Good morning, ladies and gentlemen. A very warm welcome from Zurich on a rather rainy day today, so we haven't had the sunshine this morning. A very warm welcome to everybody who is joining us today in person, and also obviously for all the people that are joining us via conference call and video webcast. We are presenting our first half 2023 financial results. As usual, we will have presentations by the CEO, Giorgio Pradelli, and the CFO, Deputy CEO, Dimitris Politis, and then we will follow up with the usual Q&A, with enough time for your questions, be it in the room or on the phone lines. Without further delay, I assume the disclaimer of the presentation to be read. I hand over to Giorgio for his intro. Thank you.
Thank you, Jens. Good morning. Good morning, everyone. Also from my side, a warm welcome to this half year 2023 results presentation for EFG, and welcome to the people here in the room and everybody following us via webcast. Now, obviously, as you can imagine, we are very pleased to be here. We had a very strong set of results, and the presentation will follow the usual structure. I will start with an introduction and focus on the highlights of the last six months. Dimitris, our CFO and Deputy CEO, will go in detail over the financial performance, and I will close with a presentation about the strategic priorities going forward.
It is fair to say, that the last six months, again, have been quite intense, and we have seen in the banking industry also, some turbulence. I must say that for EFG, the last six months were actually very good. We were well-positioned, from a strategic and balance sheet standpoint to take advantage of the macro environment. We live in a high interest rate environment, so we were benefiting, we have been benefiting, from that. Also, we were very well-positioned to take advantage and benefit from the, I would say, the fact that a lot of talents in the international private banking and wealth management industry was on the move, and I think we have been quite attractive, for many of the professional across geographies and across function.
Starting with the presentation and the highlights, I go to page four. I would like to emphasize that we were able to deliver a record performance. In terms of IFRS net profit, we delivered CHF 148 million. This is an increase of 47% year-on-year. We could again benefit from our strong operating leverage, following what we call our golden rule, which is to grow revenues, double the rate of growing costs. As you can see here, our operating income was up 20%, and our operating expenses were up 11%. Although, as we will see later, they include some front-loading of investments that have a one-off nature.
Obviously, we are pleased with our return on tangible equity, almost 18%. Financial performance, very strong in the first six months, but also we are very pleased to announce a strong rebound in terms of growth, in terms of net new assets. We delivered CHF 3 billion of NNA, which is 4.2% annualized within our target range. Obviously, we are very pleased with our operating and financial performance in the last six months, but I'd like to emphasize again, given what has happened in the last six months, that clearly our business model is very solid, is very resilient. We have been working over the years to have a very strong balance sheet, strong capital ratios, and strong liquidity. I'm now on page five.
We are pleased, as I said, with our operating performance, but we are also very pleased that in the last six months, we were able to seize various strategic opportunities, and this allows us to invest in future growth, because clearly, we will want to continue to sustain this growth trajectory and this growth momentum. The two key points we mention here on this slide five is, first of all, the fact that we have been hiring 75 new Client Relationship Officers in the last six months, and this is across regions. We have also been able to hire top talents in the industry across functions and across regions. This, again, is extremely important to sustain our future performance.
I also believe that, this is also a testament of the fact that our competitive market position and our recognition in the market have improved over the last few years. Second point we would like to emphasize on this slide is the fact that, as we announced in October 2022, when we presented our strategy for 2025, we are accelerating the deployment of digital solutions. This, again, will allow us to sustain our performance going forward. Clearly, as we will discuss later, the focus for 2023 is in particular in improving the client experience, the CRO experience, and to improve the operational efficiency. To close the this first section, I would like to recap and with three key messages.
First of all, the performance has been, in terms of profitability, at record levels. We have also delivered strong growth. We were able to invest for the future, and this is very important for us. Obviously, with such a strong start in the new planning cycle, ahead of 2025, we are even more confident than before that we are on the right track to achieve the 2025 targets, and possibly to beat them. With this, I hand over to Dimitris for a detailed presentation of our financial performance in the last six months. Dimitris, the floor is yours.
Please. Thank you, Giorgio. Good morning from me to the people in the room and the people who are joining us remotely. As Giorgio said, this is a record first half, in the first half of 2023. I think before we go into the detail, I will take you to page seven of the presentation, just to give you a bit of a high-level overview of where we are today, and also give you an idea of how we're thinking a bit about the future. Clearly, if you look at the progression over the last 5 years, you'll see that in terms of profitability, 2019, 2020, we are running at about CHF 30-35 million per semester.
We managed to bring that up to CHF 100 million per semester in 2021 and 2022. At this point, we have a record year, +50%, roughly, year-on-year in terms of profitability and a half one bottom line result of CHF 150 million. What actually happened and we got to CHF 150 million? The reality is that nothing really happened. It's just diligent execution of the plan that we announced to you back in October 2022. The only difference to what we were discussing back in October is that, how should I put it? I think the plan is being executed a bit in fast forward in the last nine months.
What we have seen as key drivers in this last six months, mostly, is that we have seen revenue over performance, like the higher interest rate environment has been supporting our revenues. Also on our side, we are taking advantage of what is happening in the market and what is happening in general, and this taking of advantage is grasping the opportunity to invest for higher growth. In terms of how you see that in the P&L at this point, you will see that there are some one-off hiring costs in the cost side. You'll also see that there are some charges in the P&L because of the acceleration of our digital transformation and how we are improving on our digital channels. Overall, the result is that we have had strong operating leverage. The cost/income has dropped further.
It is now at 72%. As Giorgio mentioned, our return on tangible equity is at 17.8%, which is at the higher end of our target range. Clearly, this is a step change in profitability. I guess the question is: how do you see the future evolving? For us, look, executing the plan has worked very well. It has worked well in the last six months. It has worked well in the past 4 years. It is a matter of continue to executing the plan. First step, clearly, is solidify this profitability level of CHF 150 million per semester, and the next step is to use that as a stepping stone to further enhance profitability as we move towards our 2025 close of this strategic cycle.
Now, moving to page eight, where we have some of the details of the performance. NNA in the first half were CHF 3 billion, annualized rate, 4.2%, which is within our 4%-6% guidance. Clearly, this is marked with a strong acceleration of business development in the second quarter of 2023. AUM at CHF 146.5 billion in June 2023. We have either hired, signed, or approved, so under offer, 75 CROs in this period. It is part of the acceleration that I was discussing earlier. We expect these new CROs to start providing tangible results in 2024. The profit is a record at CHF 147.6 million, 47% year-on-year. We've discussed return on tangible equity.
The margin on revenues has moved to 100 basis points. That is 27 basis points year on year, and this is on higher interest rates, on increased client activity on currencies, compared to the first half of 2021, and through a positive contribution of the life insurance portfolio. Further operating leverage, plus 20% revenues, plus 11% costs. This drives the profitability, and this is what drives the cost-to-income down to 72%, which is 6 percentage points down compared to what it was in the first half of 2021.
In terms of investment, and we'll discuss it further later, you will see that there is upfront investment in new hires that actually creates a 3% drag on the cost-to-income for the period, and the continued investment in the digital delivery channels means that we have taken a one-off charge in 2021 to impair some intangible assets. These are assets of systems that we will not be using going forward. What we've done is we've gone through a complete review of all the assets that we're using to consider whether we're gonna be using them or not, and this led to this one-off charge of CHF 21 million. To close on capital and liquidity, it's the strongest capital position we've had in recent years.
CET1 is up 70 basis points, it's now at 17.3%, and the total capital ratio is at 21.2%. We have a gross capital generation of 220 basis points. This is part of our capital-light model. You'll see that even on a net basis, so after dividends, after risk-weighted assets, we created 150 basis points of capital in the first half of the year. We are also announcing today a buyback program for up to 6 million shares in the next 12 months. The buyback program is in order to offset any dilutive effect that we get from equity incentive plans, as we did in previous years. In terms of liquidity, the LCR is at 203%.
Page nine has all the numbers to give you even more detail on the P&L. I will not comment on that. On page ten, you'll see a comparison of current performance to the targets that we have set ourselves for 2025. Clearly, net new asset growth is within the range. Revenue margin is at 100 basis points, well above the 85 basis points, which has been sort of the through-the-cycle figure that we have been targeting for 2025. Cost-to-income ratio is at 72%, and return on equity is at the upper end of the range for the targets. Now, taking things one by one, net new asset growth, clearly very good performance in the second quarter. CHF 3 billion of net new assets for the full semester.
It is the strongest NNA performance we've had in the last 3 semesters, so the last one, which was why it was back in 2021. Clearly, we know that 2022 was not an easy year, but for us, it is important to go back to be within our 4%-6% target range in the first half of 2023. We've seen more normalization, like, clearly the annualized growth in the second quarter is well above the 4%-6% that we have as a target range, which compensates for the first quarter. What is more important is the pipeline is still very strong. We see a lot of deals that we were not concluded in Q2, and that have been now going over to Q3.
The only risk we see is that we expect the leverage to continue, like we've had pockets of deleveraging, that continued in the first half of 2023. Given the rate environment, the deleveraging is a risk going forward. If we look at who are contributing to this growth, if you look at the right-hand side of the page, you will see that new CROs brought in most of the, of the assets this period. This was helped very much from a very good hire that we did in 2021, which are now maturing as people move their clients, and expand their business at EFG. The existing CROs were a bit subdued, but to some extent, the existing CROs are also the ones who suffered from deleveraging more.
In a, excluding the deleveraging, their performance has been better than what it looks on this page. In terms of regions, we've had substantial growth across the regions. Continental Europe and Middle East has been leading the pack at CHF 1.5 billion and 12% annualized growth. The performance in Continental Europe and Middle East is a combination of a strong business development in a new location like Dubai. We still call it new. It's three years old at this point, but we tend to still call it new, but it's still building business. It's combined with strong performance in more mature markets like Luxembourg and Monaco. Asia Pacific is also at 7%, with CHF 1.1 billion, which is above the 4%-6% range.
Asia Pacific benefited from good hires in 2021. UK and Latin America are roughly at 6%, each one contributing between CHF 500 million and CHF 600 million. Switzerland and Italy is negative. That region was also the one hit mostly from deleveraging. Moving to the next page, page 13, which is a bit of how we look forward and how do we plan our hiring to make sure that we continue to develop as fast as possible. You will see that we had a very strong hiring momentum, 75 CROs that have been either in the bank, signed, or approved. This is another step change from what we were hiring in the last two years.
If you look at the bottom left, we were about 25-30 CROs in the first semester of 2021 and 2022. The reason that this is happening is because in the first semester of 2023, we had a combination of what we call both the push factor and the pull factor. In order for us to hire, clearly, we need to be attractive. We see it very much so in the interactions we're having with the people that we're trying to hire. We are now an attractive employer of choice compared to our peers in Swiss private banking. At the same time, we all know that there was somewhat of a strategic market dislocation happening in the first quarter of this year, and this created more of the push factor.
The combination of the two means that we are now hiring high-quality, experienced CROs. We are mostly signing on teams. And when I say teams, the hiring of the talent in each team is not just CROs, it's support staff, it's compliance, it's investment counselors. When you get a team, you get the entire team. In general, the size of the portfolios and the businesses that we're getting are substantially higher than what we were noticing in the last couple of years. At the same time, clearly, we need to continue managing the performance of the existing CROs. We have about 430 existing CROs at this point in time, and what you see at the bottom right is that the level of AUM per CRO has remained stable in the last three years.
I think the way you should read it is, it has remained stable, although there has been a significant market correction in 2022. The actual being flat means there's been quite a bit of performance management over the last couple of years. Moving on to the margins and the revenues on page 14. Revenue margin at 100 basis points, also supported by a rebound in commission margin in the first half as compared to the second half of last year. If you look at the chart, if you look at the bottom part of the chart, you will see that we are now at 41 basis points of commission income. We were at 37 in the second half of last year, so we are now back to roughly 2021 levels.
Let's call it that way. Year-on-year, we've clearly seen a significant increase in net interest income, driven by interest rates. What we're also seeing is that the level of interest income is probably in a static level at this point. There is very small increase compared to where we saw it at the second half of last year, of 2022. As I said, commission margin increased by 4 basis points, and on a like-for-like basis, the absolute level of commissions has gone down 10%. You will see 17% on the chart, but the 17% is not like- for- like, because in the first half of 2021, we also included our Spain subsidiary, which was sold in July 2022.
We see continuing strong appetite from our clients to do currency trades, and also there is a positive contribution for life insurance in this margin. It's about 3 basis points. Excluding that, the revenue margin would have been 97 basis points. I'm sure that given the very strong performance, there's gonna be a few questions coming up in terms of what happened with the margin and what do you expect going forward. In order to preempt those and give you somewhat information of how we think about it, I'm turning to page 15. Page 15, on the left, you see our revenue margin over the last 3 years, and in this case, we have excluded the life insurance impact just to make sure that you understand what are the real dynamics of the business.
Clearly, whatever comes for life insurance is gonna be over and above these margins and add to our result. Now, there are two broad categories of drivers, the ones that you cannot influence, like interest rates, and the ones that you can influence. On the first one, just talk a bit, interest rates a bit. The first question I very often get is: What's gonna happen with interest rates going down? How much will that actually impact you? As in previous times, on the top right, you will see the sensitivity of our P&L to a 100 basis points increase or decrease on all the major currencies. This is, for each one of the currencies, is a 100 basis points. What you will see is that primarily for the dollar, at this point, our interest rate sensitivity is practically zero.
It is actually CHF 3 million for annual P&L for 100 basis points move. This means that the balance sheet is positioned in a way that whether interest rates go up or down, our profitability or our revenue is not gonna be affected on the dollar. I'm mentioning the dollar because I think that, at least in the short term, the uncertainty of how the dollar rates will move, the short-term dollar rates will move, is a bit higher than the other currencies. I think that, like, we have the Fed today, we have the ECB during the week, so we'll see exactly what's gonna happen. In general, the message is that the sensitivity that we have now to rates is limited, so we don't expect any significant impact in net interest income or in income in general coming from interest rates.
The second big driver for interest rates is the conversion of client deposits from non-interest-bearing deposits to interest-bearing deposits. This is a topic that we've discussed also in the past. We have some information for you in the second chart at the right-hand side. This is the evolution of our sight deposits, which shows how the sight deposits have been turning into interest-bearing deposits. What happened since the end of 2021 is, you know, rates started coming up around April, May, June 2022. Up until then, you'll see there was no real reaction by the client. We had CHF 24.5 billion of sight deposits at the end of 2021. It's practically the same level in mid-2022.
Because interest rates were also accelerating, we saw a conversion to the tune of $7 billion between the half year between June 2022 and December 2022. This was primarily dollars. What we also saw is that trend continuing for the first few months of 2023. That conversion in the first months of 2023 was primarily Swissy and Euro. The timing matches what we expected because the ECB and the SNB raised rates later. They also raised rates less, so it was a bit of a delayed reaction on the Euro and the Swissy in terms of that conversion. What we see in the last three months, so since the end of April, is that we don't see practically any movement in that conversion. Can I say that that conversion has stopped?
No, I will not say it. I think there is clearly a risk with interest rates remaining higher for longer, there is still a risk. Clearly, we are not seeing the same dynamics that we were seeing at the end of last year or at the beginning of this year. Now, moving a bit to the items that we can control, because clearly, the ones you can't control, you position the balance sheet the best way you can, but the ones you can control is the ones that you act. This is the commission margin. This is the chart at the bottom right, where you will see that we have a breakdown between recurring margin on commissions and non-recurring. Clearly, between 2021 and today, we've seen a drop in the margin for non-recurring.
We've seen a lot less client trading activity in bonds, equities, funds, in the period compared to 2021, and we've maintained our recurring margin at about 33 basis points, which is practically the same as in 2021. For us, what is very important is increasing the recurring revenue margin. The efforts we are making now is to drive this up. We can discuss how many basis points we can actually get, but our approach is to try to provide better services to our client, higher value services to our client. This means more discretionary mandates. This means more advisory mandates, more structured products, more private equity. That will drive the recurring margin up in the next two years. Personally, I believe that also the 8 basis points of non-recurring should rebound to a higher number.
I think that, you know, you talked with any bank in the market, everybody's saying that the level of performance and client activity is lower than they have seen in the past history. I do expect also a rebound on that side. The question is: where does that all leave us? I think that, you know, the 85 basis points that we mentioned in our plan was a through-the-cycle margin, and it was based on the information that we had available at the time. It is 9 months later than that, and I think what I can definitely say is that we expect the revenue margin to remain higher for longer as we move towards 2025.
Moving to page 16, this is important because this is also part of how we're trying to improve the recurring margin. This is the evolution of mandate penetration. It's combination of advisory, discretionary, and funds as part of the business. Clearly, we had a drop in the first half of 2023. It is through a reduction of discretionary mandates, and it's a result of market developments in 2022. The reaction on our side is we are strategically upgrading both people and content to deliver these high-value services. When I'm saying people, is at all levels, so this is a combination of investment counselors, managers, and senior managers who will be helping us improve in these lines. The focus is clearly to increase the penetration.
You'll see that we have a target of 65%-70% penetration by 2025, and this will help drive the margin up. We have recently relaunched our discretionary solutions and advisory solution. This is already in this month. This is the revised offering to our clients. I would invite you to visit our site. I think that Giorgio also has a QR code that you could use even instantly to access them at this point, if you wish. It's clearly an improvement, a significant improvement to the offering that we had before. Moving to page 17 to talk about costs. Clearly, we are improving our efficiency even further while we're investing in growth. Cost-to-income now down to 72%.
If you look at the costs, between the second half of last year and the first half of this year, you'll see that in all practicality, the other operating expenses are flat. There's no significant change. The only real change that we have in personnel expenses is because we have invested CHF 20.7 million this semester into upfront, one-off investments to hire talent. This has been very important for us, and we believe that this will help us drive the business going forward, and it's clearly, a one-off investment in the first half of this year. Moving to page 18, because, you know, having good revenues is perfectly fine, but none of us actually would depend just on good revenues to make this happen.
If you look at our performance in the last five years, we've had a very strong track record in managing costs. We have been very active in managing costs. The philosophical approach, I don't know if it's philosophical or practical, but the approach we have when it comes to cost management is each one of us needs to make room in his or her cost base to be able to invest further. It's not a matter of just adding resources without managing existing resources down or becoming more efficient, for that matter. For instance, maybe you don't add cost, but you can actually manage higher volumes with the same cost. That is also a very good result.
What you see on the, on the chart is the evolution between the second half of last year and this year. What you will see is clearly we invested in hiring, and this is a bit taking advantage of the, of the revenue over performance. What you'll also see is that we have cut CHF 13 million in operating expenses in the first half of the year through our cost management actions. These are structural, these are tactical, it's all sort of actions, but that is 3% of our cost base. This is how we manage cost. It's a matter of continuous cost management, so we make room to invest for more talent. This will definitely continue, and on top of this, we are expanding our Simplicity cost management program.
We're gonna take it from CHF 40 million that it was to CHF 60 million. This is all deliverable in by 2025. This will also make more room for us to be able to invest and hire all the talent that we've discussed already. Just to close, it's not included on cost, but as I mentioned earlier, we also have a one-off P&L charge of CHF 21 million for the write-off of certain intangibles, which are not gonna be used going forward. Having said all that, the question is: How do we manage the business going forward? We've always managed the business trying to expand operating leverage.
This is the only way we can make sure that we deliver on our promise, on what we mentioned in October, where we said that on an annual basis, we would be increasing our profits by 15%. Clearly, this year, we'll deliver a lot more than 15% for the year. It's a matter of making sure that your trajectory on the costs matches the way that you, the revenues are coming in. Giorgio mentioned the rule of two to one. You need to make sure that your costs are growing at least, well, not more than half the rate of your revenues, to make sure that you can actually deliver on the promise that we set ourselves back in October. Last couple of pages on balance sheet and capital ratios.
Clearly, a very strong balance sheet, a very liquid one as well. If you look at the chart on the left and you add cash, treasury bills, and financial instruments, we're talking about CHF 22 billion of liquid assets. No, this is not by accident. This is clearly by design. If you look at the last, at least 10 years of this bank, we have always been operating on a very liquid basis and on a strong balance sheet. Capital ratio, quarter at 17.3%, total at 21.2%, increasing compared to half 1. Also, you see that the liquidity ratios are either stable or improving. For instance, the NSFR improved to 189%.
We bought 4.4 million of our own shares in the first half of the year, and we're also announcing today a new program. It's gonna be for 6 million shares or up to 6 million shares in the next 12 months. To close a bit on capital evolution, you will see that clearly, our capital-light model is allowing us to generate a lot of excess capital. We made 220 basis points simply on the, on our organic P&L this semester. If you take account of risk-weighted assets and dividends, we generated 150 basis points of net capital.
Clearly, we used up a bit of in the share buyback. Clearly, the way we're managing this is given our strong capital positions, the combination of the high dividend yield coupled with the share buyback is also enhancing the return that shareholders are getting from EFG. To close, a few highlights for you to take away from our half one results. Clearly, another step change in profitability. This is gonna be the stepping stone for us to further improve to 2025. Actively investing in future growth, you see that from the hirings that we have been going forward with. Clearly a very strong and confident progress towards our 2025 financial targets. Thank you very much. On that note, I pass it to Giorgio for his closing remarks.
Thank you. Thank you, Dimitris. Again, let's close the presentation looking forward. A couple of words about the outlook. Obviously, we are very positive given our results. I also want to make it very clear that out there is not a walk in the park. I would like to make it very clear that out there, the environment remains very tough, remains very fragile. We have high inflation. Clearly, this will remain probably for longer than we anticipated. There are risks for the macroeconomies. There are risks of recessions. There are risks of defaults. There are certain parts of the economies that are much more vulnerable to high interest rates.
Central banks remain quite hawkish. Clearly, you know, you cannot exclude that some parts of the economies will see defaults. There is the big debate about real estate globally. Clearly, geopolitics and the tensions remain high. This creates a lot of headwinds from an operating standpoint. Also, I must say that in our industry, the competitive landscape has significantly increased. The overall environment remains, I would say, quite tough. We need to be vigilant, and there are obviously risks that you need to face and to mitigate.
For us, the answer of on how to address all these issues and this situation, is about having a consistent strategy and having a consistent execution of our strategy. That's why on page 23, we put forward again the slide that you have seen already on the 12th of October, which is, if you want, the strategic roadmap for the next three years. We want to achieve sustainable and profitable growth. We want to be close to our clients, as you can see on the left-hand side, and we want to continue, as Dimitris very eloquently said, increase our efficiency and productivity via the Simplicity program.
We believe we've been doing this already over the last four, five years. I believe that we have shown that we can do that. We believe that we can accelerate our growth, as you can see in the middle of the page, investing in content innovation, in digital acceleration, and investing in our people, as you have seen that we have done in the first six months of the year. It goes without saying that you can accelerate your performance only if you have a very strong foundation, and you have strong operational and financial resilience, that, as Dimitris already illustrated, we believe that we have, and we have achieved, and we continue to work to improve.
We believe that the strategy is clear, the strategic roadmap is clear, but the execution of the strategy is even more important. On the next chart, page 24, we try to give you a sense on how we are executing our strategy in this environment that, as I said, remains quite tough and fragile. We have a dual focus. We have one focus on developing our business day in, day out. This is running the bank, this is being close to our clients, this is optimizing our performance, this is becoming more scalable and productive.
On the other hand, the second focus is about transforming the bank for the better, making sure that we are able to meet the evolving needs of our clients and to become more scalable and more and more visible. In a nutshell, we need to deliver a superior service and first-class client solutions to our clients. We are already, but we need even to become more attractive home for our CROs and an employer of choice for talent in our industry, obviously to deliver a consistent financial performance. Our strategy and execution of our strategy, as you can see, is mainly an organic growth strategy. Obviously, Dimitris clearly showed that we have a lot of capital, we have excess capital. We have capital that we could deploy in M&A and in doing acquisitions.
We have illustrated that already in October. For the moment, there is nothing on the horizon. Therefore, the focus is organic growth strategy. The foundation of our organic growth strategy on page 25, is our CRO model. We believe that our CRO model, client relationship officer model, appeals to clients and appeals to client relationship officers, obviously, our CROs that we already have, and prospect CROs. Some people yesterday said, when I was presenting this slide, that it's like that I'm trying to pitch to hire CROs. In a way, this is what I'm trying also to do, hoping that on the webcast there are many prospect CROs. Jokes apart, I think that our CRO model is fundamental, especially in this day and age.
We are living in an age of volatility and uncertainty. This is when clients need an independent and impartial trusted advisor, who is focused 24/7 on their needs, who is focused on building a long-term client relationship, who is a partner to the clients, and obviously, you know, we want client relationship officers that are partnership-oriented and solutions-oriented. I always said publicly, also many years ago, when it was less obvious, maybe, given the performance, that our CROs are second to none in delivering superior service to our clients. Obviously, we see that this model is appealing to our clients. We are attracting, as you see, NNA, we are attracting new clients. We are increasing the share of wallet of existing clients.
In this day and age, on the other hand, service is extremely important, is a conditio sine qua non, but content is also fundamental, and this is why Dimitris mentioned that we are investing and we are improving in delivering first-class client solutions and content. Our client relationship officers are not alone, are together with the asset specialist, investment counselors, portfolio managers, to deliver the best client solutions to our clients, depending, obviously, on the stage of their life and the family needs. Some clients obviously love to invest. Some clients, especially now with a lot of volatility, like to have direct access to the dealing room and trade. Some clients are more focused on, you know, wealth planning and succession planning for their families. Other, they want to leverage existing assets to invest more, et cetera.
We believe we have a very competitive platform, but we want to continue to invest to be able to deliver more sophisticated solutions, more adding value solutions to our clients, and obviously, if you do that, you are also able to deliver high margin services and products. As Dimitris was saying, one of our strategic objectives is to increase the net commission margin, and you can only do that if you focus on sophisticated services and products. By the way, here is the famous QR code. If you want to see our offering, you can just do it with your smartphone, look into that. We have revamped our offer, our offering in the last six months.
Another area that for us is fundamental, we already mentioned it throughout the presentation. Again, I come back to the notion of consistent strategy in this volatile environment. Consistent strategy execution is about digital solutions. Here you see our five-pillar digital strategy. Very concrete, very, very focused. One of the key objectives is, I mentioned it earlier, is to improve our client and CRO experience. We believe that if we do that, if we have better connectivity, better tools, better way to interact with our clients and our CROs, we will be able to do more business. Ultimately, we'll be able to improve our revenues. Obviously, digital solutions are fundamental to improve our scalability and efficiencies. Clearly, this will ultimately improve our cost-income ratio.
It goes without saying that, without digital solutions, you cannot have a, we'll say, a resilient and safe bank, and we are investing a lot in the last two areas. Last but not least, in terms of the core banking platform and cyber security. These are the cornerstones of our organic strategic plan, of our organic strategic execution. On page 28, we confirm again, the targets for 2025. We have announced them in October of last year. I think they are well known.
There is no need to go through them again, but I think it is important to say that clearly, we have started on a on a very strong way in the new planning cycle, as you can see on the right hand and side, and Dimitris Politis mentioned it also earlier, and for us, this gives us a lot of confidence going forward.
To close, my three key messages that I'd like you to take away from this presentation and this performance in the first six months are the following: First of all, we knew that we entered this new planning cycle from a position of strength. I believe that the last six months, and the record performance that we have delivered, is a testament of our ability to execute our strategy throughout the cycle. Clearly, as I was just mentioning, the strong start in this new three-year planning period, and the investments for the future, in future growth, they further increase our confidence that we are on the right track to achieve our 2025 targets, and possibly to beat them. With this, I close here, and I hand over to Jens for the Q&A session. Thank you.
Thank you, Giorgio. Thank you, Dimitris, obviously, for your very insightful and detailed presentations. We will start the Q&A session, I think, as usual, with the room, and then we move to the telephone line. If we start maybe with Mate in the first row here, if you can get the microphone, and then, we move to the next one.
Yes, good morning. This is Mate Nemes from UBS. Thank you for the presentation, and well done on the results. I have a couple of questions, please. The first one is more of a technical one, I guess, for Dimitris. On the CHF 20.7 million hiring costs, could you share a bit more color on that? Is that essentially a combination of recruiting costs, sign-on bonuses? Does that amount include the costs, as you mentioned, for the teams, the investment counselor, admin staff, and so on? Can we take that as an indication also, perhaps, for future hiring costs per rata? In this context, I'm not sure, maybe I missed it, but have you updated your hiring ambition from the 50 to 70, given where you are already in the first half?
That's the first topic. The second one, still sticking perhaps on the cost side. Cost evolution, broadly in the second half of the year, in light of the higher headcount, the one-off costs in H1, and also given that you have enlarged the scope of Simplicity, what should we think about timing there? Is it more back-end loaded or already perhaps some benefits in the second half of this year? The last topic is on the recurring commission margin. I think both of you were very clear that this is an area which is a focus going forward, by increasing the mandate penetration, new discretionary solutions, and so on.
I'm just wondering, could you talk about what level you deem possible, you know, to going up to from the current 33 basis point? What is the main lever here? Is it simply just discretionary margins, you know, going significantly higher, or are there other ways to address this? Thank you.
Let me start with your first question. The CHF 20.7 million includes, as you say, upfront costs, so it's sign-on bonuses, it's headhunter costs. What is important for you to know, it is not just the CRO population, it is also all the other talent that we are hiring at the same time. As I mentioned, when we hire a team, what we try to do is not just hire the CROs, is to add to that, the CROs, to add investment counselor, to add credit structures, to add compliance people from that unit, because we find that integrating them as a team when they come in all together, is a lot faster, a lot more efficient, and a lot more successful. The CHF 20.7 is a combination of everything that has happened until now.
To the extent that whether this will continue in the, in the second half, we will continue hiring in the second half. I guess this goes a bit to your second question on terms of, whether we are exceeding our hiring ambition. Like, the guidance we gave was for 50 to 70 CROs per year. We already had 75 reported in the first half, so clearly, this year we will definitely exceed. You know, the indication that we gave, the 50 to 70, was just understanding, or knowing what is out there.
Clearly, what is out there has changed dramatically. As long as we can get the high quality, large, and reliable business cases, for us, you know, it makes sense to actually hire, because in the end of the day, we will be becoming a bigger and a better bank through that, through those hires. On the costs, I think that there are several moving parts. You have people joining in, you have Simplicity coming more into force. Like, if you saw the chart, you know, we are maybe close to halfway there of executing the CHF 60 million, but again, not all of it has gone through the P&L. There are several other tactical, source, tactical cost management actions that we are taking at this point. You know, in the end of the day, it's about managing the operating leverage.
I'm not gonna tell you exactly what's gonna be happening in the second half. Clearly, we do expect the revenues to continue to be strong in the second half. We have no indication that they shouldn't be strong in the second half of the year. We will manage costs accordingly and in an active way. Now, Giorgio, I don't know if you want to take the question on what is the aspiration for recurring costs.
By the way, Mate, the, on that question, it's clearly, it's not just penetration of advisory and discretionary. That is one element. It's structured products, it's private equity, it's more fees from lending, because lending is another asset class, and it is the always present topic of repricing, because it's so, it's not that we have one action, and, if you look at what we've done the last three years, actually, repricing has been a good source of making sure that you replace some income that you're not having any longer with some more recurring income.
No, I think, Dimitris, you mentioned it. From my side, the only thing I can complement is that we always focus on things that we can control, and we try to get to be positioned well for things that we do not, we cannot control. Obviously, interest rates, we cannot control. I think we positioned our balance sheet well. We will continue, obviously, to defend as much as possible, and to maintain, let's say, this situation for as long as possible. The key focus is on what we can control, and for sure, the penetration of high-margin products is fundamental.
The repricing, to also engage with clients and bankers that are, you know, on the more sophisticated side, I think this is extremely important. We have ambitious targets in terms of penetration. Obviously, we see the 41 basis points in terms of the net commission margin as a starting point. Last year, obviously, because of the markets, we went below 40, but traditionally we have been between 41 and 44, and our ambition is to go over that.
Great. If we take Andreas next here in the front of the room, please.
Thank you. Andreas Venditti, Bank Vontobel. One area that was very strong, and you mentioned it, was the FX clients trading, I think in the magnitude of CHF 40 million improvement, I guess quite a nice bottom line contribution there as well, since I believe the cost-to-income ratio should be relatively low on such revenues. So maybe you could just tell us, you know, your view, how sustainable this is and what you expect going forward. On CRO hiring, I appreciate what you mentioned on the gross side. In terms of hiring, how should we think about net numbers? The number came down in the first half on the net side. How do you see it going forward there? You also mentioned private equity. I'm not so sure what you're offering there is.
Maybe you can, you know, add some color in terms of how you see that and maybe also in terms of size. I have a lot of points, but I keep one more on the, g iven the FX moves we just had, this month, maybe you could provide an update on your cost side in terms of currencies. Thank you.
Yep. Let me take the FX question first. Just to make sure that we're working off the same information, the in terms of the incremental revenues between half one of 2022 to half one 2023, you're talking about more like CHF 20 million, the delta. The way it's disclosed, it includes swaps and everything else, the actual FX activity is about CHF 20 million higher that we had half and half. Look, given the volatility that we've seen in currencies, It's something that we do accept. We always have had currency trades from our clients for hedging reasons, for other reasons, as part of their business. We've seen an uptick. It's part of what is driving net other income.
What happened, to some extent, is, compared to 2021, we saw client activity in bonds, equities, funds to drop. This is the reason we lost 3 basis points on the non-recurring, and we gained something like 1-2 basis points, call it, on the, on the FX trading. I think there's a switch of activity. Now, if things normalize, I would expect that the trading of bonds and equities would go up, and probably currencies will be a bit more stable and this will go down. Net, net, this is probably a reasonable estimate of what's gonna happen.
I think this is important to mention, right? It is extremely difficult to predict what's gonna happen, right? I remember in 2021, everybody thought that the equity markets are gonna be here to go forever, and FX was dead because the volatility between currency was not existent. In 2022, things changed completel. F or us, what is extremely important is to be well positioned to take advantage of the shifts, to mitigate, obviously, when a shift is negative and to take advantage when a shift is positive. From a business standpoint, one of our key opportunities, but also challenge, is to ensure that most of our CROs are able to be well-versed in the various asset classes, which, as you can imagine, is not always the case.
I think this is how we are trying to manage the business. Maybe should I take, regarding the product side on the private equity, so to cover that? To be fair, we are, I would say, not where we would like to be, to be very, very blunt. This is an area where we are investing, where we will be spending. We have already some, you know, products that we develop ourselves, obviously, you know, that are, you know, funds of funds. I think that we are leveraging very much also, the expertise that our shareholders have, that in their own right, they're very much focused on private equity. This is something that we want to develop further .
Clearly, the reality is that you should invest now in private equity, usually like we have seen 15 years ago, these are the best vintages. That's why we are trying to push. To be fair, the penetration is still very low for us, or relatively low compared to competition, and this could be an opportunity going forward. I could take the CRO hiring.
Yes.
We have always expressed the target, or it's not a target, it's an ambition in terms of hiring the famous 50-70 gross, because it is quite difficult to manage and foresee the net. There are many, let's say, moving parts on the net. Clearly, there is regarding the new hires, the success ratio. Obviously, we are doing a lot of due diligence. The new bankers, they do a lot of due diligence on us. We welcome that, because obviously we want that they know exactly how is our platform, how is our model, et cetera. Conversely, we do a lot of due diligence. Dimitris and I approve all business cases, all of them. Obviously, the regional business heads and the heads of private banking are proposing those.
But, you know, there is a lot of scrutiny. I believe that we have improved in terms of success rate, but again, unfortunately, you don't have a guarantee. Within the existing population, you know, we are becoming a bit older as a bank, so there are also retirements. There are people that, you know, change of circumstances. You know, if you ask me, what would you like to have? You know, I will never put it on a slide. Obviously, you know, if we grow, if our target is to grow NNA between 4% and 6%, I would love to grow net, you know, around that range, also the population.
On the other hand, we don't want to be bound by a target, because at the end of the day, we need to see what we can recruit, how we can manage. You know, we are very transparent in terms of performance management. People have a business case, everybody is super professional and adult, and we try to do the best and to make everybody succeed, but in the worst situation, obviously, we part ways. Sorry for the long answer, not very precise, but this is how we manage the business. There was a cost.
There was an FX question about costs. The, our cost composition is about 50% of our costs are in Swiss francs, and the rest is in other currencies. Clearly, if you just take the Swissy strengthening, which is what has happened in the last couple of months, in a standalone basis, that doesn't work in our favor, because we have 90% of our revenues in other currencies and only 10% in Swiss francs. Having said that, what happened in the first half of the year is a combination that works very good for us. Because we had some market appreciation and an equivalent amount of FX negative impact because the Swissy appreciated. That is a net, it's zero impact net on your AUM, so your revenues are not affected, but with the Swissy strengthening, your costs are decreasing.
In this combination, you're actually So if what we saw in the first half continues, you're actually getting a benefit from the combination of market improving and the FX, and the Swissy strengthening.
I think we take the two questions here, and then we move to the telephone lines of the gentleman on the left and then in the back.
Hello, [Mr. Blechner] from Finanz und Wirtschaft. Buongiorno, grüezi. Could you explain how strong the NNA of CHF 3 billion was influenced by the CS, Credit Suisse crisis? Did you have money flows mostly from Credit Suisse clients in Europe or more in Asia? The second question: Could you give a concrete forecast for the net profit in this year, in the full year? The last question: The stocks, your stocks increased the last 13 days. How do you explain that? Was that? Did the biggest shareholders from the Greece and the Brazil, Brazilian stakeholders buy so far, or what are your impressions? Thank you.
Okay, let me take the first question about the flows that we have seen. I must say that a couple of considerations. First of all, we have been hiring bankers not only from Credit Suisse. There has been, as I mentioned in my presentation, you know, we basically had three years of paralysis because of the pandemic, so nobody was moving, clients were not moving, CROs were not moving. Then, because of the events, for sure, triggered also in March, there has been a lot of talent on the move, not only from CS, but in general. We have been trying obviously, we believe that we have an attractive model, and we have been trying to, you know, recruit from many, many sources.
Regarding the clients flows, we are, you know, we are a boutique private bank. We are not a clearing bank or a retail bank, so the reality is that for us to attract client flows, we need to attract first the Client Relationship Officer. Yes, we have seen some flows, but they are not moving the needle. Again, we expect that obviously the new hires will contribute significantly in the next quarters and years to come when they will have started and they will be really with their feet under the table. For us, I would say that in terms of client flows, the best is yet to come, so to speak. It will be from a variety of sources and not from one single institution.
I'm sure that Dimitris has also his views about the stock, and I let him comment about the forecast of the profit and the stock. I only, from my perspective, I've been taught very early on that we managers and executive, we need to manage the business and do not look at the stock and the stock price. This was obviously very important when we were not doing so well, it was good not to look. Now, obviously, we are pleased, but again, our objective, we are solely focused on managing the business, and as we said in the presentation, ensure that, you know, we can deliver a consistent financial performance in terms of EPS and NNA. I think investors and analysts can comment better about the evolution of the stock price. Dimitris, please.
Just a very specific question, because part of your last question was if the any of the large shareholders are buying stock. If they were buying, they have the obligation to report it on the day that they actually have the transaction. This is public information. I haven't seen any such announcement in the last 15 days, which means that they are not buying. In terms of the forecast for the year, you know, it's one of these things that if I give you a number, I'm gonna be burned either way. Either it's gonna be higher or it's gonna be lower. It's not gonna really work.
The only thing I can say is that if you have followed us over the last five years, that we've been running this bank, the approach has been under promise, over deliver. You know, we had to make sure that we had the credibility of the market. I think now we actually have it, and as I mentioned in my presentation, we're looking forward to consolidate this level of profitability and then to move to another next level, as soon as things progress in our 2023 to 2025 business plan.
We take the last question at the moment in the room, Michael, and then we move on to the telephone line.
Thank you. It's Michael Klien from Zürcher Kantonalbank. First question, just to follow on what you said in terms of client activity. You expect that to rebound. Can you provide a little bit more information? Are you already seeing client activity changing? Are client becoming more active, or is it just a hope that sometime in the future things are going to change? On an equal strand, in terms of the mandate penetration, that obviously went down, what's holding it back? What are you doing it to actually reach the target of 65%-70%? Second question on the buyback. You have done CHF 4.4 million to compensate for the incentives plan, that these are shares that are not going to be destroyed.
The new plan is now 6 million that are going to be destroyed, right? When is this new buyback going to start? How did you arrive at the up to 6 million number? What's kind of the framework for the buybacks? Also going forward, what should we expect in terms of new buybacks? Are you gonna do, again, a combination of a buyback to counter the incentive plans, and the second one may be just to do a proper buyback which has been destroyed? Also in these regards, what's the constraint? Because if I look at your capital, you have got the management flow at 12%, you're at 17.3%. From that perspective, I guess there's plenty of more that you could potentially do, so what's holding you back here? Thank you.
Thank you, Michael. In terms of the client activity, well, you know, in our business, there is always a bit of a lag. I would say that finally, the second quarter actually, although, as I said, the situation remains fragile, but finally was actually a good quarter, and we now start seeing a bit of pickup in client activity. Clearly, you know, the rally is ongoing. The question is for how long? For the moment, clients are timidly going back into equities. The bond asset class is now an asset class that, you know, is again, quite attractive. Given the higher interest rates, structured products are also more attractive, although volatility in recent weeks was quite low.
We are seeing a bit more an uptick in client activity, but for sure, there is still a lot of people are very vigilant and quite conservative. It is much better than it, how it was, let's say, at the end of last year, for sure, but we are not yet in pre-2022 territory. In terms of the mandate penetration, yes, we are not happy. We are not happy with the trajectory. We are not happy with the trend. Also, again, here, there is a bit of a lag. Clearly last year, and given our business with private clients, obviously there were mandates that were in negative territory, given what the markets did.
Irrespective of your relative performance, some clients, then they become more cautious. I think that also in terms of performance in the last three quarters, our investment solutions and EFG Asset Management did quite well, but you need always a bit of a lag before the CROs and the clients realize that. As I said, we have revamped completely our offering in terms of discretionary portfolio management, advisory, and other asset classes, so we expect that this will increase. Now, how do we expect to reach the 65?
We think that this is an ambitious target, but we are quite confident because we believe that, you know, also as part of this hiring, we are hiring a lot of talent, be it in the portfolio management side, in the investment counseling side, on the leadership side. Again, I also believe that clients nowadays and bankers nowadays need more of these solutions because there is not, you know, it's not like when everything goes up, that, you know, you don't need anybody to put something there and goes up. I think the mandate penetration will increase.
It's an opportunity, for sure, because as you know very well, if you look advisory versus execution only, or discretionary versus execution only, the pickup is between 20 and 40 basis points, right? It's an opportunity, but it's also a challenge .
To answer your question about the buyback, our approach throughout these years has been that the buyback is meant to offset the dilutive effect that we have from equity incentive plans for employees. What we were doing in the past, we were buying shares, keeping them for a while as treasury shares, then delivering them to employees as part of the incentive plans. What we have seen is that for us it might be more beneficial in some cases that we buy the share, we cancel it, and we issue a new share for the employee. Net-net, it's the same result to investors, it's not different, but the mechanic is slightly different. This program we have now is to buy the shares to cancel, and clearly, we will issue new shares for the employee plans.
It is not a change of tack here. It is not a matter of using this as a means to actively reduce the capital of the bank. It's just managing the issuance of new shares and the dilutive effect of that. To some extent, there's also a way of increasing a bit the return to shareholders, combining it with the dividend.
Good. If we move to the question on the phone, please.
The first question from telephone comes from the line of Adam Terelak with Mediobanca. Please go ahead, sir.
Morning. I had a couple of questions, please. First is on your gross margin outlook. You've kind of gone through all the different pieces, saying, kind of, NII sensitivity has come down. You're talking up the fee margin on the outlook. You're also talking up activity rebounding. Can you just revisit the 85 basis point gross margin target and discuss how that might look short term, but also mid-term, and how you're thinking about that versus your initial planning assumptions. Secondly, on swap income, you've kind of highlighted the FX trading upside. Can you just isolate the swap incomes, we've got a better idea of total NII rather than kind of the amount that's hidden in your trading income.
Finally, you talked about the life insurance benefit. Can you kind of isolate that between Q1 and Q2, so we've got a better idea of how performance has looked on a quarterly basis for gross margins? Thank you.
Let's start with the margin, both short term and long term, Adam. As you know, the 85 basis points that we put out as the margin in, back in October was thought as a through the cycle, reasonable estimate where we would be landing by 2025, and it was based on the visibility that we had at that point in time. Clearly, you know, if you were to ask me back in October, could you go forward nine months and guess what is gonna be your revenue margin in July 2023? I would have never told you 100 basis points. It was not like, our visibility was not at that level, something that was giving us these high levels.
Now, the visibility that we have now is in broad terms, and putting, let's say, put life insurance aside, that the, that the level of our revenue margin is gonna remain at elevated levels for much longer than we were expecting initially. I will not venture a number for short-term, long-term. Like, we've tried to go through all the drivers, and again, you know, we're not, to some extent, as Giorgio was saying, we, you know, it's not a matter of guessing the future. You, you prepare for as much as possible for all eventuality, and then you try to manage as things happen. Clearly, the level that we are seeing now is something which is we expect that can hold.
And there's gonna be substitutions, there's gonna be, I'm not trying to tell you that the 97 basis points is going to hold at 97 basis points for the next 2 years. That is not what I'm trying to say. Clearly, we are a lot more confident about the revenue margin than we were nine months ago. To your second question about FX trading and swap, I can tell you that in the first half of 2023, we had about 7 basis points of swap income into net other income. This was clearly higher than what it was in the first half of 2022. That result is simply the differential between dollar interest rates and Swiss interest rates.
Back in 2022, that differential was very small. Now it's 2%, 3%, 4% in terms of the differential, so that is increasing the contribution into NOI. I'm not sure I heard well the last part of the question, life insurance?
3 basis point benefit. Can we split that between Q1 and Q2?
There are 3 points benefit. The 3 basis points benefit's a combination of accelerated maturities in life insurance and the settlement with John Hancock that we achieved in the first few months of the year. I would say that the acceleration of maturities is pretty spread out. The settlement with John Hancock came in the first quarter, maybe there's a bit more in the first quarter than in the second quarter of the year.
Great. Thank you much.
Do we have any additional question in the room at this stage? Okay, I think then we are.
Maybe the last, just to sum up, I think, to summarize what we said, we believe that, clearly, these first six months have demonstrated that we can execute our strategy in this difficult environments. It's another step change in profitability. We are actively investing in the future, and this, obviously, has the objective to sustain this performance in the next quarters and years to come. Given the good start in the, at the beginning of the new planning cycle, we, you know, we are even more confident than before that we are on the right track to achieve our 2025 targets and possibly to beat them. Thank you very much.
Thank you.