Okay, getting started here. Personally, very happy to welcome you to the conference this year, first time attending here, which is great. I hope you're enjoying Florida so far, but of course, Sergio Ermotti, CEO of UBS.
Thank you.
We'd love to start. We just reported 2024 results. Clearly, 2024 was a pivotal year for UBS. What I'd love to hear is maybe your thoughts on 2024 overall and the priorities for us as we integrate Credit Suisse and move into 2025.
First of all, the fourth quarter was a particularly strong quarter, both if you look at the seasonality that is usually fairly negative to Q4, we saw good momentum, which I would say is a reflection of the good market conditions we saw in the second part of the quarter, but also a good momentum in us gaining market share in 2024, and in a sense we made very good progress, as you mentioned, was a pivotal year. I would say that 2023 was as important, but 2024 was a year in which we clearly demonstrated the power of the franchise in terms of revenue generation, us starting to deliver on our strategic objectives in the areas where we want to invest and grow.
But also in reflection, around the integration, we significantly de-risked the integration, and both in terms of what we did on balance sheet in the non-core activities, we achieved a significant reduction of risk-weighted assets. We also decommissioned almost 40% of the applications that were supporting non-core and the IT of the former investment bank of Credit Suisse. And also, very importantly, we achieved almost 60% of the gross cost savings we have in mind. We need to save around $13 billion of cost. If you take the baseline, end of 2022, we achieved $7.5 billion by the end of 2024. O verall, very good progress.
Now, at the same time, we are also investing for the future because, of course, the integration will last until the second half of 2026, but we are preparing also for the future.
Right. Okay. Well, thematically, capital markets recovery is very much in vogue right now. I'd love to hear you talk to investors, everybody's very, very excited about it. F acts are, January hasn't started out amazingly, but it's just one month. H ow is UBS positioned for a continued capital markets recovery, and what are you hearing from clients and investors?
Look I'm not gonna go into commenting on the current quarter. It's not our policy, but it's fair to say that when you look at until the middle of January, and of course still now, we see very good momentum in terms of the pipeline building up. O ur ability to get mandates is intact, and I would say probably is fair to say is across the board in the industry. As you mentioned, when you look at banking, the truth of the matter is that according to public data there is anything between 20% and 30% reduction of the fee pool year to date. S orry, not year to date because the truth of the matter is end of January.
Yeah .
I can say that I'm happy to see that we are making good progress in terms of our strategic objective to increase market share. I n that sense, I'm happy so far. But i t's not one quarter or one month that makes the story, but this is following up on 2024. This momentum is still there. The uncertainties that we see from a geopolitical standpoint of view around tariffs is definitely creating a little bit of uncertainties that may bend the capabilities for us, for everybody to execute on the pipeline. T he issue is not the pipeline. It's now, do we have, a market environment that is constructive enough to allow the execution of the pipeline?
Offsetting this, you can see, probably it's fair to say that we see a continual good momentum in markets, in trading, and activities, so I would say that so far so good, but it's premature to call out for the quarter.
For sure. Yeah . A s you mentioned before, the fourth quarter was quite a good note for us to end the year on, very strong. But it did seem as though the stock reaction might have been a bit of a concern around uncertainty around the capital requirements. W hen do you think we'll get clarity on this, and do you have any expectations for that outcome?
We will get first of all, I would note that the market has reacted well to our Q4 results. And of course our remarks in and around what it means if certain options that materialize in terms of capital requirements, what they mean in terms of shareholder return and return on capital and so on and so forth, has a little bit cooled down the situation. In terms of clarity, we will not get much clarity until May. In May, according to the Swiss Finance Minister communication we should expect a public consultation on any new proposals to be presented. And at that point in time, we will know more or less where the debate goes to exactly. Having said that, this is gonna still take months to then become eventually a formal proposal.
So I would say between May and the end of the summer, probably, and start of autumn we're gonna find out much more.
Okay. Any expectations or?
No.
Too hard to know?
The expectations for us, our expectations are that, whatever enhancements, which, by the way, we do believe that, fine-tuning of the current regime is necessary to avoid what happened at Credit Suisse. We believe that, focusing on the quality of capital is much more important than focusing on the quantity of capital. We expect and hope that, we will have a proportionate outcome that is coherent with the strategy of the government to allow, a global bank to be successful, in its, operations and having a competitive financial center in Switzerland, so having excessive requirements is definitely a contradiction to that strategic desire, so I hope and we will make sure that we contribute to this debate in order to make sure that a balanced outcome is there.
So I keep saying that we are not only competing for clients, we are not only competing for best-in-class return on capitals with shareholders, but we are also competing for capital. And so it's very important from my standpoint of view that if you really want to achieve a good balance between prudential focus and sustainability of a business model, you need to make sure that we and a bank can be an attractive value proposition in moment of stress if shareholders should be the first one being motivated to step in if in a scenario in which a bank can need capital for idiosyncratic reasons or more macroeconomic considerations. At that point in time, you are in competition for capital.
It's very important that people understand that how to calibrate that aspect and not only focus on extreme scenarios from going concern, everything is fantastic, to gone concern. There has to be a middle ground in which people understand how to calibrate, those two elements.
Remarkably well said. A s you just touched on, UBS is a very global firm, right? We have Swiss roots, but global firm. And here we are in Miami, and we're watching the American football game last night so very American theme here. What are the thoughts on the Americas and the opportunity set that we have here, and how does that fit into the long-term strategy?
Yeah. First of all, I have to say that soccer is a little bit more global than Americas. B ut.
No doubt.
In that sense, well, look, the Americas it has been for decades, a key market and a key priority for UBS. But also if you look back at the UBS, not only the most recent history, the big acquisition of PaineWebber, Dillon Read, but also the legacy we are getting from the very good capabilities we took on from Credit Suisse, through the First Boston historical, now has been and will continue to be a core market for us. It's, I'm not saying anything new, but we all know that, even more than 10 years ago, this is the biggest pool of fees, in terms of banking and capital markets activity. It's the largest wealth management market in the world.
So in a sense, it's almost impossible to be a successful global player without having a strong presence in this part of the world. Now, of course, we know that we cannot compete across the board in every single aspect of banking. That's the reason why we need to stay very focused on our strategy, very focused on our equity story. We are the only true global wealth manager. T here is no other player that, I would say, has such a comprehensive footprint and capabilities in wealth management. And having a strong presence in the Americas and Latin America, where we are number one, helps that e quity story. O ur focus is to continue to develop the market. We know we have to do better in terms of our profitability in wealth management.
We need to show that the power of UBS and Credit Suisse coming together in banking can create indeed added value to the entire group, but also to shareholders. A nd I'm very pleased with the progress we make, but it's still some way to go.
Yeah. I'd love to double-click on that because many of our competitors are here at the conference today and many of the partners. W e'd love to drill in a little bit to Wealth Management Americas. You made some changes there recently. You touched on the focus on enhanced profitability. C ould you maybe expand a little bit on the changes that we've made recently with GeoDevelopment Americas and your expectations for the improved profitability?
Well, look we need to narrow the gap to our competitors in terms of pre-tax profit margins. We need to recognize that we don't have a scale issue per se because we are managing 2.1 trillion of clients' assets in the U.S. I t's pretty significant business. It's not the it's number five, number six, but still a significant amount of assets. We don't have, to be fair, all the ancillary businesses around wealth management like our peers, but we should have an ability to narrow the gap in terms of margins and profitability. I n order to achieve that, we need to definitely work on at least four or five levers. There is no silver bullet that fixes everything.
We need to work on further enhancing, which I believe has always been one of the most successful way to improve businesses is to focus on doing better with your existing clients. We can do much better with our ultra-high-net-worth clients. We can do much better with our family offices clients in terms of developing a more comprehensive, broader relationship with them, with institutionalizing more those relationships. We need to probably also slightly enhance our segment penetration. We can do better in the high net worth space and affluent space without compromising our status as a leading ultra and GFO bank. We can work on enhancing our banking products capabilities.
We need, we are now in the process of getting the license for having a national charter so that we can do more deposit businesses, more banking businesses like lending that are not necessarily part of the toolkit in an efficient way today. We need to work on cost. We are improving our technology capabilities. When you address all these issues and our organizational structure with less complex management structures will allow us to deliver and execute on the strategy. A lot of things that needs to be done. Our first objective is to get to a 15% pre-tax profit margins in the next couple of years, and then from there onwards to narrow the gap to best-in-class.
Now, our subpar margins in the U.S. have to be also seen in the context of the global competitive landscape. Our margins outside the U.S. are very high, and I would say quite challenging for our U.S. peers to match, so we have to recognize that each of us brings to the competitive environment a different DNA and different business mix, and we need to work on this portfolio rather than trying to be paranoid about only looking at one country because the critical mass that we have allow us to be an efficient global player, and not necessarily just as a single region or competitor.
Yeah. Single market focus. And it's a great segue to the next question, which is to think about the global business. It is definitely a differentiator against a lot of our U.S. peers, for sure, to have that. W hat are the priorities for the wealth management business around the world, outside the U.S.? And how's the integration going, and where do you see it going from here?
The big priorities are for us to continue to see we see, secular trends supporting wealth management and asset gathering across the board. P eople in the room knows, as good as I know that this is something that is likely to continue. When I look at Asia, when I look at Europe, no matter if you look at, growth that may come from wealth creation coming from GDP growth, or if you look at the topic of helping clients to manage their assets in a challenging geopolitical environment where they need to probably reconsider how they book those assets globally. You think about succession, next generation. You think about wealth planning. You think about philanthropic desires of many of our clients. We can really drive growth by being together with clients in this journey.
Asia is definitely a business that continues to grow, very promising. Despite if you look at last year's results, despite the fact that our people were very busy in managing the integration, we managed to have a very impressive growth. I see Asia continuing to be an engine of growth. W e will need to see, in terms of net new assets, we need to see also monetization coming back. The environment has been okay-ish in the last couple of years, not really to be compared to what we saw in the last 10 years. We all know that capital markets activity needs to come back in order for us also to drive net new assets.
We really capture through the work of the IB and wealth management the outcome of monetization of entrepreneurs or in general investors. They tend then to keep a chunk of their assets with us once they go through that process. F or us, it's very important to see also the capital markets activity coming back to a more normalized level compared to what we saw in the last couple of years.
Yeah. Back to the beginning of the discussion, right? There's first order and second order impacts for us. Yeah. Thinking about the competitive landscape , we hear just regularly U.S. competitors talking about investing and growing their wealth business. H ow do you, given all of that, what gives you confidence in our ability to compete?
Look, we definitely always need to be somehow focused and not complacent about the competitive dynamics. But it's fair to say that some of our main competitors are building up very credible propositions in the space. Having said that, if you look back at UBS we have been doing wealth management for 160 years. I t takes more than just an ambition to build up what you have. It takes investments. It takes a culture. It takes a focus that we have. As I mentioned before, our advantage is that asset management, asset gathering, wealth management is at the core of our strategy. N ot only in terms of revenue.
You look at our balance sheet. We really drive this business at the center of what we do. W e should not be complacent about competitors. Actually would be a real big mistake. But we know that particularly outside the U.S., the barrier to entry are pretty high. How we defend that position is by continuing to invest. F rom my standpoint of view, that's the reason why I'm so focused on making sure that we don't just spend too much time talking only about yesterday business and today, but or the integration, but also thinking about how the future gonna reshape in terms of capabilities, what can you bring to the table to clients, what can you do in order to improve your efficiency and effectiveness in how we manage our balance sheet, but also our cost.
Because one thing is quite clear to me, the top line is not gonna grow in as a function of margin going up. Margins are likely to continue to be under pressure in our industry. Y ou need to really have a higher penetration. Y ou need to do more with your existing clients, and you need to also create operating leverage by doing things better and more efficient because one angle that where, of course, you may become vulnerable over time if people can come up with the same business model more or less at a much lower cost. A nd that's the reason why we are investing heavily in the new generation of capabilities to our people. Artificial intelligence is something that we have been doing for 10 years. Of course, now it's even easier to do it.
We deployed 50,000 Copilot licenses late last year and right now. This is the largest rollout of Copilot licenses in the financial services industry. I don't expect things to change overnight, but as people start to embrace different ways to do their job, we will see also the benefit of efficiencies coming out either by cost reduction or enhanced productivity, which will then sustain growth in a more profitable way going forward.
Right. Yeah. I like that part of your answer. You just need more than just ambition. It's well said. Private markets are a big theme. There's a strong secular growth driving private markets. Just had Apollo earlier this morning chatting, and they're very excited about growth in the wealth channel. Can you talk about how UBS is positioned in order to benefit from that trend?
In different ways. I t's fair to say that when you look at the asset allocation of our clients, it's still fairly modest across private markets. I t's being growing, but there is still a lot of scope to go. One way we are trying to do now is to really leverage the existing capabilities. Many of you may know that, as of January 1st, we have pulled together all our alternative businesses that we had in Wealth Management Americas, in Wealth Management International, in the asset management under one roof. We created overnight the fifth largest LP with almost 300 billion of assets across all asset classes. This is helping us reinforcing our relationship with GPs, as a one-stop shop that allows them also to leverage and come into the wealth management network we have.
With $4.1 trillion of client assets, so we can offer an easy entry point. And it's also very coherent with our ambitions to have an open architecture. W e really focus always on giving our clients the best at the best price possible. T hat's the way we pursue the strategy. We also need to pay attention here on the quality of over time and the sustainability of how to invest in private markets. I t's fair to say that we so far so good. We saw growth. We see a lot of commitments, but we need to also make sure that we remember that we have to also look at suitability and making sure that the right clients buy the right investment and assets so that we prevent any misunderstanding on that front, going forward.
Right. And then, hearing people talk about private markets in the wealth channel, it's often quoted as low single digit now. Do you have a sense or an estimate about how high you think that could or likely to get?
Well, as you mentioned, we are now talking about mid single digits. I would say that if we get in the next five years to mid teens, it's probably gonna be a reasonable place to be. As I say we should pay attention not to go too fast. And there are no free lunches. I don't really believe that private markets per se can offer on its own a solution to everything. And we need to really use it in a very focused way. But the potential is pretty high in terms of asset allocation diversification. But, and so, yeah.
Yeah. That's an impressive growth. We'll open up to the audience after one last question. You touched on Copilot, and so AI is another big topic, right? What are your thoughts on how AI can, of course, beyond the initial steps of the big launch of Copilot, which is important, but are there any other intermediate plans? And what do you think ultimately is the impact of the industry from that technology?
Look, I'm not an expert, and I will not claim to be an expert. I only understand enough to say that it's unlikely that this is gonna be an immaterial event. T hat in history, maybe it's the same this time. We have been probably too enthusiastic or too focused on the immediate changes and underestimated the long-term effects of technology. Probably this time it's fair to say that things can indeed go a little bit faster than we saw in the past. But I do believe that it's quite clear. I see that there is a scope for enhancing productivity and making the job of everybody easier, in some cases even more interesting. Our focus right now is, when we invest, 80% efficiencies, 20% top line.
I don't know if this is right or wrong, but I that I can measure efficiencies very quickly. The top line is always a little bit more difficult to argue. In that sense, our ambition is to be a fast follower. T here is also risk of trying to be too enthusiastic and overinvest in things that are likely to change very rapidly. Being a fast follower, considering our franchise is good enough for us to tackle the next three years.
Okay. Got it. Well, we got about 10 minutes left. I f there are any questions in the audience, I'd be happy to take those. All right. Well, I guess I'll come up with another one. W hen you think about, we just did the big acquisition of Credit Suisse. We've gone through the integration. When you look back on that journey, what do you think was most surprising that we learned from going through that? And maybe what did you expect that maybe didn't come to play?
I have to say that positively surprising, although I always felt that the so-called difference of culture between UBS was a significant risk on the integration. I still was still very positively surprised about how quickly and the two teams have been coming together and working together. That has definitely helped the execution of the integration, being smoother than we could expect. T hat's probably, when you go outside the financial KPIs, this is probably the best achievements we had. A lso considering that, of course, mainly for the Credit Suisse colleagues, but also for some UBS colleagues the acquisition was a traumatic event. A nd in that sense having so quickly a common culture, a common view on how to think, bring things forward was a very positive development.
Yeah . Very true. We'll go one more try for the audience. We have a question here. We have a mic runner. Okay. Just go ahead and let me know. Yes. I'll just repeat the question for the webcast. APAC used to be a big source of growth expectation, particularly Hong Kong and China. And do you still expect that, going forward? You certainly did reference it a bit in your wealth management discussion.
I still see China and Hong Kong from a secular standpoint of view to be a growth opportunity. I would say the level of growth and the volatility and predictability of that growth has been already for the last few years and will continue to be much more volatile. But still you still have a lot of wealth creation. And the ancillary repercussions of that changing paradigm in China and Hong Kong had also some repercussions on the rest of the Asian business in which you can see offsetting growth opportunities. I f you look at the broader Asian topic, the APAC topic, it's been quite impressive growth, even last year.
Yes, I don't see a lot of other places where you can see true growth and wealth creation. If you still look at the amount of people who are living below poverty, and going to the next level of, wealth, status, and then in turn becoming, wealthy people or multimillionaires and billionaires, the numbers are quite impressive. A nd also the demographic trends in some of those countries, really drives the necessity of, wealth planning, savings, and investments, which is very constructive to our business model. Asia is still an absolute engine of growth, although more volatile, mainly driven by geopolitical consideration than fundamental issues.
Any other questions from the audience? Okay. I can do one more. Why not? I've been at UBS for 14 years. I've actually seen two Sergio CEO eras. In your first, Accelerate, when we changed around the trading business, that was transformative. And it seems, I might be off on this, but it seems like it's the most I can remember cross-divisional cooperation is probably the highest that I can remember. T he amount of times that we try and partner with wealth and vice versa seems to be increasing. Is that a strategic imperative? And what opportunity do you think that that would present?
Well, when you go through the transformation of the capital allocation we went through post the financial crisis in 2011 and 2012, and also it's fair to say that back then also our wealth management business was going through a lot of changes in terms of our position and the way we were looking at clients' assets and many regulatory aspects of what we did was driving a necessity for the group to focus, first of all, on fixing each business on a very vertical dimension.
Basically, focusing on becoming very good at what you do, best in class in what you do, so that eventually, when you finish that journey, which we are doing now, you can then start to look at the horizontal dimension, i.e., when you look at clients and you look at how can you best serve clients by leveraging the capabilities of the group across asset management, wealth management, the investment bank, and our Swiss business where we also have a lot of ancillary synergies coming through. W hat you see right now is a change that is almost the outcome of having finished a the job in making as efficient as possible the vertical dimension and now working on the client dimension.
And, that h orizontal dimension is very important for us because we are not setting our strategy based on size of balance sheet or scale in our businesses, but we play more a focused approach. And it's very important for us when we face larger and more competitors that we are more flexible and more agile on how we look at relationship with clients. And so we can offer something that is differentiated. I t's a necessity. It's not only an opportunity. It's a necessity for us to be very close to clients and offering the best because we cannot afford just to live out of the vertical dimension.
Great. Got it. Well, Sergio, thanks a lot for your time. It's a very interesting discussion.
Thank you.