Good morning, ladies and gentlemen. Very warm welcome this time from our Zurich offices. It's the EFG International First Half twenty twenty Results Presentation. And as usual, obviously, in these quite unprecedented times. But still, I'm happy to be joined by Giorgio Broaddelli, CEO of EFG International and Dimitris Polites, CEO of EFG International, for our presentation.
As usual, I mean, 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 and A. So with that, I hand over to Georgios 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 twenty twenty 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 3 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.
But 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. And 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 ESG 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 weathered 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% 6%. And actually, we have accelerated this growth in the Q2 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 1st 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 6 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 percent. 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. But 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. And today, we are pleased to report that we have executed 3 transactions in the context of our footprint rationalization.
We will focus on our core businesses. And 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. And in this context, we have increased the stake in Shaw and Partners from 51% to 61%. You might recall that we acquired a 51% stake a year ago.
So to sum up and close, again, the 3 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'll pass to Dimitris for a detailed presentation of the financial results. Dimitris?
Thank you very much. Warm welcome from me and I'll take you straight to the key page with the summary, which is Page 7 of the presentation. As usual, this page gives you the gist of what has happened. In terms of business development, as Georgios said, strong NNA at €4,200,000,000 for the 1st 6 months, annualized growth rates of 5.5%, which is at the top of the 4% to 6% target range that we have set ourselves through the targets that we communicated in 2019. AUMs are down by 3.9 percent, 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 147 €800,000,000 of assets under management. Very pleased to see that Continental Europe, mid Latin America and U. K. Are 3 regions which are running at growth rates which are exceeding the target range. Also 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.
Again, as Georgios said, we continue our hiring of new CROs. This is part of our ongoing business and we have hired, signed or approved 28 new CROs during the 1st 6 months. In terms of profitability, IFRS operating profit is up to €66,500,000 This is 27% up versus last year. IFRS net profit is €34,800,000 or up 10% versus last year. The underlying net profit decreased to $37,700,000 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.
And in terms of cost evolution, we still are managing costs down another 5% year on year on a like for like basis. And 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 €5,300,000 And in terms of capital position, core capital ratio 15.3 percent, 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 8, where we have all the numbers and I'll go straight to Page 9. As Georgios started his presentation, this has been a very different time compared to other times.
So 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 the presentation. But it is worth noting that despite what happened in the markets 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.
So 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. And the other point to note although it's not on the page is that in terms of expected credit losses, we recorded a mere EUR 2,600,000 euros expected credit loss in the P and L for the 1st 6 months. This is one basis point on our loan portfolio, which is a highly secured portfolio. It's almost 100% fully secured portfolio and 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, EUR 4,200,000,000 of net new assets for the 1st 6 months, 5.5 percent annualized growth rate. And you'll 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 3 years and we are 27% up versus the first half of twenty nineteen. Page 11 gives you more information between underlying profit and net profit IFRS net profit.
You'll 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 a 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 €9,900,000 refers to the cost for 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. Obviously, 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 5.3, as you see on the left hand side of the page. That was against a loss of almost €28,000,000 in the first half of twenty nineteen. 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. So we do expect that over the next years, which is going to be between 5 7 years, we should be recording on average 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 €4,200,000,000 of NNA markets negative by about €5,000,000,000 currencies by about €4,000,000,000 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, So if I add also the second half of twenty nineteen, the NNA for that 12 month period is over SEK 9,000,000,000. This is over 6% growth in that period. So we would also be exceeding a 4% to 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 March 13, 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. So 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 3 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 €6,500,000,000 of which about €2,500,000,000 came in the first half of this year and the momentum is strong. Also to note that this performance is with several of our new CROs only joining in the second half of the year twenty nineteen. So it's not that all the CROs have had the opportunity to fully deploy their business. So 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'll see the very high growth rate for Continental Europe 11 point 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% 7%, respectively. Again, very strong growth. Switzerland was about flat in 2019. Now it's growing at 3.8%, just below the mark or the 4% to 6%. That is a very strong improvement.
And finally, just to note that there is a negative NNA figure for Asia Pacific at minus €600,000,000 This is due to deleveraging. We had a lot of deleveraging as clients went risk off mostly in Asia. You see it's about €1,000,000,000 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, unfunds increased to 48% from 47% at year end.
Arguably, it was not the best year to increase 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 2 main factors. 1 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 tool. 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 8 €15,000,000 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're 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 in the 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 twenty twenty. So 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 €2024,000,000 per CRO, which is the 2019 figure excluding Shaw and Partners and the comparative, which is the $238,000,000 which excludes just the CROs that were hired in the first half of twenty twenty.
Moving to page 17, we go to more the profitability lines. And what we've seen is that the revenues in and this is underlying operating income for the first half of twenty twenty came in at €555,000,000 compared to €576,000,000 in the previous year. Previous year included a one off of about €14,000,000 from the revaluation of our SEX 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 June or throughout the period. So I believe that this is here to stay. And also we are taking re pricing actions, which are already yielding results in the first half of twenty twenty. 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. It's mostly for us, it's the dollar rate that matters also a bit of impact from the British pound, but mostly the dollar. 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. But 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 performance the muted performance comes from our global market unit, mostly on negative asset revaluation.
But 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, very limited fixed income trading portfolio. We do not have an equity trading portfolio, which we a proprietary basis. We do not manufacture structured products internally. We distribute manufactured products, which are manufactured by 3rd party providers.
So 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 within the commission line. Obviously, we do lending and we do other balance sheet operations. So the interest income line is very important. But 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. And just for your information, some comparability information, the excluding Shaw and Partners, the revenue margin is 3 basis points better. So it is at 79 basis points for the first half of the year.
And 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 4 years. We're about 30% lower since the acquisition of BSI. And 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.
And what I mean for a like for like basis, I exclude the new investments. We have reduced costs even in nominal terms. So we went from €492,000,000 in the first half of twenty nineteen to €485,000,000 in the first half of twenty twenty, mostly on managing down G and 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. And 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. And just as a note, again, the life insurance element, it's recorded as you see on this page. And you can refer to pages 3839 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 €10,100,000,000 at the year end 2019 SEK10.4 billion in the first half of the year. The reason for the increase is the new regulation, the standardized approach, counterparty credit risk or SACCR as it's known. This has increased risk weighted assets by €400,000,000 Actually, it increased by €200,000,000 at inception, which was the 1st January of the year.
And then the amount increased by another €200,000,000 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. And 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 Q4 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 and 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. And then we have more of the one off items. So as we said,
40 basis
points down because of new rules. Some non underlying P and 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 11% 10% insurance partners, which is 10 basis points. And we also have a currency translation impact of 40 basis points. In reality, you should also part of that currency translation difference should be viewed in conjunction with the risk weighted asset decrease of 0 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. And 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 we were there already at the end of year 2019.
So they just repeated. The checks in green are new ones, the ones that we're adding this year. So you see that we are accelerating our digital solutions. We've added another check for Sean Partens because I acquired the extra 10%. And clearly, Switzerland back to growth is very important.
And the fact that we're already achieving it in 2020 rather than 2021, 2022 is also very important because it's a 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. Obviously, 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 a 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.
And in our mind that means that we need to react. The key two actions reacting are to add repricing actions and to accelerate the cost management actions. Obviously, 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. But 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.
So if you look at first half of twenty nineteen, we had an exceptional gain from a fixed valuation and we also had a reversal of our ECL charge of €9,900,000 So the adjusted figure would be €52,000,000 In the first half of twenty twenty, we have a provision for the Italian tax matter, which is confusingly again €9,900,000,000 But we also have a muted performance in our global markets, which we estimate about €10,000,000 which means that our real recurring adjusted figure would be the €57,600,000 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. So on the left hand side, you see the same figures that we just discussed. So we see our starting point for the first half of twenty twenty is about EUR 60,000,000 in reality.
And 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 their average AUMs for the first half of the year. This means that our revenue base should be higher like for like going forward. So 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. And 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.
1 is the high value products and how we manage to accelerate the penetration of high value products. We are envisioning our pricing and the services that we offer, so that the pricing is in line with the value that we offer. And again, we discussed earlier that we've had a very good track record in cost management over the last 4, 4.5 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 4 years. This leaves more low hanging fruits. These gives us the opportunity to promote actions that should have and are having even short term revenue benefits. So 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 3 broad ranges.
1 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 costs 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 elimination of the rationalization of the footprint means that there might be cases where there are also revenues that do not follow. So 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 8 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.
So both actions have a timeframe which goes until the end of 2021. On that note, I'd like to thank you very much and pass the floor back to Georgios for his closing remarks.
Thank you, Dimitris. And 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, and let me be clear upfront. 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 hand, our industry has been 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 0 across all currencies. And obviously, we are a business in Switzerland expressing our financials in Swiss francs, but 90 over 90% of our business is actually in foreign currency.
So when the Swiss franc is as strong as it is now, clearly, this is these 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 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. Now we have achieved a breakthrough over the last 18 months in our growth.
As we have mentioned, we are if you look at the last 12 months, we are actually growing at the top end of our range at around 6%. And 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 added.
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 costincome ratio locations.
So as Dimitri said, the impact will not be 1 on 1 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 1 is with interaction with our clients, client proximity, client interaction And 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, but 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 decrease efficiency. Now in taking stock of our performance in the last 6 months and looking ahead, again, I'd like to emphasize that our business is extremely solid and resilient. But 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 experience of our CROs. And 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'm 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 and A session.
Jens? Thank you, Georgios. Thank you, Dimitris, for your insightful presentation. So as said in the beginning, we're now moving to the Q and A session. So 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 Hermann from Citigroup. Please go ahead.
Good morning, gentlemen. Can you hear me? Very good. Thank you. I have four questions, please, if that's okay.
So 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 twenty twenty? 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. And 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. I mean, on the FEMA, 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. And that is despite an increase a good increase, as you said, in discretionary mandates and an ongoing increase in mandate penetration.
And it's quite a large fall versus the second half of twenty nineteen. So I just want to understand what is going on there because it doesn't look like you are your pricing is materially different from peers. That's the question number 2. Question number 3 is, I wonder if I could clarify please some of the maths on the cost. So I appreciate the updated guidance and outlook there that you've given.
If I take your first half twenty twenty cost base of €485,000,000 and I annualize it, that gives us €970,000,000 If I take off 2 lots of 5% and a little bit of G and A, then I come up with something like, I don't know, somewhere between €860,000,000 €870,000,000 €880,000,000 And then I apply some growth. So it kind of sounds like you're targeting a 2022 cost base of about €950,000,000 Is that something that sounds reasonable to you? And then the follow-up question is on onshore and 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 and Partners is a pure brokerage. And I guess I would have thought that we would be in a bit of a Goldilocks environment for brokerage. So just curious why the margin there hasn't changed? Those are my 4 questions. Thank you.
Let me take your 4 questions. I will start with the last one, which is the simpler one. You're right. And the peculiarity of how we account for strong partners is that we do not include in our revenues the gross client margin, which is about 65 to 70 basis points. We include in our revenues in our commission line the net commission, so net of the fees of the expenses paid to CROs locally there.
So what we include is a net revenue of about 35 basis points. So what you see is what skews the revenue generated by 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 it 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. So 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 at the end of the day is something between 35 basis points and 40 basis points. Now 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.
So some of the cost actions that we have taken in this half have not printed yet, but I would like to comment more on that. On the exit NIM, it is lower than the average obviously that we've had in during the course of the 1st 6 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. But 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. Now final question, I was trying to figure out your comment about fees and why fees you believe are coming at 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. And so I think that what you'll see is that we have improved on the combination of the 2. So I don't believe your point is exactly correct. We have been increasing our penetration of value adding products.
So 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 are usually only coming at year end and that might skew a bit of figures. But 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? So I thank you.
I wasn't aware. I obviously missed that point on the performance fees. But just onshore and partners, so can I just clarify then that is the 35 to 40 basis points that you booked, that is basically fixed? So it doesn't actually change depending on the environment.
But 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 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. So your net is about 35 to 40 basis points.
And that case, I'm not basically just an ongoing rate regardless of the environment.
It's like any Any other business. Broking business 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, it is between usually, it is between 65% 75%, but obviously, this can fluctuate according to the market.
Yes. And it depends on the because it is a brokerage business, it depends also on the trading volume. So there is what I'm talking about is an average annual, let's say, figure. It doesn't mean that all the months come in at 65 basis points.
And then just to clarify also thank you. And then on the net interest income side, NOI, you said it's 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. So it's both about managing the lending side, managing the deposit side, managing net negative interest rates. So 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 twenty twenty.
Very good. Thank you very much.
Your next question comes from the line of Andreas Venditti from Vontobel. Please go ahead.
Yes. Thank you for taking my questions. Maybe on the global markets. Obviously, you talked about the muted performance, and you said you estimated an impact of €10,000,000 Maybe you can explain how you come up with this number or how we should think about it going forward, basically. Then on the sales, you mentioned in Chile and France.
Obviously, as you rightly said, it's not only costs going out, but also revenues. Maybe you could give us some guidance on how much AUM or revenues we're talking about here also to model that. Then on your net new money. For the Q1, you stated in your brief update that it was 2.5% annualized. That's roughly SEK 1,000,000,000, which basically means in the second quarter, the performance was exceptionally good, more than SEK 3,000,000,000 or more than 8% annualized.
Maybe you can comment on that, whether what happened there, whether there was any large inflow pushing this. And yes, I'll stop here, and I might have some more questions later.
You take the E and A? I'll take the last one, yes. Okay. The estimate for global markets is mainly a comparison of past performance and what we're expecting in this year's budget. So it is not that's the reason we put a round number of about €10,000,000 And as I said, it comes mostly from of our positioning overall and the services that we offer.
So it is not a fully scientific. It's an estimate of performance of that unit compared to what it should have done excluding COVID. So it is this is how we'll come up with the EUR 10,000,000 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 EUR 1,500,000,000 to EUR 2,000,000,000 of assets under management. In terms of revenues and costs, we had already moved our UDA participation into the held for sale category since 2019.
So 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. And Chile is very small at this point. So it is going to be it's going to have a marginal impact on the figures overall. I think, Giorgio, if you want to take the NNA?
Yes. I'll take the question on the NNA. And it is Andres 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. But maybe only two points I'd like to highlight.
One is that since basically the end of the Q1 of 2019, we have introduced a pipeline process that is that has mobilized basically the whole organization from the global 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, and it has accelerated in 2020, already was bearing fruits at the end of 2019. If you recall also, the Q4 of 2019 was quite good. And there, again, as I said, we mobilized the whole organization.
Clearly, for the flow business, which we include the deals and inflows up to €50,000,000 I would say this is very broad based from all the bankers, the CROs and the heads of private banking. And obviously, the Global Business Committee is focusing on the deals that are, let's say, over €50,000,000 The other key point to highlight is on Page 13, and this is what we said, which is a balanced NNA growth, where not only the existing CROs have been performing extremely well, as you can see, basically EUR 1,600,000,000 in the half year, which is more than what the existing CROs have done for the full 2019, but also the new CROs that, as you know, many have been hired in the second half of last year. So 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 Q4 last year. So 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. May I have a follow-up on the sale of France in Chile? So 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 China. So it must be other actions then. Is that correct?
Correct.
And 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.
Yes. Okay. Thank you.
The next question comes from the line of Daniel Brupbacher from UBS. Please go ahead.
Yes, good morning and thank you. Just want to ask on CROs. I mean, 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? And then 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 and how that works now if probably interest rates stay relatively unchanged at these low levels? I mean, I guess, that should be in the numbers.
And from here onwards, it's more stable. Is that a fair assumption? And then on repricing, I mean, we hear a lot of repricing a lot about repricing possibilities or ambitions from various banks, but it's also hard to see the real effect in the actual numbers. So why are you confident you can do this now? Why now?
And what do you exactly mean with higher value products? Is it things like barrier reverse convertibles or just the mandates in general? It'll be just interesting to hear some more details there.
Thank you, Daniela. Maybe I will start with the first question about CROs, and this is on Page 16, I think. The number is not 16, yes. Page 16. And yes, you are right.
As we clearly mentioned in the page, we will continue to hire, to hire teams that are competent and experienced, and they fit with our culture and with our business model. So and we have higher 28%. Clearly, the pace, in particular, in the Q2 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 cross, we would think about hiring between 70100, but obviously, in 2019, we did much better. So for the period 2019 to 2022, I think we are on track.
On the other hand, we will continue to CROs, new CROs and existing CROs have to meet are very clear. What are the targets that CROs, new CROs and existing CROs have to meet are very clear. And clearly, if there are CROs that unfortunately cannot met those criteria, we will have to find a solution and eventually part ways. So 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, load or the average AUM per CRO from 180,000,000 AUM per CRO to 240,000,000 and this must continue and will continue. And 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 that are where growth is lower and efficiency also. I think this I don't know, Daniel, if this is clear. The second question, I think Dimitris
I'll take the second question. On the global markets, I think that the fact that the assets were evaluating 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 is what I want to make clear and I think you referred to it Daniel 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 €10,000,000 trying to show what is the real sort of recurring profitability of the business of close to €60,000,000 Now on the repricing. I can
go ahead and
On repricing, I was just going to say that I agree with you that repricing is difficult to track. And I'm saying that because we are trying to track it as much as possible. The problem with 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.
But 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. So 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 twenty twenty. But we can identify one to 1 some of the actions that we have done and the impact they're having on the revenue line.
But 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. So the cost of doing business is different. The cost of funding is different. So all the banks are moving in tandem.
So there is less, let's say, ability from clients to arbitrage between banks. And I think at 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'll give you an example on the loan book. If we were you're offering before to your client a Lombard loan and you were 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. So 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.
So I think that it is also an opportunity because by having the parameters you can rethink what is the most appropriate pricing for the client on this product, on other products, on combination of products, so bundling. So I think there are many opportunities on the pricing side that EFG can explore and the business and the industry in general can explore.
Maybe to complement Daniela, I think that and answering the question why now is because everybody is 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. And 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 month of March April, will be prepared to pay higher pricing for the good advice that they receive. So it is a bit a combination of the industry trends. I think that despite many advisers 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. And also, I think it is specific for us, for ERG 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.
So it's a bit a combination. Why am I confident? It's 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, very good results.
And by the way, as you know, EFG has always had a very stable and very strong return on IUM. We had now some weakness, which has been very specific. And so again, I'm very confident that we'll be able to bring our return on IUM 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 2, let's say, clusters, one about gross margins and the outlook and the other on expense, particularly personal expense. And maybe first on gross margin. First of all, I made the same I observed the same as Nick with the if you divide advisory and management fees by through the AUMs, your advisory and management fee margin, if you want, has gone 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 and maybe also historically what has been the share of performance fees within advisory and management fees? Then 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. So not much to it. It was even slightly up on the AUM base and also on the average loan base.
So 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 'nineteen? And then yes, so now you're adjusting for the €10,000,000 in Global Markets, you had around 77 basis points adjusted gross margin in H1.
Can you give us kind of a sense how you think about this number? Is this something which you consider to be sustainable? Or should it even go up? And if you talk about repricing actions, what in which amount you expect to improve your gross margins with regards to repricing actions? And then the second cluster, sorry, a couple of questions, and then our 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? So have your newly hired CROs been more expensive than the existing CROs? And 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. Understand what you're saying that we are at between 24% 23%. Now there might be a difference in I don't know, 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, yes. It's advisory and management fees, the subpart of your commission income divided by average AUM in H2 2019 versus H1 2020?
I think what you need to look at 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. So it might be a bit misleading. So I think if I want to take that offline, I'm happy to give you more information.
But what 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. Now on your second question on the stable net interest margin, if you look at Page 7 of the presentation, we are discussing net interest income and net other income a bit in a combined basis because 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 2 in conjunction.
So
the drop of 40% in the net other income from €113,000,000 to 68 let's say, without accounting for the swaps, you would 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. So 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. Now your third point was that you're saying on an adjusted basis, we are at 77 basis points of net interest margin. I think like the calculation is right.
I look at it excluding Schon Partners to avoid a bit the confusion between periods because it was not fully consolidated in the previous year. So you would be looking at 80, maybe 81 basis points of revenue margin excluding Shaw and Partners. Obviously, as Sergio 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 1 quarter, in 2 quarters, in 3 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.
So 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. Now on your last point on personnel expenses, you're right, personnel expenses have gone up in the first half. Mostly most of that increase is because of the investments in new locations. So 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.
But 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 some an additional cost element, which is the accrual for any one off sort of acquisition incentives. So 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 that 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.
So I would say that our run rate on the cost side is lower than what we are printing in the first half. But this is a broad comparison between the first, the second half of 'nineteen and the first half of twenty twenty.
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. But overall, the cost of new CROs is in line with the existing CROs. And the other question was about the net contribution of CROs. Basically, our model and there was a very high level description of our CRO model in the presentation of March 13, 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 costs are all costs that obviously the CRO can control or influence. And these also they include costs related to, for example, liquidity charge, capital charge, if the portfolio of the CRO is has high risk clients, etcetera, so in order to have a proxy for compliance cost. But we do not allocate indirect cost to the CROs for their P and L. The 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 2 follow-up questions. One is, again, on this €10,000,000 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?
And then the second question would be also on net new money again. And just for curiosity, can you tell us a bit more about how you were able to generate net new money food 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? Or 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 recorded 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, the question if the question is how did you achieve the NNA growth during a 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 and 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.
So the pipeline that has been converted into the Q2, clearly, it is a pipeline that has been we started working on it in earlier than the Q2. And the question 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. So 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 in the Q2 has been postponed to the Q3.
So 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. But again, this is an unprecedented year, so the summer this year is a bit different. So again, our target is between 4% 6%. I cannot anticipate that we'll run always at 6%.
But
as I
said, the NNA is very balanced from existing CROs, new CROs and new locations. So I'm fairly confident that the various engines will work and eventually will compensate each other.
Gentlemen, there are no more questions at
this time.
Okay. Thank you, operator. Then oh, I think there's potentially do we have a final question coming in or
We have a follow-up from Mr. Hermann. Please go ahead.
Yes. I hope you don't mind if I just ask a couple more questions, please. I just so yes, I just wanted to ask a follow-up on the NNA point. So the growth is really fantastic, very impressive. But equally, I'm just kind of curious as, are you really comfortable that you're getting the right quality of NNA?
And I mean, if I it's a bit of rough, but if I look at gross margins just for the EFG stand alone business, I mean, the margins there have fallen from 84 down to 79. So in despite, obviously, a very strong brokerage environment in the first half. So that's the first question. 2nd question on life insurance, the $5,000,000 after tax, is that from high debt benefits only? And then the actually I do have 2 more questions actually.
Tax, if I look at the 1st half tax rate on both an underlying and reported basis, it's about 20% thereabouts. Going forward, can you reaffirm your tax guidance, please? Obviously, there has been some Swiss tax reform. Just
if I
look at your Julius Baer across the road, they're guiding for 15% or so. So just curious, obviously, I think they do have a larger Asia business as well, but curious what you could help us in tax. And then finally, Taiwan, you've mentioned there was a it's in 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 ruling in Singapore?
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 is without leverage is more important, is less volatile, gives more annuity, and I think that has improved. Now it is and if you look at Page 17, clearly, the net commission line, 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, we 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 0.
So I also believe that the quality is very good. But clearly, when you bring in new business, usually at the beginning is a lot is cash because it's easier to transfer cash than to transfer a securities portfolio, for example. And then there is the conversion activity that the CRO does. So speaking to the top CROs that have been growing very, very fast in the last months. Obviously, they all told me that now it's a 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.
So 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.
So I'm not discussing the merits of the case. We 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. Going to the tax point, we are not changing our guidance. Our guidance has always been between 15% to 20%.
As you said, Nick, the Nicolas, the we had some tax reform in Switzerland. Really depends where you're getting your profits and your combination of your profits. So we were maintaining our 15% to 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. And on your question about life insurance, yes, the reason we recorded the €5,000,000 is on the 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 €94,000,000 of death benefit in the 1st 6 months and we have a net cash flow, which is positive at €16,000,000 If you compare that to last year, we had €157,000,000 of received, which is for 12 months, whereas the €94,000,000 is over 3 for 6 months. And we had a net cash flow of €38,000,000 And overall, we were as a total year, we're also positive last year on life insurance. So it is on account of receiving close to what we're expecting as death benefit that we recorded the €5,000,000 profit for the first half.
Got it. And just a follow-up there. You we've obviously seen lower interest rates, some kind of 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 life and 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. So 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 completely for rates going completely the other way and not going for us. So that portfolio has been hedged for at least 2 years now when we were expecting interest rates to actually go up rather than go down.
So we were hedging for a bad scenario where rates would go up and the valuation will go down. Well, we've had the reverse happening. But in any case, as you said, we are 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?
We do many hedges on a rolling basis. So 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. And we renew them over the course of the year.
So but the weighted average, is it what, 6 months, a year, 2 years, 3 years?
The duration of the hedge?
Yes.
Our expectation of received of death benefit. So you know that the average life expectancy is about 4.5 years now. So it should be around that.
Okay. All right. Got it. Thank you.
We have another follow-up question from the line of Mr. Daniel Wrigley 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 longer on durations on the treasury portfolio. Do you see similar optionality 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 and L because it's held for sale, it's a long term portfolio was limited. And 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 of a bit of the spreads. And I think under these circumstances, as long as you can select very good names and the quality of the portfolio we're talking about is AAA, AA portfolio. It is very high quality. So 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. And through that, there's obviously a slight pickup on the interest income line.
Gentlemen, that was the last question.
Great. Thank you. So 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.
And obviously, if you have any further questions, then please let us know when we're trying to address them accordingly. So have a nice day, and speak to you soon. Thank you very much.
Thank you.
Thank you very much.