Good morning, ladies and gentlemen. A very warm welcome to EFG International's first half 2025 results presentation on a very lovely sunny morning in Zurich. As usual, I'm joined by our CEO Giorgio Pradelli and our CFO and Deputy CEO Dimitris Politis. We will have presentations on both topics from the gentlemen, and then we have enough time for the Q&A session afterwards. As usual, I point out the disclaimer on the slides, and without any further delay, I hand over to Giorgio.
Thank you.
Thank you. Thank you, Jens. Good morning and a warm welcome also from my side to those that are here in the room, live in Zurich or via webcast, and that we are here to discuss our results for the first half of 2025. Now, before going into the presentation and looking back at the last six months, I must say that they were quite eventful months if you look at the global affairs and also if you look at the financial markets. On the other hand, for EFG, actually there were excellent six months and we had a very successful period. For this reason you can imagine that today we are quite pleased to.
Be here to present this strong set of results to you.
Let us now go to page four. As you can see here, we like to emphasize again that we have delivered another set of consistent performance and we are progressing towards our 2025 ambition. In a nutshell, we were able to generate a very strong growth. We were able to translate this strong growth into a record profitability and attractive returns for our shareholders. We were also able to deploy our excess capital into two acquisitions. Let us now look at the key highlights. Let us start always from growth. We delivered strong NNA of CHF 5.4 billion. This is equivalent of a growth rate of 6.5%. This is above our target range. Now, we love NNA, as many people in the bank know, because clearly this is a leading indicator for the future performance of the bank.
This is also a clear indication that our clients appreciate the impartial advice and the comprehensive solutions that our client relationship officers and the teams offer to them. Growth is very important, but growth has to be sustainable. We are very pleased to report that this is actually the 13th consecutive semester of positive NNA. As I said, growth is important, but also has to be sustainable and profitable. Let's now go to profitability. We were able to translate this strong growth momentum into a record profit. For the first six months of 2025, we have delivered a reported net profit of CHF 221 million. This is 36% higher compared to the same period of last year. We were able to deliver a strong return on tangible equity of 24.4%, which is clearly above our target range.
As you can see on the right-hand side of the page, these figures include a contribution from insurance recovery. Dimitris will go in more detail later. This shows only that de-risking for us remains a key priority. What I'd like to emphasize is that even without this exceptional one-off item, we would have delivered the record profit for the first six months of the year in any event. What we like when we are able to generate growth that translates into record profitability is that we are able to generate surplus capital. We are then able to deploy this excess capital into value accretive acquisitions. Like we have already announced, during the course of the semester we were able to sign two acquisitions: one in Geneva, Cité Gestion, and the second one in Auckland, New Zealand, ISG.
All in all, a very good strong start of the year and a continuous progress towards our objectives for the rest of the year. With this I pause and I hand over to Dimitris, our CFO and Deputy CEO, who will now provide a detailed overview of our financial performance for the first semester of 2025. Thank you. Dimitris, the floor is yours.
Thank you very much.
Much.
Good morning everyone. I will start with page six. Page six is the usual page which gives you pretty much the high-level view of our performance over the last few years. As Giorgio said, we are very pleased to be going into the last year of this business cycle on a record profit. The headline profit after tax figure is CHF 221.2 million. This includes a one-off recovery from insurance on a legacy case which we resolved back in 2022. The net impact of that recovery is about CHF 45 million. As Giorgio already made the point, at CHF 175.8 million, which is the result excluding that one-off recovery, we would still have a record first semester in 2025. Now in terms of how did we get there, I think the two key ingredients that we have is that we continued to create operating leverage in this semester.
The revenues are up 7%, mostly on commissions. The costs are up 4%. A lot of that has to do with variable compensation. That means that at the end of the day we have enlarged the profitability. We have improved the cost-to-income ratio by approximately 2 percentage points compared to last year. Clearly, we have managed to deliver a record return on tangible equity at 19.4% or 24.4% including the one-off gain. On page seven we have the usual page with the headline numbers. 6.5% growth in net new assets. I'll come back to that with more details. 97 basis points of revenue margin excluding the recovery. 35 CROs which have been hired or signed to be joining in the next couple of months. CHF 162 billion of AUM. In terms of the profitability, you'll note the resilience in the revenue growth.
Revenues are up 7% and the improvement in the cost-to-income ratio. Clearly, as I also mentioned, the record profit and the record return on tangible equity. Last but not least, on the right-hand side of the page, all about capital and liquidity. In a time where there's more volatility in the market, we managed to create almost 3% of new capital on a gross basis in the first six months of the year. Our capital ratios are 17.1% core capital and 20.6% total capital ratio. These figures fully include the adoption of Basel. III Final in Switzerland. Finally, the LCR is at 255%. I will skip the next two pages which give you all the detailed numbers. On page ten, it gives you a bit of a history or a bit of a trend.
Over the last three semesters, starting from net new assets, we've had three consecutive semesters where our growth has been beyond our 4%- 6% target range. Clearly that is a strong beat and it's a strong momentum for growing the business and also achieving profitable growth, which is the key target for this business cycle. You will see that we are very resilient when it comes to our revenue margin. We are at 97 basis points this semester. This is the same as the first semester of 2024 and actually 2 basis points up compared to the second half of 2024. Cost-to-income has been improving continuously. If I were to draw the same chart and go even further back, you will see that every single year we've been managing to bring down our cost-to-income ratio and now it's at 71.2%.
The return on tangible equity has been constantly going up, with this semester being a record semester. On page 11 we have the first page when it comes to our growth. We started the year with CHF 165.5 billion of assets under management. We added CHF 5.4 billion through net new assets. This is 6.5% growth annualized. Markets were positive around CHF 3 billion. Clearly the currency translation with the weakening of the dollar has worked against us. That is CHF 11.7 billion. We are ending on the 30th of June 2025 with CHF 162.3 billion in AUM, - 2% since the beginning of the year. Pro forma, including the two acquisitions that we have signed but we have not yet closed, we would have been at around CHF 173 billion of AUM at the end of June 2025.
I think what is a bit more interesting is what you see on the right-hand side of the page. The CHF 5.4 billion came with a different mix between new and existing CROs. If you remember our disclosures at the end of the year in 2024, approximately 90% of the NNA came from new CROs, so the contribution of existing CROs was fairly modest. In this semester we're actually seeing a bit of a reversal of the trend. 1/3 is now from the existing CROs and 2/3 is coming from new CROs. It's a lot more balanced and closer to the mix than we would expect going forward on a medium-term basis. Page 12. In terms of which were the regions that actually drove this growth, you'll see that all of the regions are in positive territory. All the regions are either above 4% or very close to 4%.
Asia Pacific is leading the pack at CHF 1.8 billion of NNA and roughly 9% growth for this semester. Latin America managed to have the highest growth rate at 14% and contributed CHF 1.4 billion. You will see that the very positive element of this diversified business is that we have five regions plus Afghan funds in this semester contributing positively, which drives the overall growth of 6.5% on average for all the regions. On the next page we go into the movements in CROs. The net number of CROs has gone marginally down. As I mentioned earlier, we have hired 18 CROs. We have signed another 17 for a total of 35. Clearly we are continuously doing performance management in our CRO base, which explains the very small net drop in CROs.
I think on the right- hand side of the page you will see also that the average AUM per CRO has gone down. Now they are at CHF 328 million per CRO. The reason for that is the negative impact that we've had from currency exchange. It's the weakening of the dollar that has driven the average AUM to go down on a per CRO basis. In terms of hiring at these levels, we're coming back to a more normalized hiring level. If you remember in 2023, 2024, we had accelerated because of market dislocations. Since then, the numbers are more around the 50- 70 gross hires per year that we have guided as being a reasonable hiring range for us going forward. Now, moving a bit more to the P&L, on page 14, you'll see that clearly our revenues have gone up substantially.
These are 15% up year on year, including the one-off recovery which is recorded in net other income. Otherwise it's a 7% increase in revenues. Why is this page important? Because our strategy, and this has been communicated already about 12 months ago, our strategy in the medium- term is grow the business, build scale and at the same time defend margins. On this page what you will see is if you look at the average AUM, which is the second bubble, you'll see that we started with CHF 153 billion in the first half, growing to CHF 160 billion, growing to CHF 165 billion roughly on average for the last semester. We have been growing our business throughout the period. At the same time, if you look at the bubble above, you will see that we are fairly stable throughout the period.
Our defense on the revenue margins has been quite successful over the last six months. In terms of actual absolute numbers, you'll see that the majority of the growth came from commission income. This is something that we like very much. Approximately CHF 40+ million compared to the first half of 2024. This is on the back of the growth in AUM. It's also on the back of adding an extra basis point on the margin. You'll see also on the following page or the following pages that that is also high quality revenue because it is included in the recurring margin rather than the more volatile trading part of commission income. In terms of the other elements, net interest income, including the treasury swap revenues, were pretty much flat year on year and we had very good activity in currency trading in the first half of the year.
It was very similar also to the one that we had in the first half of 2024. This has clearly supported the net other income. Life insurance gave us 2 basis points of revenue in 2025. It was 4 basis points in 2024. We have the CHF 55 million of the one-off insurance recovery, which has also added to the performance in net other income. Now on page 15 we show on the left the revenue margin evolution. I will not spend too much time on that. I think most of the trends I have already described on the previous page. Spend some time on the right- hand side of the page because clearly the world is evolving and we're seeing many changes happening in the last six months. We have now clearly some more volatility on the currencies.
For that reason we are now including some indications of what the weakening of the dollar could be as an impact on our cost-to-income ratio. As you know, we have about half of our AUM in dollars and we have a much lower percentage of our costs in dollars. We are long dollar if you wish in our P&L. A 10% variation in the dollar-Swiss rate costs 2.2% in the cost-to-income ratio. The exposure on the euro-Swiss is a lot smaller at 0.4%. The impact from interest rates, which we have been reporting for the last few years, has actually gone down. Now it's about CHF 45 million of profit if all reference rates go down by 100 basis points. Where does that leave us is what you see at the bottom right of the page for us in terms of our actions going forward.
What we are expecting is we're expecting clearly a positive for our organic growth. That is part of our ongoing strategy to build more scale for EFG. The structural weakness of the dollar is a negative. Clearly the reductions in interest rates are going to be a negative. We are also seeing in this semester some releveraging. We have a stronger contribution from both new and existing CROs in giving out new loans. This will also support revenue margin going forward. Page 16 is about commissions. As I mentioned earlier, our recurring margin gained a basis point, so now it's 34 basis points. The non-recurring, the more trading side of it, is still at 10 basis points for a total of 44. The improvement in the recurring is on the back of higher penetration of mandates. In our AUM we've reached 64% in the first half of 2025.
To remind you, in 2022 we set ourselves a target of 65%- 70%, so I'm very close to achieving that target. The drivers for the success are what you see on the right. It's a significant increase in advisory AUM as a mix. The discretionary is holding very stable, but also the balances of discretionary in absolute terms are going up. We are headed for our fourth consecutive year of increasing revenues from structured products. We are also expanding our offering and the AUM that we hold on private equity products. Page 17, which is all about costs. I think that historically we have been very good at managing costs, not just the absolute amount, but also in relation to our revenue growth so that we create operating leverage. Our cost-to-income ratio improved to 71.2% this semester.
This is 1.4% better than the first half of 2024 or 1.7% better than what we posted for the full year 2024. In terms of absolute numbers, costs are up 4%. This is driven by personnel expenses. The reason that the personnel expenses are up is that if you look at the time series that is shown in the chart in the last three semesters, you will see that we have been constantly going up. This is the impact of the investments that we made in 2023 and 2024 now flowing fully in the P&L. Clearly, this is now fully printed in the first half of 2025. There is an increase in variable compensation over the first half of 2024. On the other hand, the other operating expenses, the G&A, has gone down by 4% compared to the first half of 2024.
This is part of the conscious effort to manage costs. This is despite higher legal and litigation costs. All this performance is also in spite of the strengthening of the Swissie compared to the other currencies, which has clearly a drag in the P&L, the cost-to-income ratio, and the P&L in the period. In terms of cost management, I'll turn you to page 18. I'm not sure if the title should be Active Cost Management or Actively Managing Efficiency because it's clearly it's not just a reduction in cost, it's how do you manage your cost base while you're growing at very high rates. The idea here has always been we need to make sure that we make room in our cost base to be able to fund our future growth. The Simplicity program that we are describing on this page does exactly that.
You will see that in October 2022 we announced a target of CHF 40 million. We expanded that target to CHF 60 million back in July 2023. At this point we are in a run rate of current execution of CHF 63 million. We are above what we have stated and we expect to close the year at CHF 66 million. Clearly a lot of actions included over the period of the last two, three years. In terms of areas for these actions, you'll see that on the right there is a lot has to do with regionalizing some of the functions and the tasks that we are doing or even centralizing them in some locations. This cuts across risk, finance, compliance, operations. It goes across all functions. We have been renegotiating contracts through more effective procurement.
We have been optimizing our real estate footprint and we also have included demand management in our IT efforts to make sure that we prioritize what makes more sense and has a bigger impact in terms of technology and delivery for everybody else in the bank. I think I'll turn to the next page, which is page 19. It's a usual page about a strong balance sheet. You'll note that there are not many differences compared to the balance sheet in terms of the composition that we have reported before. We have about CHF 17 billion of excess liquidity. In terms of liquidity we are in a very good position in terms of allowing the capital that we have and the liquidity that we have to grow. The business capital ratio 17.1% Q1, total capital ratio 20.6%.
Again to mention that these already include the full impact of the adoption of Basel. III Final, leverage ratio of 5.3% and liquidity coverage ratio at 255%. In terms of our buyback programs, in the last six months we acquired 4.8 million treasure shares. The Board yesterday decided to launch another treasury buyback program for the next 12 months. It is going to be for 9 million shares. The purpose of the program is to purchase shares to fund variable equity compensation schemes that we have for employees. It's been the same purpose that we've been buying treasury shares over the last four or five years. No change on that. In terms of the de-risking, we mentioned the recovery from the legacy from insurance on the legacy case, which is very important in terms of turning the page on some of the legacy issues.
The other topic where we've been active in the first six months has been our life insurance portfolio. In February 2025, we disposed of our entire synthetic portfolio that was a combination of life insurance policies and hedges on them. That is now gone. There is no residual exposure. In May and June of 2025, we also managed to sell approximately 22% of our outright exposure. This is us holding life insurance policies. Now the exposure is down to CHF 250 million on our balance sheet. Page 20 gives you the walk in terms of capital generation once more. It shows you that we are a very capital-light model. We managed to create 2.9% of capital on a gross basis. Clearly, the growth has pushed us to increase risk-weighted assets. That is one use of the excess capital.
We have dividend and we've done the buyback that gets us to a core tier one of 17.4% as at June 30th. We also have a bit of a technical movement which has to do with our tier one, which is a dollar-based instrument. According to the accounting rules, the revaluation of that instrument goes into core capital rather than tier one capital. That eats up another 30 basis points of core equity. As you will see, the total amount, the total capital at 20.6% remains constant. This is a timing difference in the sense that when this instrument matures, that 30 basis points will come back and will also help core tier one capital at the time. Now, as Giorgio Pradelli said, when you are creating all this capital, you need to make sure you do value-accretive acquisitions. There were two that were announced during the period.
I'll go to page 22 just to remind you of the parameters that we have or the requirements that we have whenever we are assessing all these transactions. Clearly, we want to grow the business in an area where we are present, where we want to add capabilities, but we also need to realize some synergies. It's a matter of acquiring in the right locations. Number two, which is the cultural fit, probably should be number one in terms of the sequence that we describe it. If there is no cultural fit, we do not do acquisitions because we know that you need cultural fit to make it successful. Clearly, number three is something that we, from the finance perspective, will definitely look a bit closer to make sure that we actually create value. One measure of value is to make 10% on your investment by the third year.
Now, I'll briefly go through the two transactions that we have already announced and we are in the pipeline of closing. The first one is Cité Gestion in Geneva in Switzerland. It's about CHF 7.5 billion. The beauty of Cité Gestion is that it's a scalable platform which has a very clear organic growth plan. You'll see on the page its growth plan between 2016 and 2024. It started with CHF 2.3 billion, has grown to CHF 7.5 billion of AUM and it's still aggressively growing already in 2025. We expect to add value by providing a much bigger and a much more robust balance sheet, by having expanded product capabilities and will clearly also provide support on the back office infrastructure. We expect to close this transaction in the second half of the year. We are waiting for the regulatory approval and the capital impact of this transaction is 110 basis points.
The second one is ISG in Auckland, New Zealand. This is a much smaller transaction, but it's also on a company that has demonstrated its ability to grow over the last few years. This transaction will be done by our subsidiary Shaw Partners in Australia. The idea is that the two companies locally will work on a partnership. Shaw Partners is a bigger enterprise. It can offer enhanced pricing, combined marketing, combined business development. We expect to get more revenues generated through this partnership. This transaction has been approved by the regulator very recently and we expect to close in the next few weeks and the impact is going to be 20 basis points. Now to close. It's a great privilege going into the last year of a business cycle with a record first half.
I think that in terms of confidence on delivery for 2025, I think it's an easy statement to make in terms of being able to deliver after record financial results in the first half. The priorities for 2025 actually have not changed. It's all about business development, it's about defending the revenue margin and it's also about being cost efficient while we're doing all this. It's the things that we have been working on over the last few years, and we will continue working on, and we're looking forward to welcoming both Cité Gestion and ISG into the family. With them, we will grow to CHF 173 billion, and through that, we expect to also fund our future growth and profitability. On that note, thank you very much, and I'll pass the word to Giorgio for his closing remarks.
Thank you, Dimitris. Now let us look ahead. Let's focus on our outlook.
On our strategic priorities for the next quarters and beyond.
Now I must say that we expect that the complex market conditions will continue to persist. This is a bit of a combination of short term market volatility, which is not always negative.
Actually, in the last six months, it was positive for our business and supported our top line.
This short term market volatility is combined with some more long term factors that we need to take into account. Dimitris has already mentioned some of them. Obviously, one is the structural weakness of the U.S. dollar, and the second is clearly the fact that we are in a phase of interest rate cycle where in Europe and in Switzerland interest rates have come down already.
We expect them to come down also.
In the U.S., turning to page 28, we are clearly mindful of the challenges ahead, but our focus is on our strategic priorities and our focus is actually on what we are able to control.
Now the first priority remains growth.
I explained already earlier why we believe that strong organic growth is extremely important. It shows also that what we are offering has value and is attractive to our clients. The DNA of EFG is always to attract new clients and to increase the share of wallet of existing clients. We will continue to focus on net new assets and on organic growth. Our clients love the excellent service that our client relationship officers offer. I've been saying here in this room many times that I believe that our CROs are second to none in offering the best possible service that you can find in our industry. We want to continue to focus on high value products and services that obviously are relevant to our clients to manage their financial affairs but also are helping our net commission income.
Dimitris has shown that our trend in net commission income over the last years has been very positive and we are focused both on increasing the recurring net commission income but also to allow clients to trade and to increase the, let's say, the net operating income on FX and net commission income overall. This remains extremely important for us. Dimitris said we need to be a bit more defending on protecting in particular the net interest income given the cycle of interest rates. On the other hand, we have seen that releveraging in a low interest rate environment can be a very good way for us to offset some of the pressure on the NII. It is going to be more defense. I think we have several levers.
To offset the trend.
Clearly, last but not least, we will continue to apply strict cost discipline and to further improve our efficiency. I have received several questions already about the U.S. dollar and what we're doing, etc. I'm sure we're going to receive a few more, but my answer is always that first of all in life there.
is no silver bullet and you have.
To face head on the challenges. Second, we always say that international private banking wealth management is an export industry, and we are exactly like any other export company in Switzerland. When you are basically obliged to become more efficient, to become more productive, to.
Absorb the fact that sometimes the effects are against you.
Obviously, from a financial standpoint, if we can do like the team, and I'm very grateful to the team, you can do an edge and get it right.
Obviously, this in the short term helps.
In the long term the only solution is to become more efficient. Now this is a bit, I would say, the situation for the next couple of quarters going forward. If I step back, I must say that at EFG we are on track to exceed our 2025 ambition. You have seen this page already several times. This is what we committed to the market, to the investors in October 2022. In a nutshell, we said that we are committed to grow the net profit at 15% CAGR, which as everybody knows, if you do that, the magic of compounding over five years you double the business. The good news is that at the moment we are running at 21%, and in terms of return on tangible equity we are in excess of our targets. Clearly this is extremely important for us.
As it has been said, it's a great privilege to be in the last year of the cycle in such a strong position. Obviously from our management team it is also pleasing to see that all our efforts are translated into numbers. Clearly you see that in a semester we are now generating a net profit that in just a few years back we were generating in a year. This is an aside comment.
It's quite good.
Overall, we are on track to exceed the 2025 ambition. To close on page 30, we are obviously very well placed for continued sustainable and profitable growth. If there are three messages for you to take home, I would say that clearly today we are reporting a record profit and a very strong growth momentum that we will make sure will continue in the next quarters. We are on track to exceed our 2025 ambition. We are already preparing and we are committed to deliver this strong performance also in the next cycle, in the next three years. In this context, we are very, very excited and we look forward to updating our stakeholders about future strategic direction, priorities, and targets on November 25th. With this, I close the presentation and hand over to Jens to open the Q&A session.
Thank you very much for your attention.
Thank you, Giorgio. Thank you, Dimitris, for your presentation. As just highlighted, we will start now with questions, and as usual, we start with questions in the room first and then we move to the telephone line. I think Andreas has a question, so we take him on the right-hand side, please.
Thank you very much for taking my questions. If we look through the operating income development a bit more in detail, I think the single largest driver of the year-on-year strong performance was actually from fee and commission expense. Not the number that we usually talk about in this room, but it went up quite a lot, or it improved actually quite a lot. Almost CHF 50 million. I guess it's the single largest driver of the revenue improvement. Maybe you can explain what happened there. You talked about the sales of the life insurance. Happy to see that this exposure is going down. Obviously, you didn't mention any impact on the P&L. Can I assume it's not relevant in terms of gains or whatever? In terms of the third one, in terms of releveraging, we've seen a little bit in the first half.
Would you expect this to improve in the second? Of course, it's a function of what interest rates and the curve is doing. Do you see that clients are getting more active in this respect? I'll leave it here and maybe I'll come back later.
Thank you.
Take the last one.
Let me take the first two questions. Andreas, you're very right that in our financial account, I'm just looking at the right note, which is note nine. We've had over the course of the last three semesters a drop in commission expense. You will also see that equally our brokerage fees have gone down. This trend is very much a parallel trend. The reason for that is very technical accounting. The way you account for structured products, you need to gross up your commission income and your commission expense. On a net basis, that is zero. Because we've been moving the way we actually do our structured products, this has decreased both the commission income and the commission expense. The real driver, if you exclude this technical, which I think is as you say, look, it shows on page but it's not creating the real value.
If you look at the number that has actually increased over the last three semesters, it is the first line, which is advisory and management fees, which is the recurring part, which has ended up with the plus one basis point of recurring revenue over last year. Now to your questions about the contribution of the sales on life insurance. Total impact, everything in, is CHF 12 million and this is pretty much the contribution of life insurance for the entirety of the first half. All the rest, call it the normal life insurance, had a zero P&L in the first half, which is lower than what we've seen in previous periods.
Now maybe on the question of re.
Leveraging, I would say first of all that for us lending has always been a strategic asset class for our clients. We have given it basically to our key strategic clients at the right price, at the right return, obviously taking into account the cost of capital and the cost of liquidity. We have seen since 2022, so the last three years, we have actually seen a phase of deleveraging. Now we see some green shoots. We see that this first semester was positive. We see that clients, now that interest rates are lower, but also the yield curve—what is very important is the shape of the yield curve. The yield curves are getting more positively shaped. This will encourage certain clients to leverage their financial assets and their real estate assets. Do we expect this to continue? I think so. I think that especially if in U.S.
dollars interest rates will come down, the demand for lending will increase. Obviously for us it is extremely important to do it for the right clients. We don't want to do only lending. Lending has to be one component of a holistic relationship with the client at the right price. Obviously for us, our risk and credit appetite criteria are quite stringent, and within these parameters we believe that it will increase. Now to give you just a reference, in the past we used to have a penetration of lending between 14% and 15%. Now we went to, I believe after the, yeah, 11%, which is the lowest level since the acquisition of BSI almost 10 years ago. This is the order of magnitude we are talking about, a few percentage points in terms of penetration.
We can expect that maybe if you look at NNA, maybe lending for a few semesters will grow faster than the average NNA.
Great.
Is there another question in the room at this stage?
No.
We take the first question from the telephone, please.
Ladies and gentlemen, we will now begin the Q&A session. Anyone who wishes to ask a question or make a comment may press star and one. On their touchtone telephone, you will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to only use handsets while asking a question. Anyone who has a question may press star one at this time. The first question comes from Hannah Leivdal from Citi. Please go ahead.
Hi, thank you for your presentation this morning. This is Hannah Leivdal from Citi on behalf of Nicholas Herman. I just have two questions if I may. The first one is on targets. You're clearly confident of exceeding your financial targets. I just wanted to confirm that this is both net profit and the cost-to-income ratio. Can you achieve your cost-to-income target without the insurance recovery? Secondly, on M&A, we have seen you announced two bolt-on deals this year. Should we be expecting you to announce any more of this? Thank you.
Look, regarding the targets, obviously as I said and as I mentioned in the slide, we are very confident that we will exceed the CAGR growth target of net profitability of the company, which is ultimately what we are trying to achieve. We are trying to achieve a company that has a strong growth momentum and that we are able to translate this growth momentum in a sustainable and profitable way and ultimately to grow the franchise in terms of profitability. Now, regarding the sub targets that we have announced and that we are trying to meet, it is there. The situation is a bit more differentiated, for sure. As you have seen in this cycle, we have been running at margins way over the target of 85 basis points, which is clearly something. Throughout the cycle we have been running faster or the top end of the range.
In terms of NNA, we have delivered a much stronger return on tangible equity.
The cost-to-income ratio indeed is the.
Area where I believe we are close because we are at 71%. We have managed in the past, and we have managed actually in this semester to improve 2 percentage points in a semester. You need to take into account that when we did the plan in 2022, we did not expect a dislocation in the market the following year. We know in Switzerland why this has.
Happened, and this allowed us to make.
Investments that were much larger than anticipated. Again, the overall franchise in terms of size and in terms of profitability is much larger. I can tell you that we are going to do anything which is in our power to make sure that we achieve the 69% in terms of cost-to-income ratio. Out of all the targets, this is clearly the most challenging at this stage. Dimitris, you want to add anything?
No, I think that on the targets, exactly that. I think that broadly speaking, about the second question, which is what we are reviewing in terms of M&A, we are in a very good position in terms of capital, so we have the resources to do it. We are also growing capital every single semester with our own organic capital generation. In terms of redeploying it, for us, it's the best option that we have in order to create value. In the last 18 months we've added organically CHF 15 billion of AUM and through acquisition CHF 10 billion. We are clearly out there looking for the suitable targets to do M&A.
We are hopeful that the consolidation in the market will continue, especially with some of the smaller players wanting to find bigger homes for them to be involved and to make their business plans a lot more sustainable over time.
That's very clear. Thank you.
The next question comes from the line of Daniel Regli, Zürcher Kantonalbank. Please go ahead.
Good morning. Thanks for taking my questions. I have three questions if I may. One is on net new assets, one is on gross margins, and one on the acquisitions. First on net new assets. Obviously what also pops out is that Latin America had quite a strong net new assets growth. Can you maybe talk a bit about from which countries this was mainly coming from and whether there you see a kind of a benefit from one of your competitors selling its business in Brazil? Maybe secondly, can you also talk a bit about the competitive situation in Switzerland with UBS integrating the prior Credit Suisse Switzerland now and whether there is some kind of opportunity for you in Switzerland? Then on gross margins, one question I have is about this 10 basis points you show as non-recurring commissions.
Obviously you say that it's non-recurring, but it looks quite sustainable. Actually you were always around 9, 10 basis points over the past couple of years. Can you talk a bit about how you expect these 10 basis points to develop going forward? In particular, have you seen any kind of pick up in this number in H1 due to the increased volatility we have seen in H1? Maybe a second follow-up question also on the net interest margin. Obviously you show, and this is quite helpful, this CHF 45 million on the top right of page 15, the impact from interest rates. Based on the current forward rates, how do you expect the net interest margin to develop into H2 2025? Can you give us some kind of guidance there? Just one last quick question on your acquisition of Cité Gestion.
This return, by the way, also very helpful details you provide here on slide 23, but it is 1.11% return on assets. Is this really kind of revenues per balance sheet assets or is this comparable to your gross margin, i.e., return on assets under management? Can you maybe talk also a little bit about what will happen to this number when you integrate the business into your business.
Thank you, thank you, thank you for the questions.
Maybe I take the first one on net new assets, and indeed I think Latin America for us has been a very good business over the last few years. We have been able to grow at not only much better than our range of 4 to 6% in the last few years, we were.
At double-digit growth rates. Clearly, Brazil for us is the biggest market in the region, but overall the.
Growth is quite diversified and I would say that we have a good setup to cover Latin American clients because obviously we cover them out of Switzerland, but also we have a strong presence in Miami and in the Caribbean with Bahamas and a branch in Cayman, so we give choices to the clients. I think that our teams are extremely strong in covering the various markets. Regarding Switzerland and the competitive landscape and situation, I've been always saying that the ecosystem of private banking wealth management in Switzerland is extremely solid, very competitive, and actually is the best ecosystem that you have globally in our industry. I must say the competition is quite fierce now. Over the last few years our competitive positioning has been, our market competitive positioning has been improving in relative terms. For us, it is good, we have better visibility.
You know, five years ago it was, I would say, more challenging to engage in discussions with the top bankers of the country. Now it is much easier. I don't think that, I mean, the situation of Credit Suisse and UBS, I would say obviously the integration is ongoing, but in terms of competitive landscape, I don't think that is influencing very much any longer the market. I think what is good for the country and for the financial center is that the competition among all the players is quite strong. You always look at your competitors, we respect them all, but they always force you to become better and to run and to run faster. I think I paused here on the NNA. I don't think there were other questions.
Gross margin Dimitris
so let me take the commission margin. What you mentioned, Daniel, about recurring and not recurring, clearly the 10 basis points that we have are not one-off in terms of when we say non-recurring is that they are based on transactions and they are not based on pre-agreed mandate fees, which are the ones that we would call the recurring part of the business. Now, if you look historically back, these 10 basis points over the last 10 years, I would say, have ranged between 8 basis points- 12 basis points. It is not that we don't expect to have them next year or next semester. We clearly expect to have them because it's part of our business, and the range has historically been this, between 8 basis points- 12 basis points. Now we are pretty much at the middle of that range.
In terms of your other question about net interest income and the forward rates, the information that we show on page 15 on the top right is exactly that, which is the sensitivity to interest rates. The way you should be reading the chart is, and take one concrete example, let's take the dollar, which is the bigger number there. If reference rates in the dollar drop by 100 basis points, we expect our revenues to be down something between CHF 15 million- CHF 20 million. If you read the chart now, I think if you look at forward rates, people expect probably two cuts nowadays for the remainder of the year, maybe. On that assumption, you can easily calculate that we would lose about CHF 7 million- CHF 10 million, let's say, over the next 12 months following the cut.
I think that in terms of we can't discuss people's expectation on the rate cuts, but for us this is an easy reference to be able to apply. What is the impact as you realize that these levels, given that we are running at our annual revenues are in excess, like we are running above CHF 1.5 billion. These now become less significant numbers as we move along the tail of the reduction of the rates. Finally, on the revenue margin on Cité Gestion, yes. The 111 basis points is calculated the same. We calculate our revenue margin, so it's their total revenues divided by their average AUM in the period. The reasons that they are so high is they are 92% in mandates, and clearly this is helping a lot, the revenue margin. To your question, what will happen after they get integrated?
What I expect is that they will maintain and grow this very profitable business. On top of that, they will add another couple of other products or business lines. To give you an example, they have a fairly limited balance sheet. Because of the smaller equity, they can use our much bigger balance sheet to give more loans. Now, will these loans be over 110 basis points? Maybe not. The idea is there that you expand the business by adding more revenues, even if that might dilute a bit the revenue margin. In terms of the play, as I said, it's about expanding the business, expanding the capabilities, and making sure that we capitalize on this growth momentum and the capabilities of Cité Gestion.
Thanks a lot for your answers, very helpful. Can I just add one quick follow-up on the non-recurring commission income? Maybe just can you break these 10 basis points down for me a bit? What is driving this is the structured products mainly. If yes, is it like half of it or 75% of the 10 basis points coming from structured products?
Most of it, Daniel, comes from brokerage activities on debt and equity instruments. This is the majority of what we call brokerage fees or non-recurring fees.
Okay. Okay, very clear. Thank you so much.
As a reminder, if you wish to register for a question, please press star followed by one on your telephone.
Great. Are there any further questions in the room at this stage? No. Operator, did we receive any further questions? Here. Sorry, we have now another question in the room. Thank you.
Good morning. [Buongiorno]. I wondered about the number of the Client Relationship Officers, CROs, which decreased from last year to the first half year. Is that because some CROs didn't perform enough, or did they get retired, or did they go to other banks? One other question about the dollar exposure. You suffered a lot from the dollar weakness in the assets under management, in the AUM. How will you tackle this problem? How will you reduce the U.S. dollar exposure in the short term? Could you explain that once more? Thanks.
Thank you. Regarding the CROs, I would say that yeah, it is a bit all of the above as you mentioned. Clearly, as you know, we have been very active in recruiting teams and recruiting CROs. We are very pleased with the performance of the new colleagues. Some really had exceptional performance over the last few years. There are also situations where, as in any relationship, it doesn't work. We don't get the expected results on both sides. Our agreements are very clear. If it doesn't work, then we part ways. This is a small minority, but there are some. There are several people retiring. On the other hand, because this is usually the follow-up question, we don't lose CROs to competition.
In the worst case, CROs decide to become even more independent and they set up an external asset manager or they join an external asset manager and they continue to collaborate and cooperate with the bank. This is, I would say, absolutely in the norm. Regarding the US dollar, as I mentioned earlier in my presentation, there is no silver bullet where you can change the exposure overnight. We were checking in the last few days, how was the exposure 10 years ago? 10 years ago, the percentage of AUM in dollars was in excess of 50%, was 53%, 54%. If you look today, we are at 46%. There has been a gradual trend of decreasing that also because of our acquisitions. On the other hand, it's very, very difficult to change the mindset of clients.
If somebody, like most of the clients in Asia Pacific, in the Middle East, in Latin America, if they think CHF , they are not going to change overnight their view of the base currency.
As I said earlier, the only thing.
What we can do, like any export company can do, is to become much more productive and efficient, reduce our cost, and improve the services and products we offer to increase our net commission income to continue growing.
Offset.
This negative impact. This is, in a nutshell, about the situation.
Great, thank you. I think we have one further in the room and one further on the telephone line as well. Now we are getting.
Thank you. Maybe to follow up on the U.S. Dollar question, can you maybe give a split of the costs by currencies? Because I didn't find that in the. Just makes it maybe easier to calculate impact. The other thing maybe in terms of growth, you mentioned structured products that keep on growing year after year. Maybe you can give a bit more color there also in terms of how large this business is. Same on the private markets, you said record fundraising. What is that? Maybe if you can give a number on that, that would be helpful. Thank you.
Let's start the first question, which is the breakdown of the expenses in terms of for the first half of the year. 50% of our expenses are in Swiss, and I would say that 25% are in dollar or dollar-linked currencies like Hong Kong dollar, Australian dollar, things that move in a fairly correlated way. That is the breakdown of the cost for the first half of 2025.
The next question.
Structured products look structured products.
This is an asset class that I believe is quite interesting, especially when the markets are volatile as they are and when there is some level of positive interest rate. As you know very well, clearly when interest rates were negative or flat and markets and there was little volatility, it was very difficult to, you know, to be focused on that.
The business has been growing.
Growing the last four years. The clients do a variety of strategies, you know, from the reverse convertible to the equity linked notes and capital guaranteed. There is a variety of strategies, and again there are several bankers and several clients that like that.
Not everybody likes that.
Just as order of magnitude, I would say it's about 30, let's say one third of our bankers that are involved in these products. Other geographies, for example, don't like them very much. I think this will continue as long as interest rates, at least in the key currencies, will remain positive.
Markets or maybe the volatility, if you.
Look at the VIX has gone down, but the views of the market as.
You know very well, are very, very different.
This will continue on private markets. I think to be very fair, we are playing a catch up game. Compared to many of our competitors, our penetration remains fairly low, is in really the low digit percentage. We see some traction and maybe from a cyclical standpoint it is not bad because clearly overall there has been a slowdown. Maybe these are the vintages when it's right, it's the right moment to come in and not when everything is at record levels. We believe that this is an asset class that will increase. Again, we are very low. By the way, structured products too, I think our penetration is 3%. It is 3%. So, structured products 3%. It went down. Overall, private markets is also low. You know, if you read the theory, it should be 15%- 20% on a portfolio.
I think we will be happy when you go to 5%. It is a long way, but at the margin and to sustain the net commission income, this is quite relevant.
Right?
Okay. Can we have the question on the phone if there's still one left, please?
We have a follow-up question from Daniel Regli from Zurich. Please go ahead.
Hello, me again and thanks for having another question from my side. It's on the costs shown on page 18. Can you just talk a bit about how much of this CHF 66 million will be already visible in 2025? I expect CHF 66 million is kind of an exit cost save number. You would have achieved by year end 2025 to be fully visible then, not before 2026. Is this correct? Can you talk a bit about what is the step down which will be left after 2025 versus 2026?
Hi, Daniel, again you are correct. Our level of execution at year end 2020 was CHF 49 million. That is the December 2024 figure, and we expect to close December 2025 with CHF 66 million. We're going to be achieving another CHF 17 million during the course of the year. This will not print fully in 2025. It will only print fully in 2026. The timing might vary throughout the year, but you get an indication of what will be appearing in 2025 and what will be appearing in 2024 and 2025.
Okay, is it fair to assume that you know about this CHF 17 million you kind of execute during 2025 will probably be about half of it visible in 2025 already, and then the step down will be the other half possibly.
You will get full recognition in 2026. Yes.
Okay, thank you. Very clear.
Great. I think we have no further questions. I hand over for final remarks to Giorgio.
First of all, thank you. Thank you to all for your attention and your questions.
To sum up, I would like to say that clearly we have entered this final year of our current cycle with strong growth, momentum, and record profitability. We are confident that we will exceed our 2025 ambitions, and we are committed to continue this strong performance also in the next strategic cycle, the 2026- 2028 cycle.
We look forward to updating the group.
Market and our stakeholders on our future strategic direction, priorities, and financial targets on the 25th of November of this year. Thank you very much.