structurally brings down the gross margin, but of course also servicing these clients at lower costs. So I would not say that the changed regulation has so far had much negative impact on revenues and the gross margin. Temporarily, when MiFID II came into force in Europe. So this was in 2017. When we introduced also Dias, it was depressed. But last year, as we saw also from the net new money, the European RMs were up to speed. So altogether, I don't think that regulation is one of the major driver of the gross margin. Then number 3. What's the cost? The cost whether we have we're just announcing the cost program now. And as the CEO discussed earlier, we don't know how many redundancies we need to make as opposed to benefiting from the normal fluctuations. And therefore, it's a bit too early to say how much the costs for the cost. So the severance payments and so on will be for the new cost program. Maybe if I would just add 2, 3 words for the second question with I think your question was regarding digitization and regulation. It's somehow it's a bit linked. With the additional regulation. It's becoming more difficult to do it without system support. And we saw that early on and we invested a lot into our robo assistant as we call it. I think it will play into our cards because you need a certain size and you need a certain presence to invest into these tools to be successful tomorrow. And I think the larger competitors have done that. The smaller ones probably not. And they could also have an impact over the next couple of years. So maybe one last question from the phone and then we go back into the room here. The next question comes from Annke Ein Gond, RBC. Please go ahead, madam. Yes. Thank you very much for taking my questions. The first one is on the new ROE target and your assumption on the core Tier 1 ratio within this. Do you adjust to a certain leverage ratio or you basically wherever you think you are and on that basis, what should we expect in terms of risk weighted asset scores? The second question is on your cost savings plan. And just in terms of how it will affect your relationship manager base, maybe in terms of number, I mean, I guess, you can't really talk about it, but will it affect relationship and a headcount as well? And then you give a headline about stricter performance management as one of the tools. Are you basically changing your compensation model for relationship managers? And then sorry, just lastly, have you changed your hiring target for this year? Is it still the AT net? Or is it not fixed? Thank you. I propose you take the first, I'll take 2, 3. Yes. On the CET1 ratio target, so we don't foresee to do any adjustments. So it will be just the return over the CET1 ratio in any given year. Then risk weighted assets, of course, it's volatile. I mean, a big driver of the treasury portfolio investments, as we said, we invested about SEK 2,000,000,000 towards in the second half towards the end of the year, which was driving up risk weighted assets. Then another driver is the market volatility on the market risks, risk weighted assets. Other than that, there are a few more regulatory rules coming on the stream, which will have a slight adverse impact on RWAs. Yes, the second question with regard to cost savings and the impact also to our front population. The front population has been growing over the last years, and it will continue to grow. So I can combine it with your third question. Yes, we want to continue to hire at what we call normalized speed because it's important also for net new money for us. But what we also do and have done and will continue to do is look into the performance of the relationship manager coming to our platform. They have very clear business plans, business cases. And if these business plans cannot be delivered, then we will not continue with these relationship managers. It's something we'll continue to do. So the answer is yes, the cost saving program is for all different divisions. So let's come back to the room with questions from the room. Good morning. It's Daniel Lebbropacher from UBS. I wanted to ask about the term deposits. I guess that's Slide 34. I mean, term deposits were up around €5,000,000,000 in the year, and I fully understand that demand for those term deposits go up if rates go up. That's clear. But at the same time, you have a very significant deposit overhang as a group overall and I guess in dollar terms as well. So why are you ready to pay that significantly higher interest rate? Is this to do linked with funding strategies or requirements? Or is it really ultimately to drive net new money? Because my understanding is the term deposits themselves don't really account as net new money. If you could just elaborate on that. Well, first of all, unlike other banks, if someone brings cash, it's net new money on the AUM because we expect that it's invested then in securities in a mandate. Well, I mean, the short rates went up quite sharply in 2018. So we reacted, as you assumed correctly, towards the end of the year and also earlier this year and not paying up to all U. S. Dollar deposits. But a lot of these deposits are linked, as I said, to investors that have investment portfolio, discussion mandates or another mandate, an advisory mandate and have next to it deposits with us. And there, of course, it's an overall view and profitability calculation, whether it makes sense or not. We don't really pay over market. But you also have to consider that we have to do what's the best interest of our clients and of course of the bank as well. And we do not attract net new money by overpaying it. And of course, if you look at our funding and the balance sheet, we are in a very comfortable situation. And sometimes we lose cash assets to other banks because they do have some funding requirement through their private banking or wealth management units. But very clearly, if we shift client deposits into term deposits, there is a higher cost. So with other words, most of these term deposits are linked to client relationships with mandates, yes, and not stand alone deposits, right? Next one, we take Bloomberg. Jan Erik Vaster, Bloomberg. One question. Could you comment on compliance more broadly? The talk on the street has been that Julius Baer onboarded a lot of bad apples over the last years. Where does Project Atlas stand? And is anything there that's given you a bad stomach? And then maybe the second question, there's a new Chairman coming in. You seem pretty relaxed, enjoying your job. How long do you want to stay in your current position? Thank you very much. Thank you. Compliance, as I mentioned before, I don't think we had more problems than others, but my focus is very much in resolving the legacy issues, as I explained before. And we have also invested resources to do that. We are working together with the authorities to do that. And very clearly, we have first elements that look very nicely like the DOJ, DPA and others. The so called Atlas project has 2 elements to it. 1 is, of course, to increase the quality of client documentation. And there, I think it's also known to the market that we go to the high standards. And that helps then the other element of the Atlas project, which is to have the right information to be able to serve the clients also in a digital way. We run it through this robo advisor, robo assistant that we have. And there it's just very, very important to have the right input, the correct input to be able to also advise the client the right way. Yes. Second question. Yes, we have a new Chairman coming in. Look, I've worked very well with the current Board. I've worked very well with Daniel Saucher, 12 years. He in different positions. I'm in different positions. I know the new to be elected Chairman, Romeo, well. I think it's a great choice. And I'm looking forward to work with him. Sorry? For how long? For how long. Look, I enjoy my job, as you can see. Obviously, there are headwinds from the market and other things, but that's where management is here. It's not autopilot. You have to do something. And I'm looking really forward to continue to implement our pure wealth management strategy in the years to come. So let's take one more from the room. Yes. Thank you. Can you be a bit more specific on this Atlas project? I you have presented a lot of numbers, but none on the Atlas project. I would be curious to hear some numbers on the Atlas project. And on top of that, I would hear from you an assessment on the risk situation in when it comes to money laundering in your industry. We have seen last year ING paying almost CHF 900,000,000 for a number of issues which they haven't managed to resolve. Enormous fee. I have asked the Swiss National Bank this summer how they consider the situation for risk situation for banks. They said it is well possible that money laundering now has become an existential, vital risk for banks like yours? Thank you very much. Atlas project, I'll give you some numbers. It's well on track. We finished about 2 thirds of all our files. So that's within the plan. I can also tell you that for region Switzerland, we have finished it. So our front people will have now even more time to concentrate on clients and the markets, but they should they have enough time before. So I think it's really going well and it's certainly according to our plan. And I think the difference the way we do it to some of our competitors is we do it for old files. So some others picked up just the risk files or PEPs or whatever. So we do it for all files, but that has to do with we have 2 goals. One is risk, but the other one is also have the right information to serve the clients better. And I'm optimistic that we'll finish the project by end of 2019. I think your assessment with regard to money laundering is correct. It's very high up also on the agenda of the regulators. It's probably, I think, one of the big risks for wealth managers. And that's also why we have invested a lot of energy resources to make sure that we do the utmost to avoid having any of these transactions going across our platforms. One element is obviously know your client, but the other element is looking into the transaction. So it's called transaction monitoring. And I think you will be amazed to see what the banks do to evaluate is this transaction clean with systems, intelligence and so on and so forth to try to avoid it completely. Will it be possible to avoid it 100%, it will be difficult, but it's one of our jobs to make the utmost. And yes, it's one of the topics for the next years. One follow-up question and then let's go on. Can you specify a little bit having finished twothree of this client documentation, what is the percentage of suspicious clients that you have found? Some statistics here are certainly quite helpful for us. And then secondly, I'm also curious to obviously to know what is what how much money is this Atlas project worth to you? Yes. I think we disclosed some of the numbers in today's package. It's a very substantial exercise. We support it with systems people. We spend in 'seventeen about SEK 13,000,000. We spent last year SEK 34,000,000. And this year, it will be about the same or even a bit higher. So we take it very seriously. And it will help us going forward. We'll have a very, very good quality base, both with regard to risk and also with regard to serving the clients well. Your question with regard to how many bad apples did we find, we did find bad apples. It will be astonishing with the client base that you wouldn't find if you go through such an extensive exercise. And I can confirm here that we also let clients go based on this project, but I cannot give you any statistics. But you see it's all in the net new money numbers. So we had outflows from that and we had obviously substantial inflows and achieved nevertheless 4.5% net new money growth. So let me take one more question and then back to the phone. Yes. Hello, again, and thanks for taking some more questions from my side. One is regarding net new money growth. Obviously, you're accounting cash inflows as net new money. So can you give me some kind of adjusted numbers? What would have net new money growth been if you would account it for similarly as other banks do? And secondly, deleveraging in H2, how much was the impact of deleveraging on net new money? And then 3rd, you recruited about 105 new relationship managers. Can you give me some kind of indication how they are performing and when we should see the impact of these hirings? You take 1 or 2? I'll take 3. Yes. So cash because cash comes in and then it's either converted or not converted and it's part of the overall client portfolio. Therefore, we account for its cash. But I cannot say I mean, you can see the cash quote went up from 18% to 19%. That's because people deleveraged and sold, for instance, equities. Equities holding went down by 1% point. So on a net basis, it's anyway the changes are not meaningful. But we don't track that what it would be. In terms of deleveraging, we already said at half year that the half year impact was about almost 1%. And in the second half, I would say it was close to 0.5%, especially towards the end of the year in Asia. Relationship managers hiring very successful shows also the attractiveness of our platform and the business model. The highest numbers came from the emerging markets, a. B, Europe, interestingly enough, because we invested quite a lot in the U. K, Germany, actually also in Spain. And then thirdly, it's coming from Asia. And in terms of the contribution, I mean, we said that 25% of the net new money came from those RMC hired in 2018. But I just want to avoid misunderstandings with these cash questions we discussed. We are not buying assets under management through cash. We're not. And I don't think we have not we have a different way to count for it than our competitors. Let's go back to the phone with the next question from the phone. The next question comes from Amandeep Singh from Deutsche Bank. Please go ahead. Hi, good morning. Thanks for taking my questions. I have 2 quick ones, please. Number 1, when we talk about 2 to 3 basis point uplift from management penetration, what is the kind of lag we see before we see this uplift coming from the increase in mandates? And my second one would be on RWAs. We have seen a steady increase in op risk RWAs for the last few years. What leads to this? And should we continue to see the increase going ahead? Thank you. Yes. Okay. So I'll start with second question. I mean, we have we followed the standard approach for calculating the operational risk. So that's just a lag effect of revenues going up and nothing special. So depending on the revenue developments, the future risk weighted assets will come through. And then on the mandates, we already said a few years ago that the rollout of the advisory mandate should add on a growth level 2 to 3 basis points. I mean, as soon as like now in 2018, we rolled it out in the U. K. And then in the next year, it should come through because it's mainly coming from asset based fees where we go from custody fees only to custody fee and advisory fees. But we also see actually more activity if we have the advisory mandates because we look then at it on a portfolio level. We go back to the clients with more proposals. It's part of obviously this advisory mandate and the fees that the client pays and we see increased activity levels. There is maybe a bit of time lag sometimes until we fully roll it out and the client and the advisers, we have advisers also talking to the clients, really also see the full benefit of this. And it has to do also with the digital way we support our relationship managers and the advisers to look at opportunities in the portfolio and 1st and foremost to look at suitable opportunities in the portfolio, which is not so easy and straightforward in if you look at MiFID II and then considering all the cross border rules and so on and so forth. But we see traction. Okay. Thank you. Let's take the next question again from the phone. The next question comes from Al Alevizakos, HSBC. Please go ahead, sir. Hi. Thank you for the presentation and for taking my question. So my question is, you already spoke about the 2 to 3 bps of gross margin increase from the improvement in the advisory and discretionary mandates penetration. Could you talk a bit about the pretax margins on the same product? So what is the difference in terms of the pretax margin between your advisory product and the discretionary mandate? Yes. Clearly, the pretax margin of a discretionary mandate is higher than of an advisory mandate because it's simply more efficient to run. It's more scalable. We aim to scale this up. And if people ask for if clients ask for customization, we have a higher ROA. But there, the picture is clear. And maybe to explain what we see. I mean, first, we had to trend to a bit larger clients. It has to do also with the mix of our portfolio, which is a bit more international. And what we see with these larger clients very often, they are going for part of discretionary, part of advisory. So they want to delegate something to the bank, but they also want to be active themselves. And sometimes they even have a third element, which is a custody element to say there are some stocks that they hold for long term and they want to have it in custody portfolio. So quite often, it's actually a mix and it's not that the clients only have a discretionary or only an advisory or only an execution only. Sure. And if I can ask a very technical question. How do you price the management fees calculation? Do you do it monthly, quarterly or semi annually? Quarterly, yes. We do it quarterly. Okay. Thank you. Thank you. Next question from the phone. The next question comes from Nicholas Hermann from Citigroup. Please go ahead. Yes. Good morning. Thanks for taking my questions. Most of my questions have been answered, but I have two questions left, please. Firstly, first one is on NII and the second one is on cost. So on net interest income, I get your point that you're paying market rates on deposits, but it still looks to me like Judas Berg is still seeing a stronger mix shift in deposits towards term deposits than your peers are, particularly your larger peers? And it is this that is driving the relatively high deposit beat. And I'm still trying to understand why that is. The second part of my NII question is clearly you've invested a lot of your deposits into treasury. Where are you seeing opportunities for this given the flattening yield curve? My second question on costs The costincome target has been delayed to 2020, but assumes the market environment does not deteriorate significantly. But clearly, we cannot rule out that it won't. So how much further flexibility do you have in the cost base beyond the €100,000,000 in case markets were to weaken significantly? Thank you. I'll take the third one. Yes. On the first one, on the term deposits, as I said, I mean, very most of the term deposits are linked to client relationships. They have mandates, advisory mandates, discretion mandates. And of course, as Pernod mentioned, I mean, it's in the best interest of client given the current U. S. Dollar rates that part of it is in term deposits and part is in their current account. But I cannot opine whether this is the portion is higher or lower than other banks. In terms of opportunities, I mean, why there were not much opportunities? That's the reason why we swapped. As we cannot deposit that Fed, we swapped it into Swiss francs and deposited these amounts at Swiss National Bank, leading to this trading income as opposed to net interest income. And I mentioned before, I mean, this is depending on the market circumstances whether or not we continue to do that or we invest directly again in U. S. Dollar money market instruments and in short dated credits. Maybe your third question, let me start with my expectation or our expectation of 2019. We're actually slightly optimistic. The economy, we think, will continue to grow slower, but maybe 3.5% globally. The normalization from the central banks seem to be quite reasonable now after what the Fed stated. The geopolitical risks, I think the main risk there is really the U. S.-China trade talks. But they're, I think both Chinese and the U. S, they don't want to escalate it. So for 2019, we're actually not so pessimistic. So why to introduce this cost savings program is certainly also to be on the safe side. And we don't want to jeopardize the franchise. We have a fantastic franchise. We have a fantastic platform. And with the cost savings measures, you have to be careful not to jeopardize that franchise. On the other hand, if the situation in the markets 2019 or 2020 is substantially worse than we anticipate. Of course, you would have to look into deeper cuts and it's always possible. But there is a trade off between deeper cuts and then risking the franchise, which we certainly don't want to do. I see there are more questions from the phone. So let me take one more and then come back to the room. One more question from the phone. The next question comes from Stefan Stahlmann with Autonomous Research. Please go ahead. Good morning, gentlemen. Two questions, please, from my side. You mentioned the intermediaries business is one of the potentially interesting parts of your business for future growth. Could you give a little bit more color on how big this business is, what it contributes maybe in terms of assets under management profits, whatever metric you would like to show us? And second point, you had quite an impact quite an increase in Stage 2 Lombard loans during the second half of the year, but you did not add any risk provisions on this Stage 2 portfolio. Could you maybe talk a little bit about credit quality on this part of the portfolio and why you think you did not need additional provisions here, please? Thank you. Intermediaries, we don't disclose actually the assets under management of our intermediaries and custody segment, but it's an important business for us. It has been an important business for us. My assessment, our assessment is that whereas in the past it was mainly customizing the assets of 3rd party advisers. That is changing slightly going forward. And it's changing in a way that these counterparties, they demand or ask also for additional services and products, like structured products, like funds, like our consultancy and advisory, sometimes also compliance input. And what we want to do is capture a bit more of that value chain rather than just customizing the assets with us. And therefore, we think that this will add to the profitability going forward. The Lombard loans, Dieter? I mean, on a all I can say on a gross basis, we had quite a good second half of the year in terms of net new loan book loans. But as you can see also from the annual report, most of the loans are in the lowest risk category. That means fully diversified portfolios against that we lend. And therefore, then there is not much 0 or very low risk weighted assets. And anyway, if you refer to the risk weighted assets, the RWA intensity on average on Lombard loans is quite low, representing the good quality of that portfolio. Okay. Thank you. Let's go back to the room. Are any more questions in the room? Yes, Mr. Anssik. Thank you very much. I have two questions. First, when you say you target new markets or different markets, you do somehow refocusing on the markets. Do you still have the right people for these markets, the right wealth managers? Or will there be somehow a swap? And then the second question is, I was surprised by your expression improving the culture. You know the culture from Julius Baer very well. Of course, you have been part of that culture. So what was wrong with it? And how what does it mean to improve it? Thank you. Thank you very much. The markets and of the 17 core markets that we disclosed this morning, we are already active in these markets. Do we need different skill sets with not only relationship managers, but maybe also in other areas? Yes, the market, the wealth management business is changing. So we do a lot with regard to education, training And clearly, the profile of a relationship manager is changing a bit over time, whereas in the past, very often the relationship managers were at the same time a relation manager and a little Warren Buffett in terms of also advising the clients on an individual basis. That has changed. And I think that the relationship manager today and even more so going forward is we call it wealth architect because it's more in a team effort. So very often, we approach a client in a team with a credit structure, with a wealth planner, with an investment adviser. And then the relationship manager is the one to bring it together to the benefit of the client. But in terms of markets, we have actually not added substantially new markets, but we are focusing on the markets that we are successful and think have a great potential to even improve. The second one, the culture. I think there was nothing wrong with the culture in the past. We just want to balance very much the growth we have with the sustainability. And it's very much something we do with our teams, so it's very much something we do from the top. And as I explained before, I have my focus is on 2 things. 1 is remediation of the legacies we have, like any other bank has as well. And then improving the tools and the processes and also the culture. Coming back to the question of your neighbor before, I think AML is something that we have to take very seriously and we do and we will even more so in the future. One more question. Yes? Thank you. So in 2018, you said that if stock markets decline further, this will present an opportunity for wealth managers to consolidate. So now this actually happened, how high is the likelihood that JV is engaging in an acquisition this year? Yes. We have done some smaller transactions in 2018. Dieter and his team have been involved in many discussions, but has not materialized yet. I still think that in the next 12 to 24 months, we will see more opportunities. And if we see the opportunities, we will take the opportunities and do it. So I think for the next 12 to 24 months, definitely, you will see us in an M and A, small or large. Back to the phone. We have some questions there. The next question comes from Andrew Lim with Societe Generale. Please go ahead. Hi. Thanks for taking my questions. So you had some credit and odd up or inflation in this half. I was wondering what the main sources for that would be. Is that due to the increase in impaired non baud loans that we talked about earlier? Or is that also due to the increase in financial assets at fair value through OCI? And related to that, why do you have that increase in financial assets at fair value? And then secondly, just on your swaps trading strategy, I mean, why do you undertake this swap trading strategy rather than invest your excess deposits straight into U. S. Treasuries and then count that as NII? Why do you do swap trading and then have this effect of swap trades going through as trading income instead? Okay. On the first one, I think I mentioned it before. We reinvested into the treasury portfolio, and there is also a slide on this in the appendix of the presentation, towards the end of the year. And that is the main reason why the credit risk weighted assets went up by the end of the year compared to midyear. And then of course, coming back to the swaps, why do we swap? First of all, as I said, because we cannot deposit these short term dollars at the Fed. So rather than buying money market or short data credit, we want keep it liquid. And then with this, the only opportunity is to bring it to Swiss francs and deposit at Swiss National Bank at no credit risk, daily liquidity. And there is also a pickup on average, let's say, between 10 20 bps in 2018 by doing so. So over directly investing, let's say, in treasury bills. So there's also an economic reason for doing this. And I think I mentioned it already a year ago that was also the case in 2017 because the base swap between US dollar and Swiss francs offers that additional yield. Looking at the clock, I would take let's take one more question from the phone and then let's finish it. The last question from the phone? The last question comes from Lisa Chukka from Reuters Breaking News. Please go ahead. Hello, good morning. Just a final question for me, if I may. I just wanted to get a precise sense of how much of the duties based operating income is dependent on transaction fees and how much is actually dependent on recurrent fees? Because I had a sense that Judisbert is more dependent on those volatile transaction fees than, for instance, UBS. And also, if you can give me a sense of what action maybe the bank is taking to improve the recurring portion of that income? Thank you. Yes. I mean, longer term, if you talk about the activity based income compared to the asset based income, then we talk about around 30% transaction based, 70% asset based. And of course, that 30% was much depressed in the second half of last year, but that's a longer term average. And of course, shifting clients into advisory mandates with higher asset based fees is one measure to increase the asset based fee. Credit income, loan but lending credit income is another one. But longer term, it has always been that proportion. Okay. Thanks. Look, thank you very much for your interest in Julius Baer. Thank you for coming here or for being on the phone, and I wish you a very nice day. Thank you.