A very warm welcome to the presentation of EFG International's first half 2022 results. It's great to see in the room some familiar faces again, so it's for the first time, again, the opportunity to have at least a couple of people present. Today, we have obviously from the management team Giorgio Pradelli, CEO of EFG International, and Dimitris Politis, CFO and Deputy CEO of EFG International. As usual, we'll have presentations from both gentlemen, and afterwards we have enough time for Q&A as well. So with all that, and pointing out that the disclaimer of the presentation has been read, I hand over to Giorgio. Thank you.
Thank you, Jens, and good morning. Good morning, everyone. Actually, as Jens said, we are very pleased to, after three years, to have again a meeting in person. We welcome everybody who took the time to attend in person, and clearly, we also welcome everybody who's attending via the webcast and remotely. So obviously today we are very pleased because we are presenting to you a very strong set of results, and this is clearly the sign of the progress that the firm, that the bank has done over the last three and a half years, after the announcement of our 2022 strategy three and a half years ago. Before we go into the presentation, on the other hand, I would like to mention that clearly we continue to live in unprecedented times.
Now, we are two and a half years in the pandemic, which has caused unprecedented shocks on the supply chains. We had the first invasion in Europe after World War II, and after years of deflation, actually, we live in a high inflation environment that has led central banks to raise interest rates faster and higher than the markets expected with the consequent market, I would say, turbulence or at least volatility in the first six months. As you know, returns on equities and fixed income have been negative in this month. So clearly, policymakers are trying to orchestrate a soft landing, but there are risks for that. We will talk about the outlook later.
And I just mentioned this because obviously we need to judge the performance of the last six months in the context of the external environment. Having said that, I start now in the presentation on page four, despite the market uncertainty and volatility, I am very pleased that our performance has been very strong. We continued with our business momentum and we were able to accelerate our profitability. Actually, we report record underlying net profit. Let me take the two key points, the two key messages of this slide. First of all, continued growth momentum. The NNA development has continued unabated for the last seven semesters since we announced our 2022 strategy. It is at 2%. It is fair to say that it is slower than in previous periods.
And this is due to the fact that clients have de-risked and de-leveraged their portfolios, their positions following the market volatility. If we exclude this de-leveraging, actually, the NNA is 4%, which is within our target range of 4%-6%. In terms of profitability, we are very pleased to report underlying net profit of CHF 115 million. This is, I would say, a very strong result, plus 40% year-on-year. And also, IFRS net profit is in excess of CHF 100 million. It is the first time that we report both net profits, IFRS and underlying, in triple digit. This acceleration of profitability has led to significant improvements in terms of cost-income ratio and return on tangible equity.
And if we take into account the Footprint actions that we have already taken and closed at the end of June and beginning of July, our cost-income ratio has reached 75.8%, within reach of our target for year-end of 75%. Our underlying return on tangible equity has reached 14.6%, again, within reach of our target for the year-end, which is 15%. Now, if we go to the next slide, again, what I'd like to emphasize here is that these results are the outcome or the result of a consistent delivery of our strategic plan.
Despite the volatility over the last two, three years, I would say that we have never lost sight of our priorities, never lost sight of our targets, of our objective, and we have had a consistent delivery of this strategy. I'm very pleased that all the teams across geographies and across functions have worked together to achieve these targets. For us, in terms of the priorities, obviously increased client focus has been always, I would say, the top priority. I would also say that this, in times like this, in times of adversities and extremes, is when our expertise, our services, and our solutions actually matter the most.
We always had a policy over the last three and a half years to be very close to our clients and to deliver the solutions that can meet our clients' needs. Obviously, we have embarked over the last three and a half years in a trajectory of simplifying our operating model, and we have optimized our global footprint as you have seen. Clearly, all these actions have led, and you see it on the right-hand side on the chart, have led to an accelerating and improved operating leverage. This, for us, was something that we aspire to, and this is what is behind the acceleration in profitability.
Now, I think that, to sum up these introductory remarks, the two key messages that I would like to leave with you is that our trajectory is intact. After three and a half years of growth, I think we can say that at EFG, we can deliver consistently sustainable and profitable growth throughout the economic cycle. Now, I'll hand over the floor to our Deputy CEO and CFO, Dimitris Politis, who will give us a comprehensive overview of our financial results. Dimitris, the floor is yours.
Thank you very much, and welcome from me. I think today is one of the critical dates in terms of the presentation of the results, because we are getting closer to the end of the plan that we announced in 2019. Our 2019 to 2022 plan. So it is the time where we will compare ourselves to our targets. Giorgio will do that in his closing. I think that the performance we have in the first half of 2022 gives us a lot of confidence in terms of the trajectory going forward. I'll take you to page eight, which has the key messages, but before I go into the specific numbers, I'd just like to make three points, which I think are the three key messages from the results today.
The first point is that throughout the period, we have continued growing, we have continued to create operating leverage. What you see as the result, which is CHF 150 million of underlying net profit, which is 40% up year-on-year, is the result of that effort and of a very successful delivery of the strategic plans over the last three and a half years. As Giorgio said, it is the first time we publish a triple-digit underlying profit and a triple-digit IFRS net profit. This gives us a lot of confidence that we have reached a new level of running profitability. Also, I'll come back to that, we are optimistic about the evolution of our revenue margin going forward, which will support even further profitability growth. The second point is that throughout the period, we have continued simplifying our operations.
We've done it through two streams. One is a series of small actions that, or larger actions that relate to our eight core booking centers. Also by relieving the pressure or the decomplexifying, if that word exists in English, our presence in other regions. What we've done in the first half of 2022 is that we have concluded the sale of our Spanish operation, concluded on the 7th of July, but also we have terminated our operations in Milan. I will come back to that with some figures because clearly what you see in the first half is not the full benefit what we've done. There is more benefits coming in from these actions in the second half of the year.
The third point is that in times which are uncertain, having excess liquidity and having excess capital is key. Allows you with optionality of how you will address the situation, and it could be through organic growth, as we've done in the past, but it also means that there is the opportunity to take advantage of some M&A opportunities if these, come to light. Now on page eight with some of the key figures. NNA, CHF 1.7 billion for the first six months, growth rate of 2%. As Giorgio mentioned, there was a lot of deleveraging, because of market uncertainty, also relating to the war in the Ukraine in the first six months. Excluding that deleveraging, the annualized growth rate is 3.9%. AUM of CHF 158.8 billion.
This is 9% down versus the year-end of 2022, clearly driven by the correction in the markets, both in the equity side and on the bond side. The revenue margin has gone up by 2 basis points, so we have 73 basis points in the first half of 2022. This compares to 71 in the first half of 2021. What is important here is that the run rate is even higher and our exit rate at the end of the first half of this year is already at 80 basis points, excluding the disposal of Spain. And we are also optimistic that 80 basis points will move north, getting closer to the 85%, 85 basis points that we have as a target for the full year plan.
Profitability, continued operating leverage, 3% up on the revenues, flat on costs. This supports the growth in the underlying net profit. 115 million of underlying net profit, 40% up, which is a record year. IFRS net profit of CHF 100.3 million, which is down 6%. The reason it's down 6% is that in the first half of last year, we had an exceptional gain from settlement in the life insurance space, which gave us about CHF 35 million at the time. That was the net result of life insurance at the time, which clearly is not repeated this year. On the cost side, cost to income 77.3%. It is actually 75.8%, take into account all the actions and footprint we have completed in the first half of this year.
Clearly, this comes with discipline and costs. Otherwise, the cost performance would not have been the one you see. Finally, on capital, we have a Core Tier 1 capital position of 15.5 after the conclusion of the transaction in Spain, which gives us a lot of buffer compared to the regulatory minimum, of course. We are generating gross capital at a rate of 120 basis points this semester. Also in terms of total capital, we have redeemed some remaining Tier 2 notes and some, which was small amount, during the first half of the year. I'll skip page nine, which is all the detailed figures. I'll go straight to page ten, which is the highlights of the performance. 2% NNA growth or 3.9 excluding the leveraging.
You'll see the huge improvement in the cost-income ratio over the last two years. We are 2.3 percentage points down versus last year. I think more importantly, we are 10 percentage points down versus the first half of 2020. On the right-hand side, underlying operating profit, which is just revenues less costs, is up 15%, and the underlying net profit after tax is up 40% with a return on tangible equity of 14.6%. Let me just remind you that the target for, in the financial plan is to reach 15% in 2022. I'll go to page 11. I think page 11 is critical because we have a lot of moving parts in the figures.
So we're trying to provide some transparency of what happens once Spain is deconsolidated and once the Milan operations, which have concluded now, do not have an impact on the profitability. So comparing the first half of 2022, the way it was printed, to the figures excluding A&G and all the other Footprint actions, you will see that our revenue margin is 75 basis points, and our cost-income ratio is 75.8% for the first half of the year. On the right-hand side, you'll see that our actual underlying profit is CHF 119 million, and that leads to a return on tangible equity of 14.9%, which again is just 0.1% shy of the target that we had for, or that we have for 2022.
Page 12 is our usual page reconciling underlying to IFRS profit. Underlying year is 40% up. We have the usual adjustments that we have to do for our non-underlying items. Life insurance, the legacy legal costs and provisions for the Taiwan case and the intangible amortization gets us to a bottom line of CHF 100.3 million. And again, when comparing the CHF 100.3 to the CHF 106.5 of last year, you should take note of the exceptional CHF 33 million of profit we had in life insurance. If we had not had that, then also IFRS net profit would be growing by something like 30% year on year. Page 13 is about NNA growth. It is CHF 1.7 billion, 3.9% annualized excluding the leveraging.
I think what is very telling is the chart on the right, which supports and confirms the strategy we've had about how we approach CRO hiring. You'll see that despite the uncertain times, both new CROs and new business initiatives, which have to do with new location that we have started operating, have been adding, NNA even in the first half of 2022. Clearly, the impact of deleveraging has been on the existing CROs. But again, what we are seeing is that the gross inflows that we're having have either stayed the same as last year or have increased versus last year.
So it is more about outflows relating to deleveraging, which we consider to be temporary, that are the reason for the lower but still positive 2% growth that we have in our NNA for the first half of 2022. Continuing on the strategy of CRO hiring, I'm moving to page 14. What you see here is the trajectory of number of CROs and hirings. This is on the left. We are practically flat on the number of CROs. We are continuing to hire a bit higher levels of hiring than we had in the past. In general, the hiring is strong. We have dedicated a lot of resources to make sure we hire the right people. We are focusing very much on hiring teams because we found that the benefit from teams is a lot more positive.
The pipeline for CRO hiring is strong. What you see at the bottom right is that we have continuously increased what we call the load of the CRO, so the AUM per CRO, and that is important for not just the capacity of the CROs, but it also a measure of how efficient we can be in delivering our services. Clearly, with higher AUM per CRO, you need less in the back to support those AUM going forward. Page 15 is the breakdown by region. Breakdown by region, as you see, we have Continental Europe and Middle East leading the pack this time. Asia Pacific and Latin America have also had positive contributions.
Switzerland and Italy have been the region mostly hit by the deleveraging, and U.K. has been flat, or pretty much flat, for the year. What provides us some more confidence is if you look at the chart on the right, all the business regions are in a positive trajectory if you were to exclude the loans. I think that is important in terms of our view of how the future should evolve, as the deleveraging effect subsides. Now, page 16. Pages 16 and 17 I think are critical because we try to give you as much as we can on both the revenue and the cost performance. Revenues came at CHF 602 million. This is all underlying.
This is the best performance we've had in the revenues since the beginning of the plan. I think it's even further, going back further than that. It's probably a record year in terms of revenues. We've seen a very significant uptick from net interest income. It is 21% versus last year, and the trajectory for this figure is to continue growing throughout the second half of the year. Clearly, commissions have been impacted by the market correction and also from lower client activity. What has compensated to some extent is that we've seen a lot more client activity in the currency space, which has helped support the net other income line. Overall, the mandate penetration has been resilient.
It is at 55% of AUM excluding loans, and this is despite the market correction we had in the first half of the year. To give you an idea of how we are approaching the future, I would focus on the chart at the bottom right, which is the revenue margin anticipation. First half, 73 basis points. Our exit run rate after the conclusion of the Spain deal is at 80 basis points already. We are expecting that figure to grow even further, closer to the 85 basis points that we have as a target. To give you an indication, in 2018, 2019, when rates were again at much higher levels, we were looking at margins which were in the region of 83, 84 basis points.
So I think looking back in history and comparing the figures on a higher interest rate environment gives us the confidence that we will be moving towards the 85 basis points that we have as a target for 2022. Next page 17, is on the costs. Clearly, a very substantial improvement in cost to income. The main driver for the cost is the decrease in personnel expenses, which is driven by lower payroll expenses. This is the outcome of continuous efforts in managing the cost base. On the other hand, we've had an increase on the general and admin expenses. We were expecting that because as the world turns to more normal business operating mode, there are certain costs which are increasing.
To give you an example, travel costs is something that we didn't have in the first half of 2021, and clearly there is some expense included in the first half of 2022. At the same time, we are investing in growth opportunities and digital solutions. In that respect, you'll have some increase in your G&A. What we're getting as a positive is clearly the impact from all the Footprint actions, and this is how we get to a cost-income ratio in the first half of this year of 75.8%. This is the pro forma or adjusted figure if both Spain and the other Footprint actions had already been concluded in the first half of the year. Page 18, the balance sheet. Balance sheet has grown slightly compared to the year-end.
Now it's at CHF 43.9 billion. At year-end it was at CHF 42.1 billion. Pretty much the entire increase is on the deposit side. So we have increased deposits by about CHF 1.2 billion-CHF 1.3 billion in this period. This leads to a Loan-to-Deposit Ratio which is lower than before, so it's now at 48%, and a Liquidity Coverage Ratio of 172%. As I mentioned earlier on, you know, in times of uncertainty, having liquidity and having capital, which is the next page, is very important, and this is a very solid and a very liquid balance sheet at the same time. Page 19 is all the information you need on the regulatory capital position, which is very strong.
To note that since the first of January, 2022, we have transitioned to reporting all our capital metrics based on IFRS versus Swiss GAAP, which was the case before. That has led to some adjustment from the Swiss-based GAAP that we were releasing before. If you look at the footnote, we are still mentioning our Core Tier 1 and our total capital ratio under Swiss GAAP, but this is the last time we will be doing that. I think what is very important is we have been very active in managing capital. The disposal of A&G in Spain will add or has already added, because it has happened, 70 basis points in Core Tier 1 capital.
We have redeemed Tier 2 notes, but that is on the back of issuing CHF 400 million of Tier 1 notes in January last year. As you see, also, we have been managing our risk-weighted assets throughout the period. Now our risk-weighted assets are at CHF 9.5 billion of risk-weighted assets. Total capital ratio, Core Tier 1 capital ratio is now at 15.5%, and total capital ratio is at 19.3%, with a very substantial buffer, clearly, to any regulatory minimum. In terms of evolution of capital throughout the period, this is on page 20, we started with a Core Tier 1 of 15.8%.
We had a very substantial gross capital generation of 120 basis points, very little impact from Risk-Weighted Assets, and then our dividend accrual. We had a markdown on our bond portfolio of 1.1 percentage points in the capital. That revaluation will come back almost in its entirety in the next 24 months. You should be expecting to have an additional 110 basis points coming into the figures, mostly by the end of 2023 and in 2024. And again, at the right-hand side, you also see the impact from Spain, which gets us to the 15.5% core and 19.3% total capital ratio for June 2022. I will close with page 21.
We've been repeating this page pretty much every six months that we have reported. For us, has also been a bit of a compass on how we are delivering. Clearly in all these plans, there are two elements. One is, are you delivering what you promised on an action plan basis? And then, what is the financial outcome following that? I'll cover the first in terms of what we've done, and Giorgio will come back to what this means for financial performance versus the financial targets that we've set. I'll be very brief because you'll see that, you know, with the exception of digital solutions, where clearly the world is moving forward and we need to move forward with the world in that respect, pretty much everything else has a tick.
The most volatile time, or like sometimes we call it a rollercoaster, has been the part in the middle with AUMs sort of dropping substantially in the first half of this year, interest rates going negative, post-COVID, interest rates now really picking up where we have a very positive expectation going forward. At the end of the day, I think that the key message from this page is that the delivery on the plan that was committed to by management in 2019 has been very strong, has been very timely, and not trying to steal Giorgio's thunder, it has printed in the financial performance at this point in time.
So on this basis, we feel confident about how we're gonna close the year. I think it also puts us in a very good footing when we start discussing our next plan, which will happen in October. On this note, thank you very much, and I'll pass it on to Giorgio.
Thank you. Thank you, Dimitris. Now we will start the last couple of pages, the last section of the presentation about the outlook and strategic priorities. Maybe before going into the slides, I'd like to mention about the outlook. Clearly we are in a difficult situation to be able to have a clear visibility. Actually, the visibility is quite poor. As I was saying at the beginning, what we see is that policymakers and central banks are trying to orchestrate a soft landing to you know following the shocks, the multiple shocks in this post-pandemic world. And clearly, you know, the risks are there.
The risks are that, maybe we give too much medicine, and we will plunge the world into a recession, or maybe we'll do too little too late, and then inflation and stagflation will dominate our world. To be very blunt, obviously we don't have the crystal ball, and it is difficult to make prediction. What we can say is what we control, and the key message that we want to pass is that at least for the foreseeable future, we are coming out of this three and a half years in a position of strength. For the next few quarters, we control the levers, and we are able to navigate whatever environment we will have to be faced with. Following on.
Now on page 23, following on what Dimitris just said, we are very confident that, for the next, few quarters, we can deliver what we promised basically three and a half years ago. We have consistently delivered on our targets, and now all the pieces of the puzzle are coming together. Now we highlight here the underlying return on tangible equity. We believe that at the end of the day, all the actions that we do and all the implementation of our strategy lead to improvements on this very important measure, especially for our investors and shareholders. As Dimitris mentioned, we are very close basically in achieving the 15% that we have set.
To be very fair, I would say that the way we arrived there maybe is not the way we envisaged three and a half years ago. Actually, three and a half years ago, we were much more confident and bullish about the revenue margin. I must say there, as Dimitris mentioned, has been a rollercoaster. We were maybe less at the time confident about NNA growth. Indeed, actually the growth has been 5.1% on average, and we are confident that we will continue to deliver profitable and sustainable growth. Our pipelines are good. And again, for us was extremely important to deliver on the cost-to-income ratio. This is an indicator of obviously of scalability, of efficiency, of productivity, and ultimately of quality.
Clearly, our capital management has been good throughout the period, and this is a very strong solid foundation that allows us to continue growing and also allows us to deliver returns to our shareholders, and the dividend payout is in excess of 50% and will remain. So in a nutshell, we are very pleased of having achieved our targets, our hard targets. We believe that we have the levers, as I said, to navigate the next few quarters. But as already mentioned, we have always this dual focus.
One is to hit the numbers that we have set ourselves and on the other hand, to continue to further enhance the quality of everything we do and continue the transformation of our bank in order to drive sustained value for all our stakeholders, starting from our clients. I believe this has been always our North Star. And as I already mentioned earlier, it is in times like this that actually clients need us. This is our focus, and we believe that our bankers, our client relationship officers are able to deliver superior service and advice, which is second to none in the market.
Obviously, clients want solutions, clients want content, and this is also an area where we invested over the last three, four years a lot, and we will continue to invest. This is one of our top priority, and clearly we have been trying to simplify everything we do from the Footprint, introducing digital solutions and automation and centralize and streamlining our infrastructure.
Besides the transformation and hitting the targets, again, I'd like to emphasize that our confidence is also due to the fact that we believe that the foundation of the bank are very solid, are very strong. We have, as we just heard, a very strong balance sheet with strong capital and a very liquid balance sheet with a lot of excess liquidity that can benefit from a rising interest rate environment and obviously strong compliance and risk management framework.
To close, I would like to say that in times of uncertainty and volatility like this. What makes the difference is having strong teams, a solid balance sheet, and a distinctive business model. We believe that our business model is competitive and is able to deliver sustainable and profitable growth throughout the economic cycle. We believe that we are coming out of this cycle in a position of strength, and actually, we are very excited and looking forward to present to you in October, on the 12th of October, the 2025 strategy. With this, I close the presentation and hand over the floor to Jens for the Q&A. Thank you.
Thank you, Giorgio. Thank you, Dimitris, for your presentations. As Giorgio just indicated, we will have now the opportunity obviously to answer the questions you might have. As we have this time some people present in the room, I don't know, starting with the room, if there's any question. I think, Andreas, you get a microphone. One second.
Yes. Thank you very much. Andreas from Bank Vontobel AG. I have a number of questions. I'll start with a few and then maybe I'll add some more later. Maybe you could talk a bit on the repricing actions you mentioned, where you stand there, how you see the potential to go further. I think that's important. Then in terms of net interest income, obviously, we've seen now the pick-up. Maybe you could guide a bit more in terms of second half. We've seen 19 basis points in the first. Where do you think we will end in the second? Then on M&A, obviously, capital, as you said, is strong and is building excess capital. Maybe you could quantify how we should think about excess and what would be realistic of you using for M&A. And in terms of M&A, what you might be looking at, not in terms of names, obviously, but in terms of regions, qualitative size, and things like that. Yeah, that's for you, for now. Thank you.
Thank you. Thank you, Andreas. Now maybe I start with the repricing actions. Obviously, this has been, I would say leitmotif of our strategy over the last few years. Clearly, as I said, in 2019, we did not expect interest rates going down, also on the dollars, so drastically and clearly this has been for sure a major trigger. Repricing, the way we think about it, is always a balance between, let's say, being competitive in the marketplace. On the other hand, we believe that we deliver good service and good solutions, and it is important that clients recognize that. Now, we have been starting in a more systematic repricing approach about 18-24 months ago.
We have started at the beginning more in Switzerland. Now we are following across geographies, and we are trying to, you know, to. Again, the repricing is commensurate to the kind of solutions we offer. One major and important element is the conversion of certain assets that maybe are, you know, more for brokerage or for custody into advisory, in discretionary. Clearly, structured products is something that, especially with these volatile markets, are an important asset class. Leverage, we think that leverage is important for clients. Obviously, when there is a volatility, it is something that has to be seen in a dynamic way. I believe that, regarding forward-looking, I think there is more scope. There is more scope for repricing.
I cannot quantify it. To be fair, I believe that, you know, clients understand. I believe that clearly there is a secular trend in a compression of margins in the banking industry, and we will not get away with it. But clients understand that if they want to receive a personalized, customized service, obviously this is a price. And usually, what is always very interesting is that obviously, if you don't ask, you don't get, and very often it is surprising that when you ask, actually, there is no problem. And so this is also a cultural mindset. I believe my view in general for the industry is that there are certain specific areas where the industry will regain pricing power. But again, we need to deliver something value added to the clients.
For sure, margin will continue to compress in the commodity, like services that obviously in the future will be delivered by machines. There is this polarization, this dichotomy, we need to deliver personalized and customized services, and there we can achieve better pricing.
I don't know. Should I take the question on net interest income? I'll take you to page 16 of the presentation, which shows the evolution of the revenues. If you look at the margin for net interest income, it was 15 basis points last year, and it's 19 basis points for the first half of this year. Now, the way that the extra NII from the rate increase has come into the picture this year is not throughout the period, it is towards the end. Actually, we've had clearly May and June, we've had a benefit, perhaps a bit in April, but it's mostly May and June. Keeping it very simple, I would say that the 19 basis points of average
It's starting from 50, from 15 in January, and then you're looking at something which is of the order of 22-23 basis points at the exit. Which is about 4 basis points above what is the average of the year. So also what we also expect is that the rate increases which have already happened still have something to give to the P&L, because some of them happened already in just middle of June, so we don't have the full effect. We do expect more rate increases coming. Look, the Fed is definite now. We can talk about whether it's 75 basis points or 100 basis points. We'll see what happens. ECB is deciding shortly, let's see what happens there. We definitely expect that to be also beneficial. Let's call an exit rate of 23 basis points.
To compare to 2018, 2019, at the time, the net interest margin was about 26-27 basis points. So it was another, call it, 3 basis points or 2-3 basis points higher than what we see from the exit rate. So this gives us the confidence now. There are many moving parts, clearly. So we feel optimistic it's gonna move towards the 85. Let's see exactly how close to the 85 we're gonna get.
On the M&A, maybe just to give the overarching perspective, how we see it. Obviously, as you said, Andreas, we have excess capital. We like M&A. I think we have demonstrated in the past that we can do M&A, and we can integrate and execute also complex transactions. Now in terms of the criteria, and then maybe we discuss about the excess capital later. In terms of the criteria, I think for us what is important is that we identify targets where we are already present. So for us, add-on acquisitions is what we are looking for, where we can extract synergies and increase, let's say the load of our infrastructure. But I would like to say that probably the most important criterion is actually the cultural fit.
At the end of the day, we need to find some other companies that share our philosophy in serving the clients and that, you know, client relationship managers have somehow the same approach, which is a very dynamic and positive approach in terms of client focus, and obviously the right price, which I would say is probably the reason why in the last three and a half years there were not many opportunities. Now, in terms of excess capital.
Well, I think when we came out in 2019, we set ourselves a minimum Core Tier 1 ratio of 14% at the time. That was under Swiss GAAP. Now we have transitioned to IFRS, so the numbers are not exactly comparable. I think the two other elements to consider is that, over the last three and a half years we have de-risked on our legacy positions, both on the life insurance and on the legacy legal case. I think that if we're having the same thinking, going through the same thinking process today, the 14% would be lower, to some extent.
And at the same time, we see that we are continuously generating capital organically, plus we expect to recover the revaluation, the mark to market of the bond portfolio in the next year, two years. So that gives us confidence that the number should be growing. Now, you know, CHF 100 million goodwill, which, you know, I don't know if the going rate is 1% of AUM, you're talking about CHF 10 billion of acquisition, would reduce our capital ratio by 100 basis points, to give you an indication.
So the space that we are really looking for the acquisition is bolt-on acquisitions of in-product banking. And it's CHF 5 billion, it's CHF 10 billion. That's for us, the sweet spot in terms of the transaction we'd like to do. Clearly in a booking center where we operate, so we get maximum efficiencies. Just to give an indication of the potential impact of such M&A at this point.
Is there another question in the room? Otherwise, we move to the telephone, please. Can I have the first question on the telephone, please?
The first question from the phone comes from the line of Adam Terelak with Mediobanca. Please go ahead, sir.
Morning. Thank you for the questions. I've got three. One on flows, one on NII, and then one on costs. On flows, clearly, I think it implies small outflows in the second quarter. Could you just confirm that? Could you also confirm kind of timing of some of the deleveraging actions and how maybe June and July to date may have looked, just to get a kind of underlying feel of the progress and when we can see a return to a bit more of a normalized environment? And on NII, clearly the upside on the central bank moves is exciting, but I just want to understand the liability side a little bit more. Clearly, rates are moving quickly. What are your depositors doing?
Have you seen depositors turning out and kind of what's the cost of that? How should we think about that in kind of just a pure beta standpoint, so pass-through of higher rates of deposits? Then finally, on the cost profile, I just want to have a think about what first half against second half looks like this year. Is there any spending you've held back because you've got rate sensitivity in the second half of this year to absorb? Or is the first half kind of clean run rate a good position to be thinking about adjusting clearly for potentially some compensation in the second half? Thank you.
Thank you. Maybe on the flows, what I would say is that actually the two quarters have been quite comparable. I think we came out at the end of April, and the net-net NNA growth was also 2%, and excluding the leveraging was also 4%, so is exactly the same. We saw obviously the markets in June were particularly negative, so we saw there. I think that April, there was a bit of a respite in April and May, and then there was again a bit of volatility and turbulence in June. By and large, the two quarters have been similar, even if the underlying causes were probably different. Because in the first quarter, we were affected by the war, and the second by the market volatility.
Again, regarding, you know, to forward looking is difficult to make predictions about deleveraging. What I can say is that in terms of pipelines, in terms of being close to the clients and generate gross new assets, I think there we are very strong and the figures, as Dimitris has mentioned, are very much comparable to previous years. So our ability to generate new inflows is the same, how tactically clients manage their portfolios and the leverage of the portfolios, this is something that is very much dependent on the market conditions and volatility. On your question, Adam, on the NII, clearly, as you said, we see the upside in the NII. We've seen some client movement from non-interest-bearing accounts to interest-bearing accounts.
I think the quantum we're talking about is probably somewhere between $1 billion-$2 billion of transfer during the period. At the same time, we've seen the deposit liability on the balance sheet to increase. I think from a net-net position, this is not creating any issues at this point. Do we expect that we will see some further movement? Yes, we do expect that we'll see some further movement to interest-bearing accounts. But what we've also seen, and this goes back more than 10 years, even before the financial crisis, at times where we had high interest rates, we still had a very substantial amount of our deposits in non-interest-bearing accounts, especially on the dollar.
So behaviorally, there is clearly some movement, some price sensitivity between lower interest rates and higher interest rates, but there's a solid block of deposits which remains in non-interest-bearing accounts, irrespective of the level of interest rates. Third question on the cost profile. I think that, I'll try to give you a few of the levers of what we expect to see in cost in the second half. Clearly, the starting point is excluding Spain, so your starting point is lower in nominal terms, versus the first half. We are seeing more business activity picking up, so some of the expenses that we had already in half one will definitely continue or maybe increase a bit in the second half of the year.
But this is the result of business activity, so we expect also to see a benefit on the income line with more business being generated through these costs. We do see inflation picking up. It really depends on the jurisdiction. Like we've seen locations like U.K. or Miami, where the nominal inflation posted is of the order of 9%, which is peaking at this point. We are to some extent insulated because 50% of our costs are in Switzerland, where clearly the inflation rate is somewhere close to 3% at this point. So the impact on the cost side is gonna be lower compared perhaps to some other players in the market where they have different exposures on the cost side. At the same time, we are also continuing our picking up on other simplification actions.
So if you remember, we had one project which we call Footprint, which is pretty much done at this point. The second project that we are running is what we call internally the Simplicity project. And that includes many actions over 2022 and 2023, which have already started even earlier on. Some of them started in 2021, which should help us mitigate the cost actions. Now, it is a balancing act, and in general, given some seasonality, second half costs have been higher than first half costs, if you look in previous years. But overall, the target that we're managing is the cost to income rather than just the revenue or, or just the cost.
So I think that if we believe that there is merit in investing at this point, given the tailwinds we're getting from interest rates, we will do so to be in a better position for the next business cycle, so 2023-2025. Again, the target we have for cost-to-income is 75% for 2022.
Great. Thank you. Can I just one quick follow-up on the inflation. Is that applying to the full cost base, or is there a little bit of relief of CROs which are paid on revenue generation? Thank you.
Well, as you say, CROs are not impacted by inflation. All the variable compensation is based on profitability. This is both for CROs and for the non-CRO bonus pool that we have. There are other elements clearly which are not affected. All the intangible amortization or the tangible amortization, all these elements are not affected. Some elements may be affected more. Give you an example, some of the lease agreements are slightly heavier than others. So it is a blend of different elements when you look at the cost, and you need to look line by line to start figuring out how big the impact is going to be.
Brilliant. Thanks a lot.
The next question from the phone comes from the line of Nicholas Herman with Citigroup. Please go ahead.
Yes. Good morning. Thank you for the presentation. Three from me, please. Firstly on loans and client behavior. Loans were flat in the half year, which is, I guess, impressive given the strong deleveraging we listed. There have been about CHF 1.6 billion. It looks like there is strong underlying demand for leverage. I'm just curious what you're seeing in terms of general client demand and risk appetite. That would be the first question. The second question is just moving. We obviously focus a lot on NII, moving to fees and commissions.
The fee and commission margin dropped by, I think, about 1.5 basis points versus the second half of last year, on lower activity, but also, it looks like also a lower recurring fee margin too. Now I think you previously said that there were no real lumpy items or performance fees in the second half last year. Just curious in terms of what would have driven that decline in recurring fee margin, not revenues, but obviously the markets fell down, but the margin. And is that, like, driven by a shift in client allocations, as well as lower mandates? Just, again, just curious what you're seeing there.
Then finally, just in terms of the leadership in the board, you've got to announce a new chair today, Alexander Classen, and a new board member, Boris Collardi, who's announced at the first quarter update. Do you see these gentlemen placing greater emphasis on certain strategic factors versus the past? And I guess, what do you expect Mr. Collardi to bring in particular, please? Thank you.
Could I just take the second part of the first question, which is, as you rightly say, Nick, the nominal balance sheet figure we have for loan is practically the same versus December. What has happened is we've seen deleveraging, but then the currency translation impact has been positive, which brings back the nominal credit loan balance to what it was in December. So it is a combination of deleveraging and some of the currencies helping out in terms of increasing the nominal balance of the loans. I don't know, Giorgio, what you want to say about the.
No. In terms of flows, I think, as I mentioned, net-net, we have seen at the end a deleveraging and a de-risking. This has been clearly mostly in March and June, first because of the war and then because of the market. Some people say not yet capitulation, but for sure volatility in June. Again, it is clearly tactical, obviously for people coming in now, and also if you look at the bond yields, certain people are more interesting to leverage again. Net-net, what we are seeing in the first half is a net deleveraging. Clearly, in our view, lending and leveraging is an asset class, is something that clients can use to optimize their portfolios and their performance. Clearly, we see that demand remains good.
Now, on your second question of, on net commission income, and I'm not sure I fully caught it, but I think I did. Clearly, we've seen a drop now. We have a 43 basis points commission margin in the first half of the year. As you point out, last year was somewhere between 44 and 45 basis points, on average on the year. The difference between the two is because we've had lower client activity on the brokerage side. So we see a bit of an uplift from mandates, but at the same time, what we've seen in terms of client activity has been the lowest, probably the lowest semester in terms of brokerage activity from clients that we've seen since the beginning of the plan. It is really subdued.
It is not unexpected given what is happening to the markets. Usually when things move, several of the clients take a wait and see stance and do not switch very quickly. We do expect that figure, that margin to move higher, or to normalize at some point. But again, I think that is something that we will have to wait and see when exactly that happens.
Regarding the last question about governance, clearly the first point I'd like to make is that we have been working very well in a true partnership with Peter over the last three years. Clearly, as you can see, this has delivered results. Now, regarding Boris Collardi and Alexander Classen, the new chair, we are very pleased and looking forward to working together with the board to shape the next cycle.
As you have seen, they will be appointed on the 6th of October and clearly will be integral part of the board for bringing the bank to the next level in 2025 in the strategy. And again, we are pleased that we have experts in the field that have joined the board. For sure, the company can benefit and the new chair and Boris will contribute in shaping the new strategy.
Okay.
The next question from the phone comes from the line of Daniela Döbeli with UBS. Please go ahead.
Yeah, good morning, and thank you. Can I briefly come back to the gross margin? You did say in the press release that it was on an underlying basis, 77 basis points. In the second quarter, 73 for first half. So Q1 was probably, I don't know, 70 or so. So if I think about the increase and bearing in mind what you said on NII interest, is it fair to say that, I don't know, more than half of that 7 basis point increase is NII? And the rest is then what is it? Is it FX trading revenues? I think you mentioned that probably picked up. Second question, just on the SNB move, a few weeks ago. What is the impact on the P&L, bearing in mind that you.
I guess you have dollar excess liquidity, you probably swapped that, and then there was the exemptions and the thresholds. Just thinking around those economics. Does it have an impact on flows? Probably more, like on a forward-looking basis. Does that help? Is that relevant at all? Very lastly, sorry, again, on Lombard lending and deleveraging. Probably people expected APAC to be a key driver of that, but you then mention actually Europe and, more, yeah, more Europe and Italy, overall. Is that driven by some small number of big positions or is it across the board? And can you give us a bit more color in terms of what's happening in APAC, how significant deleveraging was in that region? Thank you.
Let me take the first question on the revenue margin, and I'll again go back to page 16 of the presentation. Daniela, as you rightly say, we have 73 basis points on the first half of the year, which is based on the 19 basis points that we have on the interest. Now, the second half or the exit, whichever way you wanna call it, of the year enjoys a higher interest component.
That 19 basis points is 23 basis points, which gets you to the 77 overall, and then the 77 goes to 80 following the deconsolidation of Spain. So this is how you get to the 80 basis points of exit. Again, we do expect the 80 to increase further with the more interest rates impact coming in for the second half of the year. Does that answer the question on net interest margin?
Yes, it does. I think I can follow the math, but I still, I mean, I sort of tried to back out Q1 because I think in the press release you're saying, so you have the 73, yes, but you then also mention if for Q2 you said it's, 77, so-
Well, the
Q1 something like 77.
Yes. The 77 from 73, the extra four, is simply the timing of how interest rates came in. All the interest rates impact has been in May and June. That's why we're saying that the second half, the second quarter, has been substantially higher than the first from the first quarter, and this is how we get to the 77 and then to the 80, excluding Spain.
Okay.
Now the second question, which is about the impact of the SNB, and we haven't clearly seen the full impact. I don't have the specific impact just for the SNB, but what I can tell you is that the impact from negative interest rates, and that is a combination of the negative interest rates on the Swissie and the negative rates on the euro, was -CHF 18 million in the first half. Now, on the expectations that both Central banks will move away from negative interest rates, and they will go flat.
That means that if you annualize that, you should be looking at CHF 36 million increased revenues in the net interest income line from those two central banks moving to neutral from negative. Now, on the deleveraging, Daniela, indeed, if you look also at page 15, you can see that in APAC, in reality, we didn't have a lot of deleveraging, or let's say the deleveraging we have seen has been compensated. To be fair, you have seen that over the previous periods, we have had quite a significant deleveraging in APAC when we had some kind of leveraged products, but that was concluded basically last year.
So this year, we have not seen a major impact on that. No, I would say, coming back to your question, that what has made the difference have been, you know, few situations, important situations where the client has decided to de-risk and deleverage. This is what has made the net position negative. I wouldn't say that this is something that is spread across the board.
It is spread across the board in terms of geographies, but not in terms of that clients now are running to close the leverage position. It's, you know, it's a normal dynamic management when the situation is so volatile. For the moment, we don't see, let's say, we don't see any structural or systemic issues developing, or more specific situations.
Thank you. Very clear.
We have a follow-up question from Mr. Terelak, Mediobanca. Please go ahead, sir.
Thank you, sir. Just following up on the negative rate picture. What volume of dollar to franc swaps do you have? So how much excess dollar liquidity is going to the SNB via swaps? I just wanna know how much of that CHF 18 million has an equal and offsetting item in trading revenues. Thank you.
Sorry, I'll need to get back to you. I don't have that information at hand in terms of how big is our swap, the Swissy dollar swap that we have. We usually don't disclose, I think. Yeah.
A fraction of that will be offset in, kind of, the trading revenues.
Correct.
Okay. Clear. Thank you.
There are no more questions from the telephone.
Do we have another question in the room at this stage? No. Okay, I think we went through the question session, so I hand over to Giorgio for his final remarks. Thank you.
I'll be very brief, and the three key points I'd like to make is, first of all, that we delivered a strong performance in the first half of the year. This is the result of consistent execution over the period, and we are very pleased about that. In closing, we are convinced that we have the teams, we have the balance sheet and the capital, and a distinctive business model to make the difference with our clients in this volatile market and over the economic cycle to deliver sustainable and profitable growth. Obviously, we look forward to updating you about our long-term plans on October 12th. I hope that it will be also in person, so I hope you will be able to join us. Thank you very much.