Good morning, ladies and gentlemen. A very warm welcome this time from our Zurich offices. It's the EFG International first half 2020 results presentation, and as usual, obviously in these quite unprecedented times, but still I'm happy to be joined by Giorgio Pradelli, CEO of EFG International, and Dimitris Politis, CFO of EFG International for our presentation. As usual, I expect the disclaimer on our slides to be read. We obviously will have the presentations of both gentlemen, and afterwards we have enough time for Q&A. With that, I hand over to Giorgio for his introductory remarks. Thank you.
Thank you, Jens, and good morning. I also would like to welcome our audience that is joining via webcast and/or telephone. As Jens mentioned, given the coronavirus situation today, there is no in-person event, and we are webcasting live from our offices here in Zurich. The structure of our session today is as usual. In few minutes, Dimitris will make a detailed presentation about the financial results for the first half of 2020 of EFG International. Before that, I will walk you through the key achievements over the last few months and the key highlights that are relevant to be emphasized. Now, I think that we can all agree that the last few months have been unprecedented in many ways, both for us as individuals, for our clients, for our colleagues, and also for the society at large.
At EFG, we are very pleased on how we have managed this crisis, and I would like to make three key points upfront in my introductory remarks. First of all, this crisis has been a live stress test for our industry, and EFG has demonstrated a solid and resilient business, both from an operational standpoint, but also from a financial standpoint. Not only we focused on managing and weathering the storm, we also continued to execute our growth strategy amid this pandemic. We have maintained our growth momentum with strong NNA growth. Finally, we have delivered a robust financial performance. Let me go through and elaborate on some of these key points. In terms of operational resilience, I think that we have done extremely well. We have continued to deliver uninterrupted, high-quality private banking services.
We have leveraged and accelerated our new digital capabilities that are critical in these times where at the peak we were almost 90% of our colleagues working from home, was critical to maintain the relationship with our clients, to improve the customer experience in these unprecedented times. In terms of financial resilience, actually, our liquidity has improved, both in terms of loan to deposit ratio and in terms of LCR, and our capital ratios are actually very strong. This reflects the conservative balance sheet management approach that EFG is known for. Finally, also what has been extremely resilient has been our loan book, which demonstrated its high quality, and we had virtually no losses out of the loan book. As I said, not only we weather the storm well, but we continued to keep the course and maintain the growth momentum.
We were able to grow our NNA on an annualized rate of 5.5%. This is at the top end of our target range, which is between 4% and 6%, and actually, we have accelerated this growth in the second quarter of 2020. We are very pleased because the investments in the various growth initiatives that we have initiated a year ago in 2019 are materializing, and our NNA contribution is very balanced between existing CROs, new CROs, and the new locations that we opened last year in Milan, Dubai, and in Lisbon. This is a testimony of our EFG distinctive business model that is focused on clients with impartial advice and first-class private banking service. This shows that our business model is competitive and attractive. We continue to grow, we continue to hire new CROs. We have hired 28 new CROs in the last six months.
Obviously, we focus on teams that are competent and experienced. Clearly, the pace is not as last year, but given the unprecedented times, we are pleased with these developments. In terms of the financial performance, we have increased our IFRS net profit year on year by 10%, and in terms of the IFRS operating profit, which is basically what management can really control, the growth has been higher at 27%. The underlying profitability has been impacted by exceptional one-off items like the settlement with the Italian tax authorities, and we have experienced some pressure on margins. We have maintained our good track record in managing expenses, and our underlying operating expenses are down 5% on a like-for-like basis. What is important to remember is that since the end of 2016, when we acquired BSI, we have reduced the aggregate cost base by almost 30%.
We will accelerate in this direction. Today we are pleased to report that we have executed three transactions in the context of our footprint rationalization. We will focus on our core businesses. Today we will report that we have sold our onshore business in France, our onshore business in Chile, and we are exiting the Guernsey booking center, transferring our business to other location. Clearly, as part of the rationalization of our footprint, we will continue to invest in the locations that will bring superior growth. In this context, we have increased the stake in Shaw & Partners from 51% to 61%. You might recall that we acquired the 51% stake a year ago. To sum up and close, again, the three key points I would like to emphasize are that amid this coronavirus pandemic, our business demonstrated to be extremely resilient and solid.
We managed to maintain our growth momentum, and we have delivered a robust financial performance. With this, I will pass to Dimitris for a detailed presentation of the financial results. Dimitris.
Thank you very much. A warm welcome from me, and I'll take you straight to the key page with the summary, which is page seven of the presentation. As usual, this page gives you the gist of what has happened in terms of business development. As Giorgio said, strong NNA at CHF 4.2 billion for the first six months. Annualized growth rates of 5.5%, which is at the top of the 4%-6% target range that we have set ourselves through the targets that we communicated in 2019. AUMs are down by 3.9%. Obviously, negative market movement, negative currency movements, the same way that the entire industry has been reacting. We closed at the end of June with CHF 147.8 billion of Assets Under Management. Very pleased to see that Continental Europe, Latin America, and U.K. are three regions which are running at growth rates, which are exceeding the target range.
Very pleased to report that Switzerland and Italy has done a very big step this first half, and they're growing just below the target range limit. As Giorgio said, we continue our hiring of new CROs. This is part of our ongoing business, we have hired, signed, or approved 28 new CROs during the first six months. In terms of profitability, IFRS operating profit is up to CHF 66.5 million. This is 27% up versus last year. IFRS net profit is at CHF 34.8 million, or up 10% versus last year. The underlying net profit decreased to CHF 37.7. I'll come back to that to explain exactly what are the one-offs that we had this year, which is the settlement with Italian tax authorities, whereas we had some benefits from one-off gains in the previous period.
In terms of cost evolution, we still are managing costs down another 5% year-on-year on a like-for-like basis. This time it comes mostly from general and admin costs, which have decreased by 8% year-on-year. In terms of the legacy issues, we had a positive impact from life insurance by CHF 5.3 million. In terms of capital position, core capital ratio 15.3, total capital ratio 19.1, and underlying gross capital generation of 60 basis points for the first half of this year. I will skip the next page, which is page eight, where we have all the numbers, I'll go straight to page nine. As Giorgio started his presentation, this has been a very different time compared to other times. It is worth starting the presentation and talk a little bit about the balance sheet.
We usually have the balance sheet at the end of a presentation. It is worth noting that despite what happened in the market and what happened in general in terms of operations, we increased our liquidity coverage ratio, the LCR. We are down now at 190% versus 182. We actually increased our deposits during this period. Overall, the balance sheet is very liquid. It was very liquid before. It's even more liquid now, and this allows us the opportunity to grow the business going forward without any constraints. The capital position, as I said, is at 15.3 on core capital and 19.1% on total capital. I'll come back to the movement between the periods. It's largely from one-off items, and to a large extent, is because of the introduction of new rules on the calculation of risk-weighted assets.
The other point to note, although it's not on the page, is that in terms of expected credit losses, we recorded a mere CHF 2.6 million expected credit loss in the P&L for the first six months. This is one basis point on our loan portfolio, which is a highly secured portfolio. It's almost 100% fully secured portfolio, that gives you also an indication of the conservative approach of this pure play private bank. Going to page 10, this is more about business development and profitability. As we discussed, CHF 4.2 billion of net new assets for the first six months, 5.5% annualized growth rate. You see also the trajectory on the right-hand side on the operating profit, the IFRS operating profit. We have been consistently growing this operating profit line over the last three years, we are 27% up versus the first half of 2019.
Page 11 gives you more information between underlying profit and net profit, IFRS net profit. You will see comparing the two bars on the right, that the IFRS net profit, as we said, grew by 10%. If you adjust for the provision on the Italian tax matter, that comes to 42%, which is more like for like description of how net profit has been improving. Just a note on the Italian tax matter, this is a settlement we reached with the Italian tax authorities, over the last month, I would say. The amount that is recorded, the CHF 9.9, refers to the cost to EFG for settling this matter. The cost to EFG stems from ex-BSI clients and refers to the periods between the acquisition of BSI and the end of 2018.
There were other costs in the settlement for the years prior to the acquisition of BSI by EFG, but these were taken care of as part of the indemnification clauses in the acquisition of BSI. The life insurance portfolio was a positive CHF 5.3, as you see on the left-hand side of the page. That was against a loss of almost CHF 28 million the first half of 2019. I think we're pleased to see that the life insurance portfolio is delivering consistently some positive results. This is what we expect going forward. As we said, we have a significant gap between the carrying value of the portfolio and the total death benefit of the portfolio.
We do expect that over the next years, which are going to be between five and seven years, we should be recording, on average, a profitability, although we do note that this is a very volatile investment in the way that it gets valued. Finally, as a note on the Taiwanese insurance company legal case, we have some court hearings coming up in the second half of the year in multiple jurisdictions, and obviously, we will update you if and when on the developments, if they are material in any way. Going to the next page, we go in a bit more detail on the business development and the NNA growth. You see the CHF 4.2 billion of NNA markets negative by about CHF 5 billion, currencies by about CHF 4 billion, pretty much standard compared to the entire reaction of the market and the impact from that.
The only thing I would like to note is that if I were to take the net new assets on a 12-month rolling basis, if I add also the second half of 2019, the NNA for that 12-month period is over CHF 9 billion. This is over 6% growth in that period. We would also be exceeding a 4%-6% range if we were to look on a 12-month rolling basis. On page 13, as you see on the left-hand side, is the same page that we presented on the 13th of March 2019 as part of our strategy day a year and a half ago. We always said that in order for us to grow, we need to take advantage of all three levers that are available to us. Existing CROs, new CROs, and opening up new locations, new business initiatives.
We are very pleased to report that all three of the levers are now working. They have been working since 2019. If you look at the right-hand side of the page, we have broken down the NNA growth into these three different buckets, and you see it's a very balanced approach. I think the other thing that you need to note is that if you take the new CROs and the new business initiatives, so this is what we really added from a business perspective over the last year and a half. The net new assets over the last 18 months have been CHF six and a half billion, of which about CHF two and a half came in the first half of this year, and the momentum is strong.
To note that this performance is with several of our new CROs only joining in the second half of the year 2019. It's not that all the CROs have had the opportunity to fully deploy their business. We are looking forward to a continuation of this balanced NNA growth in the future going forward. Page 14, it is our usual page on the regional breakdown. You will see the very high growth rate for Continental Europe, 11.2% annualized for the first half of the year. In this case, we have both existing location like Luxembourg and Monaco doing very well. We have Dubai here also adding to the growth. In Latin America and the U.K., you see that the rates are 8% and 7%, respectively. Again, very strong growth. Switzerland was about flat in 2019.
It's growing at 3.8%, just below the mark of the 4%-6%. That is a very strong improvement. Finally, just to note that there is a negative NNA figure for Asia-Pacific at minus CHF 0.6 billion. This is due to deleveraging. We had a lot of deleveraging as clients went risk-off, mostly in Asia. You see it's about CHF 1 billion of deleveraging in Asia. If we neutralize that, Asia is also still growing at 2.8%, despite the impact from the deleveraging and the market volatility. Go to page 15. Mandate penetration, which includes advisory mandates, discretionary mandates, and funds increased to 48% from 47% at year-end. Arguably, it was not the best period to increase mandate penetration while the markets were so volatile, but still, we had a small increase. The increase is due to two main factors.
One is a very solid performance by our discretionary offering, but also an increased penetration of digital tools, which helps the CROs do their job and be more effective and efficient with clients. This namely is the investment advisory tools. We are rolling this tool out to all the locations. In the first half of the year, it was rolled out to the Americas. Asia is following up in the second half of this year, and by then we will have covered most of our CROs and our clients with the ability to talk to them and interact through this digital platform. At the same time, we are expanding on our funds offering to complement existing strategies, and obviously ESG is becoming more prevalent at this point, and we are increasingly taking into consideration ESG criteria in the overall investment process. Page 16 is our normal page on CRO performance.
You'll see that we closed the year with 629 CROs and another 186 in Australia for a total of 815. We are now at 601. These departures were already planned from last year, so there's no real change in our process at this point of how we hire and how we manage CROs. You will see at the bottom of the page at the left, the large investment we made last year. We're still making these investments this year, but it is at a lower rate than what we were doing last year, which was exceptional. I think the most important point to note, and it also shows in the way that the NNAs are printing that we discussed a few pages ago, is that the CROs hired in 2019, in aggregate as a class of 2019, have achieved a positive net contribution in the first half of 2020.
The people, the teams that we hired in the last 12 months of 2019 are already profitable in 2020, which gives us a lot of confidence in terms both of our ability to hire quality CROs, to manage them properly, and to actually get a bottom-line result as quickly as possible. If you look at the bottom right of the page, in terms of AUM per CRO or the load per CRO, it has increased by 32% since 2015. It has increased 6% over the last year. This is if you were to compare the CHF 2,024 million per CRO, which is the 2019 figure excluding Shaw & Partners, and the comparative, which is the CHF 238, which excludes just the CROs that we hired in the first half of 2020. Moving to page 17, we go to more the profitability lines.
What we've seen is that the revenues, and this is underlying operating income for the first half of 2020, came in at CHF 555 million, compared to CHF 576 million in the previous year. Previous year included one-off of about CHF 14 million from the revaluation of our SIX participation. I think the key message from this page is that we are improving our quality of revenues quite substantially compared to the previous period. We see a very solid increase in commission margin. Commission margin is up 17% year-on-year. If I were to neutralize for the Australia acquisition, it would still be 12% year-on-year. We see increasing penetration of the high-value products and services in our revenues. We saw client activity increase in the first half. It was not just because of the COVID situation.
The increased client activity started already from the beginning of January, and we're also seeing increased client activity towards the months of May and June throughout the period. I believe that this is here to stay. Also, we are taking repricing actions, which are already yielding results in the first half of 2020. I'll come back to the repricing actions because this is a theme that I would like to explore more in a page later on about also what we expect going forward. There is a drop in the combined figures for net interest income and net other income, and the reason for that drop is the decline in reference interest rates. Mostly for us, it's the USD rate that matters, also a bit of impact from the British pound, but mostly the USD.
The reason that I'm combining the two lines is that because of the way that we manage our swap book, some of the negative impact from lower interest rates doesn't print in the net interest income line, but prints in the net other income line. Having said that, it is fair to say that even after adjusting for this accounting treatment, that our performance in the net other or trading income has been muted. The muted performance comes from our global market unit, mostly on negative asset revaluation. What I would also like to stress here is that this result is also a function of us being a pure play conservative private bank. In that respect, we have a very limited fixed income trading portfolio. We do not have an equity trading portfolio, which we trade on a proprietary basis. We do not manufacture structured products internally.
We distribute manufactured products which are manufactured by third-party providers. In that respect, our ability to take advantage of opportunities in market volatility, such as the ones that happened in the market during the coronavirus crisis, is not something that we can actually capitalize on. For us, the bread and butter of what we do is the commission line. Obviously, we do lending and we do other balance sheet operations. The interest income line is very important. For us, the key driver of the business is how do we drive, how do we increase, how do we improve our commission margin revenues, and this is also the crux of the repricing actions that we are taking at this point. As a note, we'll talk about footprint optimization actions a bit later on, but overall, these actions will improve the revenue margin as we move along.
Just for your information, some compatibility information, excluding Shaw & Partners, the revenue margin is three basis points better. It is at 79 basis points for the first half of the year. Excluding also the loans, the margin is at 92 basis points, which I believe is one of the highest in the industry. Going to page 18, talk about costs. A bit of a more straightforward discussion. We have been consistently reducing costs the last four years, with about 30% lower since the acquisition of BSI. During the course of this year, we reduced costs by another 5% on a year-on-year basis and on a like-for-like basis. What I mean for a like-for-like basis, I exclude the new investments. We have reduced costs even in nominal terms.
We went from CHF 492 million in the first half of 2019 to CHF 485 million in the first half of 2020. Mostly on managing down G&A costs, which are down 8% year-on-year. We have also started executing on the international footprint rationalization. This was something that was announced late last year. At this point, we are pleased to be able to report that we have agreed for the disposal of our operation in Chile and for our operation in France. This makes it a more tangible thing for you to understand in terms of what we are doing. We have also agreed the exit from our business in Guernsey and the transfer of that business in other EFG booking centers. This is a consolidation play, which will produce cost savings by consolidating one booking center into other existing booking centers.
Going to page 19, a little bit more on the balance sheet. I will not go through that page in a lot of detail because we have discussed it. It's a very liquid balance sheet. It's a very high-quality loan book. Just as a note, again, the life insurance element, it's recorded as you see on this page. You can refer to pages 38 and 39 at the back for more useful information on the life insurance portfolio. Page 20 gives you the picture on capital adequacy. We've gone through the figures before. You see there's a slight increase in risk-weighted assets between CHF 10.1 billion at the year-end 2019 and CHF 10.4 billion in the first half of the year. The reason for the increase is the new regulation, the Standardised Approach for Counterparty Credit Risk or SA-CCR, as it's known. This has increased risk-weighted assets by CHF 400 million.
Actually, it increased by CHF 200 million at inception, which was the 1st of January of the year. Then the amount increased by another CHF 200 million because of market volatility. We bought back approximately 600,000 shares in the first half of the year, and we concluded our share buyback program in June this year. Just as a note, the capital ratios include an accrual for dividends, both for the second tranche of the dividend for 2020, which will be decided by a general meeting to be held in the fourth quarter of the year, and also a steady accrual for our 2021 dividend based on 2020 profitability. On page 21 is the bridge of the capital position. You will see that we generated 60 basis points of gross underlying P&L and equity impact. That's on the left. The risk-weighted assets didn't really move, excluding the impact of new rules.
The dividend accrual consumes 40 basis points during the first half. We have more of the one-off items. As we said, 40 basis points down because of new rules. Some non-underlying P&L because the accounting of the life insurance portfolio is different under Swiss GAAP, which is the basis of capital ratios than IFRS. We have the acquisition of the additional 10% in Shaw & Partners, which is 10 basis points. We also have a currency translation impact of 40 basis points. In reality, part of that currency translation difference should be viewed in conjunction with the risk-weighted asset decrease of zero on the left, but we've just left it separate for simplicity reasons. Again, the currency obviously is one-off, given to more currency volatility, and the new rules is one-off from the introduction of new rules. Going to page 22.
Again, this is one of the pages that we used for the presentation in March 2019. We had portrayed on this page all the sub-actions that we would like to put forward. The checks in blue are the ones that were there already at the end of year 2019, so they're just repeated. The checks in green are new ones, the ones that we're adding this year. You see that we are accelerating our digital solutions. We've added another check for Shaw & Partners because we acquired the extra 10%. Clearly, Switzerland back to growth is very important. The fact that we're already achieving it in 2020 rather than 2021, 2022 is also very important because it's the biggest driver of growth, given it is the biggest region that we operate.
I think the critical bit to discuss is the part in the middle, which is in the red box. Our expectations when we announced the strategic plan in 2019 were different in terms of AUMs, interest rates, market impact. We are now in a situation where we have challenging interest rates, we have a lower AUM base than we were expecting because of the market valuations, and we also have a strong Swiss franc. In our mind, that means that we need to react. The key to actions reacting are to add repricing actions and to accelerate the cost management actions. The new environment is more challenging on the revenue line, and the reaction that we have is both managing the revenue line but also adding more effort to the cost line. I'll come back to that in a couple of pages.
On page 23, we try to give you also a picture of a more recurring profitability, trying to strip out some of the one-off items. If you look at first half of 2019, we had an exceptional gain from a tax valuation, and we also had a reversal of our ECL charge of CHF 9.9 million. The adjusted figure would be CHF 52 million. In the first half of 2020, we have a provision for the Italian tax matter, which is confusingly, again, CHF 9.9. We also have a muted performance in our global markets, which we estimate about CHF 10 million, which means that a real recurring adjusted figure would be the CHF 57.6 million that you see on the right. This means that on a like-for-like basis after the adjustment, we'll be growing by about 10% year-on-year. Page 24 gives you our expectations for the way forward.
On the left-hand side, you see the same figures that we just discussed. We see our starting point for the first half of 2020 is about CHF 60 million in reality. What we see is, we see a strong NNA momentum, and we also see that our AUM levels at the end of June are higher than our average AUMs for the first half of the year. This means that our revenue base should be higher like for like going forward. This is a positive in our view in terms of the development of the revenue line. Clearly, the interest rate environment is going against us. There are going to be headwinds. We know that.
We can actually calculate how much it's going to be given the interest rates and the timing of the asset repricing. This is the reason that we have the next two blocks, which are the positives. One is revenue management actions. Revenue management actions is a set of actions that covers many points. One is the high-value products and how we manage to accelerate the penetration of high-value products. We are revising our pricing and the services that we offer so that the pricing is in line with the value that we offer. Again, we discussed earlier that we've had a very good track record in cost management over the last four and a half years. The question is, why did we have this good track record?
The main reason is because we had a lot of people focusing a lot on costs and making sure that we deliver. We have not placed the same amount of effort and the same amount of diligence on repricing over the same period of the last four years. This leaves more low-hanging fruits. This gives us the opportunity to promote actions that should have and are having even short-term revenue benefits. We believe that the revenue management action plan will mitigate, in part, the interest rate environment that we have to face. On the cost management actions, there are three broad ranges. One is incremental actions. We've been reducing costs 5% a year. We will continue managing costs down on an incremental basis. There are always pockets, of course, that you can handle and reduce.
The other two broad areas is the rationalization of the international footprint, where we expect to eliminate approximately 5% of our cost base. We will do that by the end of 2021. Just to make sure that we are clear, the rationalization of the footprint means that there might be cases where there are also revenues that do not follow. This does not translate 100% to a profit benefit. Whereas the last action that we have on this list, which is the optimization of our setup on our eight main booking centers, is a pure cost reduction, and here we target to reduce costs by an additional 5% of the underlying cost base, again, over the next 18 months. Both actions have a time frame which goes until the end of 2021.
On that note, I'd like to thank you very much and pass the floor back to Giorgio for his closing remarks.
Thank you, Dimitris. Building on what Dimitris just said, in the previous slide, I'd like to focus now on the strategic priorities for the next quarters and the outlook that we expect. We move to page 26, let me be clear up front, our key focus areas will be driving the profitability higher. Clearly, we are facing with a challenging market environment. There are several trends that are converging. On one end, our industry is being affected by structural pressures on revenues. On the other hand, the impact of the coronavirus pandemic on the global economy is expected to materialize in the coming months. Dimitris mentioned the extremely low level in interest rates that is basically now zero across all currencies. Obviously, we are a business in Switzerland expressing our financials in Swiss francs, but over 90% of our business is actually in foreign currency.
When the Swiss franc is as strong as it is now, clearly this have a dampening effect on our business. Overall, the market remains quite uncertain and volatile, and this is getting also reflected on the risk aversion from our clients. We have seen deleveraging, and we also believe that now that the strong volatility of March and April has concluded, we will see a softening of the number of transaction. For sure, if the key focus area is driving the profitability higher, we need to accelerate, as Dimitris already anticipated, our revenue management actions and our actions to increase efficiency so that we can deliver our 2022 strategic plan. We have achieved a breakthrough over the last 18 months in our growth.
As we have mentioned, if you look at the last 12 months, we are actually growing at the top end of our range at around 6%. Now, on the other hand, we need to contrast the pressure on margins, and we need to promote high-value products and services. I think on that, we are quite well-placed because the feedback that we have received from clients and bankers alike over this crisis has been extremely positive. Our business model is based on a partnership with the clients, in a strong proximity with our clients, and clearly, we are sure that our clients will be prepared to pay the right margin for our value-add. Now, clearly, revenue measures are critical. We need to rebut this pressure on the margin. On the other hand, we will continue on our cost management measures. We will actually accelerate the rationalization of our international footprint.
This has been already commented, and we will reduce our presence in low-yielding and high-cost income ratio locations. As Dimitris said, the impact will not be one-on-one to the profitability in terms of this 5% reduction of the cost base, but obviously, this will have a positive impact in terms of the cost income ratio. On the other hand, we can become even more efficient in our core locations. We are working on that, and we are very confident that by the end of 2021, we will be able to reduce the cost base by another 5%. Last but not least, I think this crisis has accelerated in the industry, and we are no exception, the adoption of new digital solutions that are very useful on two fronts. Number one is with interaction with our clients, client proximity, client interaction.
Again, this new environment is creating a new way of interacting with clients. The CRO, the banker, remains at the center of this partnership with the clients, clearly, we need to give to our CROs the best digital solutions to work effectively with our clients remotely. On the other hand, digital solutions can be extremely useful to reduce cost and increase efficiency. In taking stock of our performance in the last six months and looking ahead, again, I'd like to emphasize that our business is extremely solid and resilient. At the same time, we have been able to maintain this growth momentum, which we want to again accelerate going forward.
In the U.S., our businesses are called asset gatherers, and obviously, asset gatherers have to gather assets, and this is why, for us, growth is so important, not just per se, but in order to fuel profitable and sustainable growth. We can leverage our business model, and we can leverage, I believe, the strong competence and experience of our CROs. Finally, and I will close with this, we believe that we are on track to execute our 2022 strategic plan. We have concluded at the end of 2018 our integration with BSI. We have had a breakthrough in terms of growth. We have had a strong track record in terms of cost management, and I am convinced that we will have a strong breakthrough in terms of driving profitability higher in the next quarter. With this, I close, and Jens, I think we can open the Q&A session. Jens.
Thank you, Giorgio. Thank you, Dimitris, for your insightful presentation. As said in the beginning, we're now moving to the Q&A session. Please, operator, let us know if we have a first question, and then we can address it accordingly.
The first question coming from the phone is from Nicholas Herman from Citigroup. Please go ahead.
Good morning, gentlemen. Can you hear me?
Yes.
Good. Yes.
Very good. Thank you. I have four questions, please, if that's okay. If I could just clarify, please. Firstly, on net interest income, following the U.S. rate cuts, could you confirm your exit NIM for the first half 2020? That's NII as a percentage of AUM. I guess that would be the NIM for the second quarter. The second question is on your fee margin. I know the comment from Dimitris about how it is the fee margin, growing fees, which is the key here because of your narrower offering versus larger peers.
On the fee side, it looks like your advisory and management fees, the margin there has fallen to 23 basis points in the first half. That is despite an increase, a good increase, as you said, in discretionary mandates, and an ongoing increase in mandate penetration. It's quite a large fall versus the second half of 2019. I just want to understand what is going on there because it doesn't look like your pricing is materially different from peers. That's to question number two. Question number three is, I wonder if I could clarify please some of the math on the costs. I appreciate the updated guidance and outlook there that you've given. If I take your first half 2020 cost base of CHF 485 million and I annualize it, that gives us CHF 970 million.
If I take off two lots of 5% and a little bit of G&A, then I come up with something like, I don't know, somewhere between CHF 860, CHF 870, CHF 880, and then I apply some growth. It kind of sounds like you're targeting a 2022 cost base of about CHF 950 million. Is that something that sounds reasonable to you? The follow-up question, please, is on Shaw & Partners. It looks like the margin there has remained flat at 40 basis points or even less than that. Just curious why that is, because my understanding is that Shaw & Partners is a pure brokerage, and I would have thought that we would have been in a bit of a Goldilocks environment for brokerage. Just curious why the margin there hasn't changed. Those are my four questions. Thank you.
Let me take your four questions. I will start with the last one, which is the simpler one. You're right. The peculiarity of how we account for Shaw & Partners is that we do not include in our revenues the gross client margin, which is about 65-70 basis points. We include in our revenues, in our commission line, the net commission, so net of the fees, the expenses paid to CROs locally there. What we include is a net revenue of about 35 basis points.
What you see is what skews the gross revenue generated by that business, and it's also the reason that we report, if you look on the revenue page of the presentation, which was page 17, we report the revenue margin with and without the Australian business, just to show that because the way we have to consolidate on an accounting basis gives a bit of a misleading image in terms of the evolution of our margins. Obviously, it's a very good business on a gross client income basis. It's just the accounting that affects, and as you say, what we consolidate in the end of the day is something between 35 and 40 basis points. On the costs, you did a rough calculation. I think that I wouldn't like to comment on very specific calculations.
I wouldn't tell you that you were off the bat by what you did. Obviously, there are more things coming in, and also there are things coming in with a delayed reaction. Some of the cost actions that we have taken in this half have not printed yet, but I wouldn't like to comment more on that. On the exit NIM, it is lower than the average, obviously, that we've had during the course of the first six months. I think it's a bit difficult to give you the figure because you also have the combination between exit NIM for NII and exit for NOI, because a lot of the interest is actually printing in our net other income.
I would say that the difference that we're talking about is probably order of magnitude about probably 10% lower in terms of the exit NIM than what you see printing. Final question, I was trying to figure out your comment about fees and why fees you believe are staying stable. I think that when you look at fees, you need to look at fees combined. It's not just the revenue side, but it's also the expense side that you need to combine. I think that what you see is that we have improved on the combination of the two. I don't believe your point is exactly correct. We have been increasing our penetration of value-adding products. I think that's the reason that we see more advisory management fees.
The only thing I can think of that might be interesting is if you compare to the second half of last year, then at the end of the year, we did have some performance management fees coming in, which usually only come in at year-end, and that might skew a bit the figures. Otherwise, the trend is very clear on increasing the quality and quantity of our commission income line.
Okay. Thank you very much. That's very clear. Can I just ask a couple of follow-ups, please? Thank you. I obviously missed that point on the performance fees. Just on Shaw & Partners, can I just clarify then that the 35-40 basis points that you book, that is basically fixed? It doesn't actually change depending on the environment.
It is fairly stable in the sense that the calculation you should have in mind is about 65 basis points charged to the client, and then about, I don't know, half of it, just to be very broad, or a bit less than 40%, more like 40%, paid back to the CROs that operate in Australia. Your net is about 35 to 40 basis points.
In that case, I know basically here just an ongoing rate, regardless of the environment.
It's like any-
Any other business?
brokering business.
Yeah
depending on the market conditions and the kind of products and services that are delivered to the clients. Obviously, what is charged to the clients, usually it is between 65% and 75%, but obviously this can fluctuate according to the market.
It depends on the, because it is a brokerage business, it depends also on the trading volume. There is, what I am talking about is an average annual, let's say, figure. It doesn't mean that all the months come in at 65 basis points.
Just to clarify also, thank you. Also on the net interest income side and NOI, you said is about 10% lower as an exit run rate. Is that a stable run rate from here pre-repricing, or is there still some more pressures to come?
I think that going forward in the net interest income line, you'll see more pressure coming in from the interest rate environment. At the same time, you will see repricing happening in the NII line as well, because obviously, it is one of the areas that we're looking at in terms of managing the revenue side. It's both about managing the lending side, managing the deposit side, managing negative interest rates. There are actions that we are applying also to the net interest income line, and we expect them to have a positive effect. Actually, some of these have already started having a positive effect, even in the first half of 2020.
Very good. Thank you very much.
The next question comes from the line of Andreas Venditti from Vontobel. Please go ahead.
Thank you for taking my questions. On the global markets, obviously you talked about the muted performance, and you said you estimated an impact of CHF 10 million. You can explain how you come up with this number or how we should think about it going forward, basically. On the sales, you mentioned in Chile and France, obviously, as you rightly said, it's not only costs going out, but also revenues. You could give us some guidance on how much AUM or revenues we're talking about here, also to model that. On your net new money, for the first quarter you stated in your brief update that it was 2.5% annualized. That's roughly CHF 1 billion, which basically means in the second quarter, the performance was exceptionally good, more than CHF 3 billion, so more than 8% annualized.
Maybe you can comment on that, what happened there, whether there was any large inflow pushing this. Yeah, I'll stop here and I might have some more questions later. Thanks.
You take the NNA?
I'll take the last one, yeah.
Okay. The estimate for global markets is mainly a comparison of past performance and what we're expecting in this year's budget. That's the reason we put a round number of about CHF 10 million. As I said, it comes mostly from our positioning overall and the services that we offer. It is not a fully scientific, it's an estimate of performance of that unit compared to what it should have done, excluding COVID. This is how we'll come up with the CHF 10 million calculation for the COVID gap. Now on France and Chile, the figures that you should be aware of in terms of AUM, we're talking on a combined basis of about CHF 1.5 billion to CHF 2 billion of assets under management. In terms of revenues and costs, we had already moved our Oudart participation into the held for sale category since 2019.
We have not been consolidating revenues and costs for that entity on a line-by-line basis, so you will not see an impact from that. Chile is very small at this point, so it's going to have a marginal impact on the figures overall. I think, Giorgio, if you want to take the NNA.
Yeah, I'll take the question on the NNA. It is Andreas, correct, that obviously we had, and I mentioned it, an acceleration in the second quarter, which was quite good. There is nothing, I would say, that is an extremely large inflow that has changed, I would say, the nature of the business. Maybe only two points I'd like to highlight. One is that since basically the end of the first quarter of 2019, we have introduced a pipeline process that has mobilized basically the whole organization from the CROs to the team leaders, to the heads of private banking, and to the global business committee members and the regional business heads. This is a weekly process, it's quite intense, I would say. It has accelerated in 2020. Already was bearing fruits at the end of 2019.
If you recall, the fourth quarter of 2019 was quite good. There, again, as I said, we mobilized the whole organization. Clearly, for the flow business, which we include the deals and inflows up to CHF 50 million, I would say this is very broad-based from all the bankers, the CROs, and the heads of private banking. Obviously the global business committee is focusing on the deals that are, let's say, over CHF 50 million. The other key point to highlight is on page 13. This is what we said, it is a balanced NNA growth, where not only the existing CROs have been performing extremely well. As you can see, basically CHF 1.6 billion in the half year, which is more than what the existing CROs have done for the full 2019.
Also, the new CROs that, as you know, many have been hired in the second half of last year. They started really to produce despite COVID and the lockdown, and the new business initiatives that, for example, the Middle East and even Lisbon have been opened in the fourth quarter last year. This is a combination of management actions, but again, it shows how the CROs are very close to clients and our model is competitive and attractive.
Perfect. Thank you. May I have a follow-up on the sale of France and Chile? On page 24, when you talk about a 5% cost base from the rationalization of international footprint, obviously this will not come, if I understand correctly, from the sales of France and Chile. It must be other actions then. Is that correct?
Correct.
Just to clarify, the 5%, that's not a net number, obviously, it's a gross number, before investments in the business.
Correct. It's the actual cost base of what will be eliminated.
Yeah. Okay. Thank you.
The next question comes from the line of Daniele Brupbacher from UBS. Please go ahead.
Good morning, thank you. Just want to ask on CROs, obviously still some good hiring going on. The net number is still down slightly. Is this how we should think about the next couple of quarters, probably, that you try to have this more like, let's say, balanced approach with replacing not so highly producing CROs with new ones? Is that sort of how we should think about it? Just on slide 17, you mentioned in the global markets context, the relatively soft revenues from negative asset revaluations. Can you be just a little bit specific there? Is this referring to, I think you mentioned swap books, how that works now, if probably interest rates stay relatively unchanged at these low levels? I guess that should be in the numbers, from here onwards it's more stable. Is that a fair assumption?
On repricing, we hear a lot about repricing possibilities or ambitions from various banks, but it's always hard to see the real effect in the actual numbers. Why are you confident you can do this now? Is it because everyone is doing it and it is harder for those clients to leave? Why now? What do you exactly mean with higher value products? Is it things like barrier reverse convertibles or just the mandates in general? Would be just interesting to hear some more details there. Thank you.
Thank you, Daniele. Maybe I will start with the first question about CROs. This is on page 16, I think. The number is not clear.
16, yes.
Page 16. Yes, you are right. As we clearly mention in the page, we will continue to hire teams that are competent and experienced, and they fit with our culture and with our business model. We have hired 28. Clearly, the pace, in particular in the second quarter, was lower than last year, but this is also by design. If you recall, during the strategy meeting in March last year, we said that gross, we would think about hiring between 70 and 100, but obviously in 2019 we did much better. For the period 2019 to 2022, I think we are on track. On the other hand, we will continue to exercise our performance management and our criteria are very transparent, are very clear. What are the targets that CROs, new CROs, and existing CROs have to meet are very clear.
Clearly, if there are CROs that unfortunately cannot meet those criteria, we will have to find a solution and eventually part ways. For us, if I can summarize what we are trying to do, not only for the CROs, but also in general, I would use the word load. We need to increase the load. We need to increase the productivity of the CROs. You see on the bottom right that over the last five years, we increased by over 30% the load or the average AUM per CRO from CHF 180 million AUM per CRO to CHF 240 million. This must continue and will continue.
The same thing we are doing with the booking centers and the locations, where obviously we are trying to focus and grow the core locations where we have efficiency and strong growth prospects, and reducing the, let's call it, the periphery, where growth is lower and efficiency also. I don't know, Daniele, if this is clear. The second question, I think.
I'll take the second question. On the global markets, I think that the fact that the assets were revaluing downwards is what, to a large extent, did not allow us to meet the level of revenue that we would have liked. I'll not go into details because there are many small things that do not work. I think what I want to make clear, and I think you referred to it, Daniele, as well, is the fact that for us, this is a one-off event. It is not something which will lead to a continuous low level of revenues from our global markets. It is a one-off impact, and that's the reason we also adjusted that figure on page, where was it? On page 23 of the presentation by CHF 10 million, trying to show what is the real sort of recurring profitability of the business of close to CHF 60 million.
Now, on the repricing.
I can go ahead.
On the repricing, I was just going to say that I agree with you that repricing is difficult to track. I'm saying that because we are trying to track it as much as possible. The problem with the repricing and the difficulty to track is that it comes through a series or a group of actions where each one of the actions has a small effect. There's no silver bullet in repricing. Actually, there is no silver bullet in cost management either. The fact of the matter is that at this point, I can tell you that we started some of the repricing actions. We launched them already in January, because managing the revenue line was part of our initial plan, in any case, for 2020, irrespective of COVID. What we had to do, obviously, is we had to accelerate some of the actions.
In terms of the monitoring, I see certain things happening, and I see that we are already printing, obviously, small amounts in the first half of 2020. We can identify one to one some of the actions that we have done and the impact they're having on the revenue line. Going back to your broader question about repricing and why do we believe that it will work, I think you're right in what you're saying that all the banks have realized that since February, March this year, we are operating in a very different environment. The cost of doing business is different, the cost of funding is different. All the banks are moving in tandem. There is less, let's say, ability from clients to arbitrage between banks.
I think in the end of the day, we will all need to adapt to a new reality, and we will be costing and pricing everything that we do the best way we can and in line with what the market is doing. At the same time, there are some very specific opportunities. I will give you an example. On the loan book, if you are offering before to your client a Lombard loan and you are charging him LIBOR plus, I don't know, 80 basis points on that loan. LIBOR was at the time 2.5%, so your client was paying 3.3% nominal. Now the client is paying probably, I don't know, 110 basis points nominal. Could we add another 10, 20 basis points on that loan? Of course, we can, because the nominal charge of the client is a lot lower.
I think that it is also an opportunity because by having the parameters move, you can rethink what is the most appropriate pricing for the client on this product, on other products, on combination of products, so bundling. I think there are many opportunities on the pricing side that EFG can explore, and the industry, in general, can explore.
Maybe to complement Daniele, I think that, and answering the question, why now is because everybody's doing it. I think that you need also to look at our trajectory, because as you know, until the end of 2018, we were involved in the integration of BSI, and obviously, this was not the best time to focus on that. From last year, the key strategic imperative was to reignite growth. Now, where I think that we have the growth, we need also to look at the level of service that we provide to clients, and I am convinced that clients, especially after the months of March and April, will be prepared to pay higher pricing for the good advice that they receive. It is a bit a combination of the industry trends.
I think that despite many advisors and consultants say that there is a pricing pressure which is structural and secular, I think that there are areas where the industry has pricing power, in particular on advisory, on discretionary, on more complex structures and comprehensive services. Also I think it is specific for us, for EFG in our trajectory, I think this is now the time to identify the pockets of our portfolios where the pricing is below what covers basically what reflects the value of our services and reprice. It's a bit a combination. Why am I confident? Is because, as I said, we have managed over the years to have a very strong track record on cost management. In the last 18 months, we have managed to have a breakthrough in growth and applying the same approach, very systematic, mobilizing the organization.
This, we will achieve also very good results. By the way, as you know, EFG has always had a very stable and very strong return on AUM. We had now some weakness, which has been very specific. Again, I'm very confident that we'll be able to bring our return on AUM to the levels close to the targets that we have announced.
Thank you very much. Very clear. Thank you.
The next question comes from the line of Daniel Regli from Octavian. Please go ahead.
Good morning. Thank you for the presentation and for taking my questions. I have a couple of follow-on questions on mainly two, let's say, clusters. One about gross margins and the outlook, and the other on expense, particularly personnel expense. Maybe first on gross margin. First of all, I observed the same as Nick, if you divide advisory and management fees through the AUMs, your advisory and management fee margin, if you want, has come down from 24% to 23%. Now you said part of this was driven by performance fees. Can you quantify the impact of performance fees in H2 2019 a bit more? Maybe also historically, what has been the share of performance fees within advisory and management fees?
Second, on the net interest margin, I was a bit of surprised to see actually your net interest margin was fairly stable if you compare it to the H2 of 2019. Not much to it. It was even slightly up on the AUM base and also on the average loan base. I wonder, will there be another impact coming from the lower U.S. dollar rates now in H2, or what was driving this higher net interest margin, if you want, compared to H2 2019? Third, now you're adjusting for the CHF 10 million in global markets, you had around 77 basis points adjusted gross margin in H1. Can you give us a sense, I think, about this number? Is this something which you consider to be sustainable? Should it even go up?
If you talk about repricing actions, which amount you expect to improve your gross margins with regard to repricing actions? The second cluster, sorry, a couple of questions, I know a part of it was already asked, regarding personal expense. I just noted that personal expense has bumped up quite a bit from H2 2019. What was driving this, particularly with regards to you having a lower FTE and lower CRO base? Have your newly hired CROs been more expensive than the existing CROs? Also, if you say that the newly hired CROs have already been profitable, how far do you go with allocating indirect costs, if you want, to this calculation?
Let me start with the first one. I don't have the exact figure of performance fees available. I understand what you're saying, that we are at between 24 and 23. There might be a difference in-- Are you comparing second half of last year with first half of this year on commission income? What is the comparison of the 24 for-?
Exactly. It's advisory and management fees, the soft part of your commission income divided by average AUM in H2 2019 versus H1 2020.
I think what you need to look at, and on that page is also, there is an expense line. You're not just looking at the gross income line, so there is no breakdown of how the expense line might relate to some of that service. It might be a bit misleading. I think, if I want to take that offline, I'm happy to give you more information. Again, what we're seeing is we are seeing increased performance now. Maybe, in terms of between the half two and half one, it's a basis point which may be a bit hidden into the figures, but we generally see a very positive trend. On your second question on the stable net interest margin, if you look at page seven of the presentation, we are discussing net interest income, and net other income, a bit in a combined basis.
The way we account for swaps means that the impact from the lower interest rates doesn't just hit the NII line, but a lot of it gets transferred through the swaps in the net other income line. That's the reason you need to view the two in conjunction. The drop of 40% in the net other income from CHF 113 million to CHF 68 million is not all a real drop. If you were to do it, let's say, without accounting for the swaps, you would have a bigger drop on net interest income and a smaller drop in net other income. It is slightly artificial in the sense that it shows that the net interest income is holding up. It shows it as better than what is the actual impact from lower interest rates.
Your third point was that you're saying on an adjusted basis, we are at 77 basis points of net interest margin. I think the calculation is right. I look at it excluding Shaw & Partners to avoid a bit the confusion between periods because it was not fully consolidated in the previous year. You would be looking at 80, maybe 81 basis points of revenue margin excluding Shaw & Partners. As Giorgio said, the goal is to increase that interest margin. The question, and the only question mark, is exactly on the timing of it, and is there something that you can do in one quarter, in two quarters, in three quarters? It's a matter of how quickly you can roll out repricing actions so that you mitigate any lingering negative effect from interest rates.
I'll just confirm that the target is for that figure to go up, and to go up substantially enough for us to meet the targets that we need to meet. On your last point on personnel expenses, you're right. Personnel expenses have gone up in the first half. Most of that increase is because of the investments in new locations. You need to think about, depends what you're comparing. If you're comparing to the first half, we have added Australia for a few months. If you just compare to the second half, we have investments in Dubai, we have the investments in Milan, we have the investments in Portugal. We have new CRO hiring, which is also coming in. Some of the new CRO hiring has an additional cost element, which is the accrual for any one-off acquisition incentives.
I think the numbers that you see here in the first half include all these items. The only other item I'd like to say is that in a lot of senses, like COVID, people have been saying there has been a bit of a help on the cost side. I think there are things that have worked negative because of COVID on the cost side as well in the way that they are accounted. I would say that our run rate on the cost side is lower than what we are printing in the first half. This is a broad comparison between the first, the second half of 2019, and the first half of 2020.
To complement, regarding the CROs, I just would like to confirm that we are not hiring new CROs at higher cost. Obviously, there might be the sign-on, overall, the cost of new CROs is in line with the existing CROs. The other question was about the net contribution of CROs. Basically, our model, there was a very high-level description of our CRO model in the presentation of the 13th of March 2019. Our model is market salary, market compensation, and the variable compensation is based on the net contribution. Net contribution is revenues coming from clients minus direct cost, where the direct cost are all costs that obviously the CRO can control or influence.
These also they include costs related to, for example, liquidity charge, capital charge, if the portfolio of the CRO has high-risk clients, et cetera, so in order to have a proxy for compliance cost. We do not allocate indirect cost to the CROs for their P&L. As we mentioned in the presentation that is on the website, clearly our variable compensation model is very transparent and is based on performance and conduct, and compliance with obviously our compliance rules.
Okay. May I add two follow-up question? One is, again, on this CHF 10 million drag from the global market, and I know you have already talked about it, but how much of this part of this related to some valuation items, and could we even see eventually a reversal of this because of normalized market environment? The second question would be also on net new money again. Just for curiosity, can you tell us a bit more about how you were able to generate net new money through the lockdown period, and whether there were, let's say, delays in onboarding processes, which could lead to some pent-up net new money generation in H2? Can you talk about a bit of, let's say, a pipeline in net new money you have for H2?
I'll take the first one. You are correct. The biggest impact that we have, that we record is a valuation impact. If things were to go back, I think that we would recover pretty much the entire amount that we're discussing. Regarding the net new assets, if the question is how did you achieve the NNA growth, during the lockdown, I think this is a very good question. The answer is that obviously, you achieve net new assets basically in attracting new clients, both from existing CROs and new CROs, and you increase the share of wallet of existing clients, obviously. The deals take time. It's not that you can achieve the net new assets immediately.
There is always a work by the CROs and the various teams to ensure that obviously the accounts are opened, and if it is a share of wallet, that all the stars are aligned to ensure that the money comes in. The pipeline that has been converted into the second quarter, clearly it is a pipeline that we started working on it earlier than the second quarter. The other question was, were there delays? Yes, we had delays. We had delays in opening accounts. We had delays, especially new clients for new CROs. Some clients liked the new remote interaction. Other clients actually wanted to have a physical meeting before closing the deal. We had a delayed conversion of the pipeline. Now, is this good or bad going forward?
Well, as I said, some of the pipeline that we were expecting the second quarter has been postponed to the third quarter. There we should have, I would say, a positive development. Clearly, what we are focusing as we speak is to avoid that, especially in Europe in the summer months, there is a bit of a pipeline drying out. Again, this is an unprecedented year, so the summer this year is a bit different. Again, our target is between 4%-6%. I cannot anticipate that we'll run always at 6%. As I said, the NNA is very balanced from existing CROs, new CROs, and new locations. I'm fairly confident that the various engines will work, and eventually will compensate each other.
Okay. Thank you very much. Very clear.
Gentlemen, there are no more questions at this time. Okay. Thank you, operator. Do we have a final question coming in, or? We have a follow-up from Mr. Herman. Please go ahead.
Yes, I'm sorry. I hope you don't mind if I just ask a couple more questions, please. Yeah, I just wanted to ask a follow-up on the NNA point. The growth is really fantastic. Very impressive. Equally, I'm just kind of curious, are you really comfortable that you're getting the right quality of NNA in? I mean, it's a bit of a rough, but if I look at gross margins just for the EFG standalone business, I mean, the margins there have fallen from 84 down to 79. Despite obviously a very strong brokerage environment in the first half. That's the first question. Second question on life insurance, the CHF 5 million after tax. Is that from high death benefits only? Actually, I do have two more questions, actually. Tax.
If I look at the first half tax rate on both an underlying and reported basis, it's about 20%, thereabout. Going forward, can you reaffirm your tax guidance, please? Obviously, there has been some Swiss tax reform. If I look at your peers there across the road, they're guiding for 15% or so. Just curious, obviously, I think they do have a larger Asia business as well, but curious what you could help us on tax. Finally, Taiwan, you've mentioned there's some rulings in a multiple of jurisdictions. Am I right that Singapore is still the most important one there, and you're still positive on the outcome, for a ruling in Singapore? Thank you.
I'll take the first question about the quality of NNA, and I can absolutely confirm that the quality of NNA has actually improved in the last half year. Also, one element is clearly how much leverage do you have in your growth, which obviously leverage is a very legitimate service, but clearly the quality of net new money without leverage is more important, is less volatile, gives more annuity, and I think that has improved. Now, if you look at page 17, clearly the net commission income line is growing 17% year-on-year, which I think is very good, and this gives you the sense of the quality of our business. Now, clearly, as Dimitris has explained very well, we suffered on the global markets front, we suffered on the NII, in part because obviously, the dollar rates are virtually zero.
I also believe that the quality is very good. Clearly when you bring in new business, usually at the beginning, a lot is cash because it's easier to transfer cash than to transfer a securities portfolio, for example. Then there is the conversion activity that the CRO does. Speaking to the top CROs that have been growing very fast in the last months, obviously, they all told me that now it's the time of continuing the growth, but also of converting the business that they've brought in, towards, let's say, more value-added products and services. Absolutely excellent quality. Dimitris?
Let me take the rest of the questions, starting with the last one on Taiwan. I'll guide you to page 24 of the interim report, where we explain the situation and where we are. I am not at liberty to say a lot more than what is printed. You realize that we are reaching the point where we'll be having discussions of court cases, and they're both in Singapore and Hong Kong, and this is described again on page 24 of the interim report. I'll not discuss the merits of the case. Just the alert is that we're having court hearings. We don't know exactly when we will have decisions, what the decisions will be, obviously. It was just a heads-up that there are some court dates coming up in the second half of the year. Going to the tax point, we are not changing our guidance.
Our guidance has always been between 15%-20%. As you said Nicholas, we had some tax reform in Switzerland. It really depends where you're getting your profits and your combination of your profits. We were maintaining our 15%-20% tax guidance. We're not changing it. We already had a range, so I think we are still within the range given the changes. On your question about life insurance, yes, the reason we recorded the CHF 5 million is on account of death benefits received. If you turn to page 38 of the presentation at the bottom right of the table, you'll see that we have received CHF 94 million of death benefits in the first six months, and we have a net cash flow, which is positive at CHF 16 million.
If you compare that to last year, we had CHF 157 million of received, which is for 12 months, whereas the 94 is obviously for six months, and we had a net cash flow of CHF 38 million. Overall, as a total year, we're also positive last year on life insurance. It is on account of receiving close to what we were expecting as death benefit that we recorded the CHF 5 million profit for the first half.
Got it. Just to follow up there, we've obviously seen lower dollar interest rates coming through. I think this is a U.S. portfolio. You do hedge the interest rate risk, but would you expect to see the discount rate decline over time following lower U.S. interest rates?
This is exactly what we're hedging. We're hedging the discount rate. If we had not hedged, if we were unhedged with interest rates going down, we would have made a profit because the valuation of the portfolio would have increased. Now, obviously, when we were hedging it, we're actually hedging it for rates going completely the other way and not going for us. That portfolio has been hedged for at least two years now, when we were expecting interest rates to actually go up rather than go down. We were hedging for a bad scenario where rates would go up and valuation would go down. Well, we've had the reverse happening. In any case, as you said, it is a fully hedged portfolio to hedge for the discount rate valuation risk.
I'm not going to blame you for getting your macro assumptions wrong, but just curious, how long does the hedge last for?
Well, we do many hedges on a rolling basis. It's not just one hedge. It's because also the dates that you need to hedge are different. You need to hedge your expected maturities, let's say, per year. We renew them over the course of the year.
The weighted average, is it what, six months, a year, two years, three years?
The duration of the hedge?
Yes.
Our expectation of receipts of death benefit. You know that the average life expectancy is about four and a half years now. It should be around that.
Okay. All right, got it. Thank you.
We have another follow-up question from the line of Mr. Daniel Regli from Octavian. Please go ahead. Mr. Regli, your line is open. You may ask your question.
Sorry, need to unmute myself. I have one follow-up question on the net interest margin. Just you were talking about the treasury result, and obviously we heard from Julius Baer on Monday that they are going long on durations on their treasury portfolio. Do you see similar optionalities to improve your net interest margin to change your mix in the treasury portfolio and/or, let's say, reprice the deposit rates you're paying to your clients?
Well, that is correct. We had an extremely short-dated investments portfolio, fixed income investment portfolio, when the crisis hit. That was a very good positioning for us because obviously all the volatility and the revaluation of that portfolio, which does not go through P&L because it's held for sale, it's a long-term portfolio, was limited. Since after March, April, we have been investing a bit longer term. When I say short term, beginning of the year, we were about 12, 18, 24 months long. Now we're going longer, taking advantage a bit of the spreads. I think under these circumstances, as long as you can select very good names, the quality of the portfolio we're talking about is triple-A, double-A portfolio. It is very high quality.
As long as you go with names that you can trust, I think that going a bit longer is not going to be an issue under this environment. Through that, there is obviously a slight pickup on the interest income line.
Okay, great. Thanks a lot.
Gentlemen, that was the last question.
I think we conclude today's call. Thank you very much for participating this time. Obviously, we would hope to see you again on another point in not so distant future in person. Obviously, if you have any further question, please let us know and we're trying to address them accordingly. Have a nice day and speak to you soon. Thank you very much.
Thank you.
Thank you very much.