UBS Group AG (SWX:UBSG)

Earnings Call: Q4 2020

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Jan 26, 2021

Thank you. Good morning and welcome everyone. As usual, I will draw your attention to our cautionary statement at the back of today's presentation. Please also refer to the risk factors in our 2019 annual report together with additional disclosures in our quarterly reports and related SEC filings. On Slide 2, you can see our agenda for today. It's now my pleasure to hand over to Ralf Hammers, Group CEO. Thank you, Martin. Good morning, everyone, and welcome to the full year results. I'd like to start by saying that all of us at UBS clearly hope that you, your friends, your families, you're all in good health and that you're all safe. It's a strange world out there. The pandemic is still there. Most of us are in strict lockdowns. Please stay healthy. It's important. Let me start with the key messages that we have on Slide 3, Take you through a little bit. It kind of summarizes the whole presentation. Clearly, 2020 was a tough year all around for our clients, Employees or communities. If you really look what's behind that, it is our colleagues and the way our colleagues Basically rose to the occasion day in, day out. And that made us, as UBS stands for Stability for confidence. We were able to maintain connectivity with our clients, provided the advice and the solutions that the clients needed in these uncertain times. And you can see that connectivity, that reach out coming back in the more than $100,000,000,000 in net new money that clients invested with us across Wealth Management and Asset Management. And this has contributed to a record in invested assets in both businesses. So together, we are now over $4,000,000,000,000 in total. We achieved on the back of this commercial success our highest net profit in a decade with every region delivering Over €1,500,000,000 profit before tax. As a result, we hit or exceeded each of our targets for growth, but also for returns, while we delivered on the strategic priorities that we laid out at the beginning of last year. Now reflecting these 2020 results and our solid capital position, We will propose to pay a €0.37 dividend per share at the upcoming AGM. In addition, we're planning to resume buybacks, targeting up to $1,100,000,000 in the remainder of the Q1. Now turning to the next slide, Slide 4. Well, basically, I mean, this slide tells it all. It's momentum across all different dimensions. When we look back at 2020, you can basically look back with a sense of pride, supporting the clients through the challenges they faced. $4,000,000,000,000 of invested assets across Wealth and Asset Management, as Clive turned to us. To help them to achieve their investment goals, euros 80,000,000,000 of net new money generated in Asset Management alone, of this around half was directly related to providing our Wealth Management clients better access to separately managed accounts. We also saw strong demand for Chinese equities Sustainable Investment Products, both confirming the strategic priorities being the right ones. Also on this slide, you see the SEK 26,000,000,000 in net new loans for Wealth Management clients, another strategic priority. On the transaction side, we built on our strength to identify and execute on trading opportunities for our clients. On the back of the global markets, income grew by nearly a 3rd, to ring well across products on higher client activities. Transaction based income in the Wealth Management increased by 17%, Reflecting enhanced product capabilities, we'll leverage the investment bank. You see that both on the asset management side as well as the investment bank, we're really Looking as to how we can support the Global Wealth Management focus that we have and you see The first signs of true success there, we have really endeavored to make it simpler for clients to transact with us as well On the Investment Banking side, we were there for our corporate clients too, guiding them through the primary markets. Throughout the difficult year, we helped over 500 corporate clients raise debt and equity in the capital markets. Last but not least, important segment for us as well, the family office clients, Clearly, the ones with the most sophisticated and complex needs, as you know, we introduced an integrated cover model In order to service them better, ensuring that they would get the broad range of capabilities across Wealth Management and the Investment Bank As one UBS and working as one bank for our place, we grew our revenues here by 29%. So quite a success from the commercial front, seeing first signs of The move towards ensuring capabilities in the Investment Banking, the Asset Manager and the Wealth Manager Alliance serves our clients as well right here. Turning to the next slide, specifically on sustainable finance. It's clearly an area in which we have been focusing for years. 2020 was no exception. We became the 1st major global financial institution to recommend sustainable investments over traditional investments. Debt mandate has attracted SEK7 1,000,000,000 of inflows over the year. In Asset Management, we rolled out climate aware Strategies across additional asset classes. Invested assets in these strategies increased nearly fivefold to SEK 15,000,000,000 last year, contributing to a sustainability focused assets now more than doubling to nearly $100,000,000,000 But you can't just go out there and recommend that, that is the right thing to do. If you as a company If you're not there, so it's also important what achievement UBS itself does on the sustainability side and how we are recognized in that area as well. And therefore, we're proud that we are on the CDP's Climate A List of companies that lead the way against climate change. And we've been a global industry leader in the Dow Jones Sustainability Index for 6 years running. And we're rated AA by MSCI. So you see we were a kind of a Early party to sustainability and what we do ourselves, but also what we recommend to our clients, We see that this is becoming more and more mainstream. Our clients are truly interested in it. They want to have good returns and do good investments And investments are pretty good. And through this, we can truly help them on their journey. So where does this position us? I'm now on Slide 6. I believe the future of financing belongs to firms that have scale, where it matters. Leverage that scale for our clients and leverage that scale also for shareholders advantage. And that's basically what you see here. You see here Those areas that we really are our top player in, whether it's on the wealth management side now with more than CHF 3,000,000,000,000 invested assets. So clients really show their trust in us. On the asset management side, Close to CHF 1,100,000,000,000 in invested assets, also showing that we're doing the right thing there. We're the largest bank in Switzerland. We're the largest wealth manager in Asia Pacific. In Investment Banking, we're top 5 in equities. We're top 3 And FX trading, we're having strong momentum on both sides, shows good diversification there as well and that's a good basis to build on. It positions us well in the competitive landscape where winner takes most, if not all. And we know that scale benefits should in the end also go towards the clients and the shareholders. And that's what we're certainly focusing on, which gets me to How we have done versus our targets in 2020, and that's a nice summary right there on Slide 7. It's actually a demonstration of our scale across. And the page speaks for the breadth of our business, the strength of our business and our client franchise. Revenues up 12%, leading to an earnings per share of $1.79 Return on CET1 capital of 17.6%. Our success was broadly based and really Across all business lines and all geographies, you see asset gardening business It's comprised of the Wealth and Asset Management, recording double digit profit growth there as well. Our IB achieved Almost a 20% return on equity, super performance right there. Originally, Profits in Asia Pacific and the Americas grew by over $1,000,000,000 for the year, €1,000,000,000 more profit in Asia and in the Americas. Our Swiss Personal and Corporate Bank, which is Most directly affected by the crisis did well due. We're in a return well above cost of capital still even in a difficult Economy, managing through the pandemic, supporting SMEs and mid corps and corps And households doing that really well. It's basically what we can do is the role that we play here in Switzerland, standing by the Swiss corporate sector, providing that liquidity and support of the economy throughout this crisis. And all of that we have been able to do while staying disciplined on cost and delivering on operating leverage. The expenses were up 4%. I'll give you that. But if you look into it and As Kurt will show you, that is really driven by foreign exchange as well as variable comp. The top line at the same time increased by 12%. So there you see very strong positive jaws improving our operating leverage. Now clearly, if you have a good year, you generate a lot of capital contributing to stronger capital ratios. They continue to be strong, and that's after offering the attractive returns to the shareholders. We delivered on our CHF 2,600,000 dividend commitment for 2019, bought back CHF 350,000,000 of shares earlier in the year. We accrued another $1,300,000,000 for the 2020 dividend and we set aside 2,000,000,000 for share buybacks. Turning to Slide 8 then. If you then have a return on CET1 capital of percent close to 18%, positive operating leverage, it basically shows you our true potential. As we focus on our clients, as we care for society, support our employees, I am also convinced that we can achieve leading shareholder returns. That's what you see here. And I think also going forward, we can achieve good and attractive leading shareholder returns. But what we're doing here It's really mobilized the entire UBS team to unlock our full potential. I'm asking the questions like how can we grow with capital in a capital Cost efficient manner, how can we think further? How can we become better? How can we act faster? So we're thinking about ways to make UBS even better bank for our clients, for our employees and for our shareholders. And that actually brings me to my first impressions. I know you've all been expecting these, and I can also tell you That you will not get a full strategic update today, but I want to take you along in my first impressions now So 5 months with UBS and giving you some of the things that I see that really impressed me as well as some of the opportunity I see going forward to unlock our tomorrow. So Clearly, when I joined before I joined, UBS had a superb reputation For a strong, stable franchise, for its premium brands, symbolizing quality. If you Now after having been with the company 5 months, having spoken to many clients, Many employees, investors, stakeholders, I can only say there is much more than it And that's and here you see a couple of these areas. So, impressed by the quality of our thought leadership, our leading equity research, for example, The CIO house view the insights that we offer on the most relevant topics such as sustainability, how users would advise and then guide our clients through uncertain times and are pressed by the breadth of our capabilities that allow us to Support our clients no matter their return objective or risk appetite. I'm impressed by the strength of the client franchise with the relationships that we're often forced over many, many years. But behind all of this This will really show the true value of UBS and that's our people. Now and then that strong reputation that drove it UBS, I would say, we fully live up to it. If there's one thing that we're uniformly recognized for, We're a global wealth manager that is absolutely unique in terms of its global scale and reach. It's supported by a world class Investment bank, strong asset management capabilities, leading universal bank in Switzerland. So that's where we are, So it's unique and that's where we bring a clear advantage. And that's where our biggest growth opportunities lie as well. Clearly, if you look back on last year, joining the bank, I was also impressed by the strength The balance sheet, the risk management rigor, the operational resilience that we have shown in the midst of the crisis with lots of Activities coming through our engine, our execution engine. And as you can say see as well, the stability and diversification of the revenues and the capital generation. But and there is always a but, right? There's always a but and you have to look forward and the past is the past. It gives you a position, but there's no guarantee for the future. And that's why we have to look at the future and get a sense for what's coming at us. And there's a couple of things that are coming at us. The first thing is that it's clear that this pandemic has accelerated the client's digital expectations And the need for technology investments, and I think that need has been accelerated by at least 3, if not 5 years. And that requires far greater investment by financial firms. And those that have the scale will benefit from it the most. The other thing that's still out there and that will not go away is the persistent low and negative rate environment. We know it's a challenge for banks, but there are also opportunities for investment firms. So It's for us, this has 2 sides. So on the banking side, on the NII side, Clearly, it is a point to reckon with, but it gets the opportunities also where we can actually advise clients to invest in other means than depositing the money with us. So it's also an opportunity. We know that the $18,000,000,000,000 of negative yielding debt that pension funds are looking for advice in asset allocation and compelling investment opportunities. They're looking for those. The other trend is the trend of climate change. COP26 estimates that private finance, including pension funds, We'll provide CHF 3,500,000,000,000 needed annually for investments. We can certainly play a role there. We can play a leading role there. We can play an advising role there. We can play a management role there. We can play a structuring role there. So quite an area of opportunity. But there is a lot of uncertainty that will Continue to be there. Increased competition from nontraditional providers, as you know, complex geopolitical environment, Continued regulatory change coming at us. We have to stay ahead of that. And each of these trends requires to change, to adapt. And for those who get it right, there's quite some opportunity in those changes as well. And that leads me to the focus areas. And I know these are pretty general, but there are the focus points as we are working on our strategy. So Am I giving you the strategy here? No, I'm not. Am I giving you the focus points that we are discussing all the time here And further developing our strategy going forward, yes, these are the ones. So these are the themes that the management team and I We are concentrating on for our strategy and working on these for the next years. We're not wasting time. We have launched quite some work streams in all of these directions to get a lot of bottom up input as well from our people who are very close to Client, we're very close to the execution of our activities, who know what clients want, who know where we can improve our client Service, we know where we can improve in efficiency. So it's very important that this is not some kind of a, I don't know, a kind of a top down strategy that we developed. It's truly A combination of top down in terms of direction and areas where we see the trends and bottom up in terms of how to fill these trends in and how to make sure that we're effectively coping with these trends. We want to get it right, and that's why we need the details. And when we're ready, we will certainly be kind of updating you on our strategic plans and opportunities as we go. Let's take you through these focus areas. 1st and foremost, Being laser focused on supporting our clients, building on the positive momentum that we have in 2020, there would be a ways if we lose that. So we'll have to keep delivering on the trust the clients put in us and in our brand. I think UBS, Like many firms, but here there's quite some upside opportunity if we truly work all together, if we truly work Seamlessly together and seamlessly delivered whole front to our clients. When we focus on their needs and their experience and we look at how to fulfill Those needs, regardless of which business division has the right solution, that is where we can make the difference. We hear this from many clients and we can improve on that. And that's what we will be we're working on. And that's Probably the number one priority for us is how can we be 1 UBS. Now UBS also has a strong culture, But we also need to evolve this culture to be more flexible, to be more agile. And that will first Benefit our clients, but it will also help us to respond to change faster as well. In order to be more flexible and agile, I think we have to operate in a more simple form. We have to be a little bit more pragmatic, Take decisions faster. We'll need to empower people and make them more accountable as well. Then on the efficiency side, It's clear that self funding investments for growth has become a necessity for any bank to be successful today. For that, we'll have to operate even more efficiently going forward. That means driving operating leverage and making optimal use of our scale, being relentless When it comes to discipline around costs, we'll have to be critical in what we invest in. We'll have to systemically Crowd out the investments that are not delivering or that are just not good enough or just not strategic enough. So That's where I think we can further improve. I'm keen on building our next our edge in sustainable finance. It's a strength. It's a super opportunity. It's something we firmly believe in across the whole firm. So I think that's what we have to work on. And clearly, technology today already plays a central role here at UBS. And I see some real good practices in that In the technology area itself, but also in the client technology, for example, in our investment bank, clearly at the front of some of these developments there. But we have to and I think we're able to take advantage consistent investments that we made to date will have to meet these benefits. We should and have to be a winner in the digital We cover it and the only way to do that is if we turn technology from an enabler, something that is at the end of the decision making process to making technology differentiator, which is at the beginning of the decision making process and at the beginning of how we improve our services to our clients. Now lastly, as you may know, I'm a strong believer in purpose led organizations. So the first thing I picked up here, let you in my 1st week is, Okay, guys. Where are we on purpose? Where is our true DNA? Why do we come to work? What is behind The how we do things here, why we do the things we do here, it's truly important to get that sense To get that up, it's a big project that we're working on. And I'm sure once we get it, it will really guide us and give us direction as an appreciation for the future. Now if we get these things right and convinced we can consistently deliver on leading shareholder returns. Now to close, I'd like to since this is also the end of the year, I guess, and Not the easiest of years, I'd like to thank everybody at UBS for their dedication and work over the past 12 months. I know some of them in difficult personal circumstances. Our employees went out of their way to serve our clients, support each other, support their communities while managing the firm's risk, liquidity, capital to maintain of financial strength. 2021 is already shaping up and it's already shaping up to become quite an eventful year with what we see across the globe. But I'm convinced that also this year we can positively differentiate ourselves. With this, let me hand over to Kurt to take you through some more details before we get to Q and A. Thank you. Thank you, Ralph, and good morning, everyone. I would also like to join Ralph in extending my hope You and your families are healthy and coping well with the current challenges that we're all facing. Net profit for the full year was $6,600,000,000 which translates into a 17.6% return on CET1 Capital and nearly 13% return on tangible equity. PBT of $8,200,000,000 was up 47% driven by 10 percentage points of operating leverage before credit loss expenses. And this improved our cost to income ratio to 73%. 3 out of our 4 regions were up year on year with the Americas delivering the largest contribution to Group PVT. Turning to expenses. As we said before, under an operating income growth scenario, we aim to manage to flat costs, notably excluding variable compensation in key one time items to drive positive operating leverage. And As Ralph referenced, what you can see here on this slide, this is what we indeed did deliver in 2020 with year over year operating expenses, excluding compensation and FX flat and also as we funded over 1,000,000,000 in investments with savings during the year. Now with the events over the last year limiting travel, this gave us a natural offsetting factors for increased expenses and investments that were also directly related to COVID. Examples include the 1 week additional salary we granted to our less senior employees As a thank you from us, in October, we're suspending staff reductions during the pandemic, which also means We start 2021 with a higher run rate than we originally planned. Turning to the quarter, PBT and net profit both more than doubled year on year. PBT reached $2,100,000,000 with a 16% increase in revenues and a slight reduction in costs driving a 13 percentage point reduction to our cost to income ratio to 74%. With net profit of $1,700,000,000 our return on CET1 capital was 17.5%. Even after we added $4,000,000,000 or more than 10% to our capital base over the last 12 months. Moving to our businesses. For the full year, Global Wealth Management recorded pre tax profit growth in every region and a 20% increase globally. The Americas and APAC both reached new highs with APAC above $1,000,000,000 for the first time. We've been diligently executing on the plan that Tom and Iqbal set out a year ago and this is an important driver of these results. In 4Q, PBT was up 22% year on year, partly on higher invested assets that passed the $3,000,000,000,000 mark for the first time, as well as transaction activity and loan growth. Expenses were down 1% against 3% higher revenues, leading to a 3 percentage point Cost to income ratio improvement. We had another quarter of high net new loan volume at 8,000,000,000 with the largest contribution from the Americas and also good flows in APAC and EMEA. For the full year, net new loans were $26,000,000,000 consistent with our strategic focus on this growth level. The quality of our loan portfolio remains high and we have achieved this substantial loan growth without increasing risk on a portfolio level. We continue to gain momentum with our 1 UBS initiatives. Our separately managed accounts initiative in the U. S. Drove $26,000,000,000 of inflows into asset management in the quarter in over $62,000,000,000 since inception at the end of 2019. And GFO income across GWM in the IB was up 25% as you heard from Ralph. Recurring fees grew 5%, driven by higher average invested assets. This was partly offset by lower margin, mostly as a result of flows into funds and mandates with lower fees, a trend that we've highlighted in prior quarters. Sequentially recurring revenues were also up 5%, supported by growth in invested assets and $13,000,000,000 in net new mandates. Now market performance was one of the drivers of the double digit growth year on year in sequential in invested assets, which includes around 1,500,000,000,000 of invested assets in accounts with direct investments in cash that do not generate additional recurring fees, hence having some impact on our margin. Net interest income was up 2% In 4Q 2019 and 5% quarter on quarter, sequentially higher lending net interest income offset lower deposit net interest income. On the lending side, we had higher volumes and margins improved despite the increase in deposit volumes. Deposit income decreased on lower margins, mostly due to lower U. S. Dollar interest rates. For the quarter, We expect to offset to the Q1, we expect to offset the pressure from lower interest rates with continued positive lending net interest income and anticipate around $1,000,000,000 of NII. Transaction based income would have been up 9%, excluding the $75,000,000 fee related to a shift of business to P and C Page at GWN a year ago. This is our best 4Q since 2014, reflecting continued high levels of client activity, mainly in the final 2 months as clients remained on the sidelines in October ahead of the U. S. Election. Looking ahead to 1Q 2021, while we can expect normal seasonality sequentially, the year on year comparison will be acted by the unusually high trading volumes in 1Q 2020. Coming into 2020, Tom and Iqbal repositioned GWM to get closer to our clients and bring them more tailored services and solutions as well as more of UBS' full capabilities. This focus is clear in GWM's full year results. Reported profit before tax rose to $4,100,000,000 up 20% year on year with profitability growth across all regions, including double digit PBT increases in Switzerland and EMEA and record results in America and APAC. PBT for P&C increased by 4% to CHF318 1,000,000. Operating income was up 3% mainly reflecting higher transaction based income as 4Q 2019 included a $73,000,000 fee paid to GWM related to a shift of business that I also refer to in GWM. Excluding the fee, transaction based income would have been down $32,000,000 on $40,000,000 lower income from credit card in foreign exchange transactions as a result of reduced travel and leisure spend abroad by clients due to COVID. NII came down on lower deposit revenues, mostly related to U. S. Dollar rate headwinds on our corporate and institutional clients, but also reflecting the continued drag from negative Swiss franc and euro rates. Excluding a shift of business early in 2020, Loan NII was slightly up as volume increases offset margin contraction from increasing competition. Net new business loan volume in personal banking was 4.8% for the quarter and a record 6.9% for full year 2020. As part of our continued focus to digitize our Swiss Universal Bank and recognizing accelerated preferences of our clients to access our services through digital channels, we announced that we would close 44 smaller branches in Q1 2021 after having already closed around 30 branches in 2020. We will ensure that our clients remain well served with continued enhancements in broader access to our leading digital channels and other improvements to our remote services. At Switzerland's largest universal bank, we prioritize supporting the Swiss economy and its people throughout 2020. Apart from our swift and effective deployment of the government backed loan program, we were active in deploying our balance sheet and providing advice to help them through these challenging times with $6,000,000,000 in net new loans to our corporate and personal clients. We have contributed relief through donations, increased employee volunteering, while partnering with organizations that provide counseling, health support in education in Switzerland and across the communities in which we operate. Asset Management had another exceptional quarter, Capping off a successful year, 4Q PBT more than doubled to $401,000,000 on 40% higher operating income and flat costs. Full year PBT was up 66% to 884,000,000 excluding the funds and our gain in 3Q 2020 of $571,000,000 4Q performance fees increased by over 150,000,000 to $255,000,000 mainly driven by increases in our hedge fund businesses as a result of strong investment performance In a constructive market environment, an annual performance fee recognition for certain products. This was the highest level we've seen in over a decade. Next quarter's performance fees are likely to be more in line with the level that we've seen in prior 1st quarters. Net management fees were up 14% as we benefited from the higher market levels and continued net new run rate fee momentum, reflecting both the strong volumes and quality of our net new money flows. We had influenced $38,000,000,000 excluding money markets and invested assets past the $1,000,000,000,000 mark in November for the first time. We're benefiting from our consistent investments in strategic execution in our Asset Management business. We're driving growth of new ideas and investment content with recognition for our success and performance from various surveys, Notably in APAC and the sustainability space, clients are also recognizing our differentiated capabilities and innovation And we see it in the net new money inflows of nearly $80,000,000,000 during 2020 or a 9% growth rate with positive contribution from all channels and regions. The IB delivered its best 4Q PBT in almost a decade. Full year PBT was $2,500,000,000 up over 200% and return on attributed equity was nearly 20%. For the quarter, Global Markets revenue increased by 21%. Derivatives and Solutions was up 40%, driven by Equity Derivatives and Credit. Execution and platform improved 25% with higher client activities in cash equities, particularly in the Americas and APAC. We also believe we have once again gained market share in electronic trading and FX. Global Banking was up 30 3% was a significant increase in Equity Capital Markets and Advisory. ECM was the main driver with increased IPO and follow on issuance in the US, APAC and EMEA. Within advisory, our M and A revenue rose outperforming the CPOOL in all regions. The IV's cost to income ratio improved to 71% as income grew by 25% and operating expenses decreased by 13%. Expenses in the prior year quarter included over $200,000,000 charges from restructuring and a goodwill impairment. Excluding these, operating expenses would have been flat. Throughout 2020, we maintained our focus on deploying capital with discipline and for appropriate returns. And this is best illustrated by the comparison to our peers. Our credit losses for the quarter were $66,000,000 with $33,000,000 in Stage 1 and 2 releases, more than offset by $99,000,000 in Stage 3 impairments. The Stage 1 and 2 net releases resulted from a combination of book quality, including exposure migrating to Stage 3 and book size movements as well as model updates during the quarter. Updated macroeconomic factors formed a further release in expenses. However, as in the Q3, we considered such a release premature and applied post model adjustments to overlay and fully offset these effects. During the quarter, we increased our reserve for buybacks by $500,000,000 to $2,000,000,000 At year end, our CET1 capital ratio was 13.8 In our CET1 leverage ratio was 3.85%, excluding FINMA's temporary exemption for site deposits in central banks. I'll finish my remarks with an update on capital returns. For 2020, we will propose a dividend of US0.37 dollars per share, representing a total accrual of $1,300,000,000 In addition, Early in 2020, we completed CHF350 1,000,000 of buybacks. And as I just referenced, we also established a further reserve for buybacks of $2,000,000,000 out of earnings. In aggregate, this is $3,700,000,000 We will resume buybacks tomorrow, initially completing the remaining CHF100 1,000,000 under our current CHF2 billion program. We are establishing a new 3 year CHF 4,000,000,000 buyback program. Once this is in place, we plan to repurchase up to 1,000,000,000 in shares during the remainder of 1Q. With that, we'll open up the line for questions. We will now begin the question and answer session for analysts and investors. The first question is from Andrew Coombs from Citi. Please go ahead. Good morning. Two questions, please. Firstly, on some of the points you made on strategy on Slide 11. I know one of your key focus points throughout the ING was to focus on primary customers in order to drive profitability. And you're on the slide talks about growing the client franchise more broadly. So perhaps you could comment on that. Do you see more opportunity if you were to go down, say, the Global Family Office route? Or is there more opportunity if you were to Then my way to a broader Mas affluent client base, for example. So that would be my first question. 2nd question on buybacks. The SEK 4,000,000,000 of buybacks, I'm sorry, it's probably you've come out with a 3 year target. I thought you keep the 2021 guidance and perhaps update the market on the 3 year target post the French tax ruling in March. I'm so just interested why you felt the need to come out with that buyback number today and also if that's a hard and fast SEK 4,000,000,000 or if that might change at the time? Thank you. Thank you, Andrew. I'll take the first one and then Kurt will take the second question. So indeed, at ING, we're very much focused on primary customers. And the definition there was a customer that basically saw That bank is their primary bank to churn to for their normal banking businesses. I think UBS is not a normal bank from that perspective. So the way we and I look at How to grow the client franchises. But clearly, the wealth client segments, the different segments are of true importance to see What it is that we can do for them at scale, which basically means that in some countries, we can has a much broader product offering where you have an onshore scale opportunity. But in some, you won't have that. And if we don't have the onshore scale opportunity, we would certainly want to be an important bank for those clients. But we would seek collaboration in joint ventures like we're doing In Brazil, for example, and in Japan as well, where the underlying normal banking need, if that is what you want may want to call it, It is provided by the local scale player, whereas the additional wealth aspect of dealing with the clients Could be in lending in order to support an investment portfolio, could be in advice on investments, Could be on global investment opportunities that is for us to provide. So that's the way we think about it. So where we can have the full slate of product like we do in Switzerland, we will certainly offer it because we can reach our own Global, our own scale. If that is not the opportunity, we won't and we will just focus on those things that we globally can then I have scale in. Kurt? Yes. Thank you, Ralph, and good morning, Andrew. Just to clarify, The $4,000,000,000 program is a 3 year program. It's not a 3 year target. Clearly, We have flexibility to repurchase more than that $4,000,000,000 over a 3 year period. And once we Complete the repurchases under the $4,000,000,000 program, we can open a new 3 year program. The requirement One is that all programs are by definition 3 years. Also, I would note as well that there is Some technical requirements as well that you cannot open up a program where the potential repurchases would exceed up to 10% of your share count. That also informed overall the size of the $4,000,000,000 program that we're currently in the process of confirming. The next question is from Kian Abou Sain from JPMorgan. Please go ahead. Yes, thanks for taking my question. Congratulations, Ralf, To a strong first start, I have two questions. The first one is related to The corporate center and clearly you have done or confirmed a management change clearly that Opens up a position within the corporate center. And I just wonder, first of all, who or what kind of person or how do you expect Corporate Center to be managed in the future, are you looking for some of you to run it or how else will you manage it? And in that context, how do you think about the heavily centralized cost base around corporate centers as in UBS and how it should be run-in the future going forward. In the second point, I'm interested around the businesses that might be not big enough, that need to get bigger or might have to get Exited, can you talk a little bit about business specifically where you think There could be potentially changes to be made in order to improve performance. Thank you. Yes. Thank you, Kean. 1 on the corporate center, it's an interesting one. As It happens just to be called corporate center and then it gets some kind of an attention that this is to be regarded as overhead, which is far From overhead, because the corporate center that you refer to, the COO function, the group COO function is literally where all of our execution These reside where all of our IT activities reside and clearly both are for the benefit of our business and for our clients. Now Having said that, in the past, and I think for the right reasons, UBS has been looking at how can we find the synergies managing these operational areas and these IT areas across rather than per business division. Then there was a shift to make it more business division aligned, which is something that we have been working on for the last 2 years. And now the jury is a bit out. And I'm undecided as we speak in terms of, okay, is this the moment that you go completely horizontally, but it basically starts with the clients and then you do your front to back full optimization And you get technology to work and digitization to work on each and every client process, both in improving the client experience as well as improving the efficiency? Or Do you continue to look for the cross operational activities and cross technology activity synergies? And I think it will always be a matrix, honestly, whether you go more on the horizontal one, but then you need a vertical alignment on Standards on how you manage this or you continue to be more horizontal vertical, but then you would need to ensure that there was an alignment the way we currently have it. So it's certainly subject to the discussions that we currently have. It is certainly determined by some of the tweaks we may want to make in the strategy. Having said that, it is an area Of utmost importance for further opportunity for scale as well as improving the differentiating client service that we can deliver. And that is also why The swap at GAAP level is not replaced yet. And because I don't want to kind of front run a decision around how we as a team Want to take the next step in that. And I'm very happy that Sabine takes the Swiss Challenge on her as to how to take the Swiss business to the next level where a lot of transformation and digitalization needs to happen As we know and that gives us all the time to really look at to how we want to organize. So Bear with me a bit there. But I see benefits in both ways. And so in the end, it will always be a bit of a matrix. That is 1. Then on the other side, the other question is about, have I already identified areas where we can either scale up or where we basically feel we can't get to scale. Well, I think we have to we have come to a conclusion, for example, in the Austrian Wealth Management case. So basically, and this also kind of ties into my answer to Andrew earlier, which is that you have to look at what kind of scale can you accomplish from an onshore perspective versus what is the scale that you can accomplish with services that you can do cross border and offshore. And I think that's where some of the optimization can happen and that's certainly what we are looking for as well. Thank you. Thank you. The next question is from Anke Rangan from Royal Bank of Canada. Please go ahead. Yes. Thank you for taking my question, and welcome to Just two questions, please. Firstly, on the cost control, which was obviously very impressive, I thought, in 2020. And I just wondered what do you see in terms of flexibility for when revenue is not quite as strong and might come down in 2020 in order to Provide cost flexibility. I mean looking at the variable expenses, you said it's up €500,000,000 or €150,000,000 Ex the one off. And obviously, general expenses were down from €5,300,000,000 to €4,800,000,000 in 2022. So just I'm trying to understand your cost flexibility in light of if revenues would come down. And then secondly, on So, Colin, you would provide a strategic update in Q2 and beyond. Just trying to understand in terms of your targets But focus on beyond, should we think about more evolving flexible targets? Or will you start with a certain area and add to other areas Going forward. Thank you very much. Okay. I will take the second question and then Kurt will do the first one. So on your second question, no, it's just that this is the first time I do results. It's a bit early for me to come up with a complete strategic update in terms of direction, focus points as well as financial targets. And we are working on this. We do expect to be able to come out with an update in the second quarter. And then around the strategic update, you should see that more that Certainly, we will give you a strategic update. But in view of many of the things that are still happening in the world, I mean, the world is certainly not a stable place And see and depending on how the economies really get through this pandemic, Depending on how some of the geopolitical tensions work out, you should expect from us even after a strategic update A more agile way of working with our strategy, not so much as the endpoint That we see basically the zoom out perspective, but certainly the zoom in perspective as to what do we do in the next 3 months to 6 months to 12 months in order to get to the end perspective. That's a little bit the style of how our work. That's what I think one needs to do in a world that is changing at accelerating speed. So that's certainly what you could expect in terms of actions being taken. Now if it comes to the financial targets That come with a strategic update, yes, we'll see in the Q2 where we are on those and how we can kind of firm them up. With that, Kurt? Yes. Thank you, Ralph, and good morning, Anke. In terms of our overall cost management, and we've discussed this So before, if you think about the flexibility that we have in an environment where we see challenges on the top line, Naturally, the most flexibility is in variable and FA comp. And just as you saw variable and FA comp up in 20 'twenty, a year when we saw good operating income growth. If we saw operating income down, you would, I think, accordingly see reductions in both of those lines. In addition to that, if you think about other areas for the flexibility and you saw this in 2019 when we had a more challenging environment, we announced Immediately at the beginning of the year that we would see $300,000,000 of related costs come down during that the first half of the year. It clearly relates back to pace of our investments and that's something that we would certainly scrutinize quite closely. Some of the other areas, frankly, as consequence of COVID are already at all time lows and that includes T and E, marketing spend, consulting spend. Right now, all of those lines are exceptionally low. On the other hand, of course, if we were to look at the need for further flexibility, we would consider layoffs naturally. I commented in my speech that we have purposely postponed layoffs in response to COVID. But that is something that would have to be brought back into focus and clearly any layoffs would also come with an additional expense, a restructuring expense that you would see in the period itself that we executed on the layoffs. Okay. Thank you. The next question is from Jeremy Siggy from Exane. Please go ahead. Thank you. Good morning, and yes, welcome to Ralf from me as well. I've got two questions, please. The first one is, If you could come back to the topic of gross margins in the Global Wealth Management business. I think you commented on some of the lag effect of new money coming in. But if you could talk a bit more in particular about the Swiss business and also the Asian business, which seem to have had the more striking Declines in revenue margin in the quarter, that would be very helpful. My second question is and this is partly to inform The capital discussion, just if you could give us an update on litigation in terms of the timing when you expect Any developments around the French tax case, but also the U. S. RMBS case in terms of the DOJ, But also any comments on civil cases, which has sort of become topical after Credit Suisse's news flow. If I could also just add a request linked The discussion earlier on about the Corporate Center, if you could think about allocating the Corporate Center more fully to the divisions, I think it would be beneficial. It's frustrating for us that all of the divisional returns are much higher than the group return. And I don't think it can create clarity in your internal discussions as well. So you don't need to comment on that. It's just a request, but the two questions then are margins and litigation, please. Well, I can actually start with your first comment, Jeremy, because I do think that, I mean, through a large step, we do this. But it's I think in the end, you have to kind of show the true cost of operating. So I can relate to your suggestion there. And because if you want to have the full incentive for people to see where they can further decrease costs or Increased further efficiency on a relative scale basis, I think it is important that you see those pictures. Management can, they see it. So it's not like it's not there. But it's certainly one of the things that we're collectively looking at. And it's also a request from the business in order to see that. Now on the gross margins, If it comes to the Swiss business, as Kurt alluded to, there has certainly been pressure on the NII Coming from the replicating portfolio on U. S. Dollars, we've seen that in the past on the Frank's clearly, we do expect 2 more quarters maybe of pressure there from the U. S. Dollar perspective. What are we doing with that? So the first thing is we have started to introduce deposit fees. We've also announced that as of midyear, we will start charging negative rates on deposits beyond 250,000 In the Swiss business, then we are looking at introducing investment opportunities to our clients as alternatives to keeping deposits with us. And of course, it is also the other way on the NII side at least to compensate for margins It's very much also to look at your loan business and whether you can increase some of your margins there, which is what we do see, by the way. We see Healthy margins come through on the Wealth Management side across, but The low, if not negative rate environment will have this pressure on margins on the NIM side. But on the Wealth Management side, most of that has already been kind of taken on over time a dollar and Swiss francs perspective. Kurt, if you could yes, maybe I can extend some comments, Jeremy, on the Wealth Management gross margin, I think, as of course, we saw during the quarter, there was an overall reduction in the margin. And The broader comments I made in my speech, first of all, we do continue to see sales overall into New mandates that come in at a lower margin relative to the back book. I think in addition to that, The non mandate dynamics of the business, we also see in the U. S, for example, a reduction in trailer fees as we place clients into C class shares versus A class shares in response to Reg 2B, which We view it was in the best interest of our clients. Now for the quarter itself, because of the very significant growth In invested assets that were up almost 10%. My comment around the dynamic whereby we have 1,500,000,000,000 And investments from clients that do not attract additional recurring margin also had an impact overall on margin. And this dynamic particularly was evident in Asia Pacific. First I would note, we manage the business for PBT. So what is most important is On a full year year on year basis, our PBT is up 20%. We're very pleased with that. Now in Asia Pacific, actually our PBT almost doubled. It was up 90% year on year. However, at the same time, our invested assets in that region were up 500 up 24 percent to 560,000,000,000 and given the fact that we have the highest concentration In transaction revenue and only 13% mandate penetration, you saw this margin dynamic play out in Asia Pacific. Finally, in terms of the switch business, one of the things you have to look at year on year that I referenced is that there was a $75,000,000 fee that was paid to P&C to GWM a year ago and that also had an impact year on year on our overall transaction margin. But absent that fee, our transaction revenue was up 9%, again, which is what is most important to us. On the capital versus litigation. The capital plan versus litigation. Yamile, how we look at all risk events, Jeremy, is naturally we consider our overall deployment of capital and we think about the pace of deployment and return of capital to our shareholders in light of any kind of risk event that we have on the horizon. And so the announcement that we were going to repurchase up to $1,000,000,000 clearly we're sitting on quite significant excess buffers. There's the $2,000,000,000 of reserve We built and if you look at the 80 basis points of 13.8% versus 13%, that suggests another $2,400,000,000 of buffer. We will naturally, of course, see and observe the outcome of the French case in March, which scheduled March 8 to March 23. And that of course will inform how we think about pace and timing of buybacks beyond the French case. And just to conclude that on the RMBS case, because you referred to that one as well. I just wanted to kind of clarify that our legal position is different from some other colleagues. We've already settled most of our private cases It's related to the ROVS matter. So what is left is Tephoria matter. That is the remaining one. And basically, we have just started discovery on that one. And we expect this to be a 'twenty two, 'twenty three event more than anything else. That's really helpful. Thank you very much. The next question is from Stefan Stahlmann from Autonomous Research. Please go ahead. Yes. Good morning, gentlemen, and welcome again, Ralf. I actually have only one question, please, and it comes back to the Point of variable compensation, the €500,000,000 roughly increase year on year. But again, if you take out the Accelerated amortization of deferrals from an employee's perspective, there's probably hardly any increase In the bonus award, in a year where you generated more than SEK 3,000,000,000 incremental revenue, underlying incremental revenue. So those are obviously very, very advantageous operational leverage metrics. Do you think that's Sustainable. Is basically the bonus pool now for all intents and purposes fixed both to the upside and the downside on the revenue side? Maybe you could comment a little bit around this. Also on the question of whether there has been, let's say, some political considerations In keeping the bonus pool lower than it would have otherwise been. And maybe you can already hint whether there has been a change in the Cash versus deferral mix in your 2020 award. Thank you very much. That's a lot of detailed questions, Stefan. So clearly, the ballast pool is not fixed, and it is also and it is really related to our performance. So the change that we did in this year, we basically did a change for our fixed this year. And despite that, we have been able to keep our operational expenses before variable compensation flat. So that's really a good accomplishment. So that's although it's not a full year effect that is in there. That we clearly have corrected the variable compensation pool for that. But the way we proof of our conversation is that we have our way of looking at the different Performances of the different divisions, they each have their own kind of framework to accrue variable compensation. And if you take the full accrual, then we have kind of corrected that for Whatever has gone into fixed away from variable compensation, that's the way you have to look at it. Now clearly, the year is a very good year from a revenue and a result perspective. And therefore, you see the variable compensation going up. Last year was certainly not a good year And you saw that the pool was really down from 2018. And therefore, you see it going up again this year. Now the way we go about this, clearly, we pay for performance. We have to kind of we are in a competitive business across the globe. We'll have to take into account local market circumstances everywhere, which we do in terms of making sure that we are in attractive employee roles from a compensation perspective. But as said also by Kurt, in terms of You're giving recognition to, for example, the pandemic we have been awarding Thank you allowances to staff that are not eligible to specific variable compensation schemes In order to reward them specifically as well, we've been really cautious in restructuring Our company leads into specific redundancies and we're really looking at how can we ensure that people find new jobs within UBS. But clearly, you have to continue to transform and restructure because you can't stop to change visavis the client needs. Having said that, at the same time, we've been really mindful of the fact that this is not a This is a time in which we have to ensure that people feel they have a good opportunity to find new positions within UBS. I hope that helps. Yes. Thank you very much, Rob. The next question is from Magdalena Stoklosa from Morgan Stanley. Please go ahead. Thank you very much and good morning. I've got 2 questions. 1 is still about you're kind of thinking about the capital returns and another one kind of focuses on the investment bank. So of course, we talked about kind of various aspects of your announcement this quarter. Was a little bit more interested about your thinking slightly longer term because, of course, 2020 brought quite significant changes from the perspective of The lowering of the dividend and a kind of higher share buyback numbers. Now I'm interested in 2 aspects from here. 1, how do you think about your share buybacks versus valuation? Because of course, When you look at the kind of return on investment here, it is much more attractive to be buying back shares below book than above book. So Just your thoughts there. And of course, the dividend growth trajectory, how do you see that mix kind of shifting as we rebase in 2020? And do you think about your capital generation going forward? So that's 1. And second really is about the Investment Bank Because of course 2020 revenue trajectory, plus 30% kind of year on year across businesses, very strong. But we have kind of 2 things here when we think about the sustainability of it into 2021, 2022. From one perspective, you've actually entered 2020 with a restructured business. So as part of the revenue, I think, uptick would have been structural, but of course, a part of it What was cyclical, the strength of the markets. How should we think about it into, let's just say, the next 3 years, the sustainability of that revenue profile or maybe even a PBT level as we kind of look at it in its entirety. Okay. Well, Wagner, thanks. I'll take the second question and Kurt will take the first one. In terms of the investment bank, now clearly and that's not only for us, it's also for the other investment banks As most of them have already come out with their numbers, 2020 was a particular Constructive year as we say here. And so although we are not in the warehousing business, we are in the flow business. And if there's a lot of kind of rotation in the investments, then a lot of flow comes through our system. And we have to make sure that we anticipate on those client needs and we execute those transactions. So that has led to basically good Forms across almost all areas of the investment bank over the year, whether it is the more prime brokerage business, an ECM, LCM business, whether it is the cash equities, the equity derivatives and specifically also in the Q4, the credit product lines as well. So you've seen basically BFS and Banking working across almost all of their activities. Now if you are more a flow house like we are And basically, we generate a lot of the flow on the back of our clients rather than a warehousing house. We don't take as much risk as some of the others do. But clearly, you will see some volatility with the markets being either quite a lot. And that will give rise to some volatility on the revenue side. So how do you go about that? In many different ways. First, you make sure that you have those products in which you can actually generate the scale. And to the extent you can't generate the scale, You have to improve the scale or you have to make the analysis whether the coverage is really necessary for your clients. So For us, it's very important to stay top in the Equity business and the FX business because we know these are core franchises to all of our clients. And we have to invest in these execution platforms and that's what we actually see coming as well. And there's a lot of Initiatives around further digitalizing the execution platforms and that with what through which we further decrease our cost and get a scale opportunity. We know the business very well. We have a good team also on the digital effort there. So I do think that can help us. Now across all the other areas, you know it is really depending on where the market is. But I can tell you that we're going into the New Year with a good pipeline On the prime brokerage business as well as on the advisory business and you've heard of from other firms as well. So on one side, short term, we think that the market activity will be quite Elevated and that's good. We see good pipelines. Longer term, it's all about how can we ensure that we stay top 3 Top 5 in dose products that are truly important and how can we be efficient in it. And I think that's what we're actually looking at. Kurt? Yes, Magda. Just to address your question on capital returns, I guess as we think about our mix and the decision to increase The proportion of capital we return with higher levels of buyback, we certainly consider our current valuation is, as you highlighted, Naturally, when we're trading below one times book, it's a very attractive time for us to buy back our shares. But it's not just we don't just look at How we're trading versus book value, we also consider what we think the fair value of the firm is and we reference Our 3 year plan and if we believe that our 3 year plan suggests that we should be trading above what our current valuation is, It also informs for us that it's a good time to repurchase shares. But away from this valuation consideration, also we like the fact that it gives us more Stability, we can return capital when we have it. We don't have to wait a year for our AGM to approve and for us to pay back a cash dividend. It also gives us a better ability to manage our stress and how it impacts stress versus a cash dividend. And then finally, it reduces overall the capital that we hold as we accrue our cash dividend go throughout the year and therefore the difference between tangible equity and CET1 capital. In terms of our dividend overall, how do we think about dividend growth? Our intention is to be progressive. And for us Progressive could mean 0.5¢ or 0.01¢ a share. That's something that we'll look at as we go through each year of what the right level of cash Dividend is, but as I said, with the intention to be progressive, probably minimally progressive because we do want to optimize buybacks at this point. Great. Thank you very much. The next question is from Andrew Lim from Societe Generale. Hi, good morning and a warm welcome from me too, Ralph. So Of my two questions. First of all, I'd like to pass a bit further, please, on the pension tax evasion case. You've committed to an official buyback program. And it seems to be the case that you're alluding to maybe differences in timing on buybacks Depending on the outcome, but not a change in the quantum. I'm just wondering if you did have the worst case outcome And the final €4,500,000,000 would that not change the quantum of your buybacks And specifically SEK 2,000,000,000 for this year. And then maybe tied on to that, what would the process look like going forward if you did lose that appeal? Are there further stages in place where you could appeal that appeal? And how long would that take? And then secondly, Ralph, you've been noted for your success in growing digital banking at 9 gs. But looking to Wealth Management, arguably, people have this perception maybe that digital banking or let's say a digital offering To Wealth Management clients, that hasn't really taken off in the way it should be. Looking to UBS and maybe Wealth Management in general, Do you see specific opportunities there to improve the digital offering for Wealth Management clients? I appreciate your thoughts there. Any thanks. Ladies and gentlemen, please hold the line. The conference will continue shortly. Thank you. I can. Andrew, can you hear me? We can hear you. I can hear you. Okay. I'm not sure where we dropped off. But as I mentioned, naturally a worst case outcome, which Something as you would expect, we certainly model and we look at that, of course, would inform our buyback capacity Given how it would impact our overall CET1 ratio along with other factors. Now finally, in terms of the French process, After the appeals court, there is one more level of appeal that we can make to potentially the equivalent of the Supreme Court. And so we would look at the Outcome of the French case, naturally, we would consider what that informs in terms of probability of Potential outflow and we would account for it accordingly and we would also take into consideration what we would view as any opportunity for us to appeal on how strong that case would be. Okay. Hey, yes. So Picking up a bit. So maybe also on capital distribution. Clearly, we generate a lot of capital. And what you do as a firm is, okay, where can we deploy the capital in a With the right mature and how can we build our franchise. So that's where you see some of the lending coming in and that's where we will allow Wealth Management and the P and C business to use some capital clearly. But as Kurt said, We'll have to be kind of conservative around how we manage our CET1. And then clearly, we generate a lot of excess capital, which we Won't over time to dispute then as well. Coming back to the question, Andrew, on digital and where do we see the biggest opportunity for digital. It's actually in 3 areas for the moment, at least in 3 areas. I mean, the opportunities for digital is almost everywhere in my view. But the 3 areas that we're already looking at and where we can further, In my view, Accelerate strategically, but also tactically is in the Investment Bank. As I said, we have quite some initiatives there in order to further digitalize some of these execution platforms and some of the services that we go through in those products and those services that we know really well. And the second one is clearly in the Swiss bank, where the demand for perfect and really good Differentiating digital services is increasing rapidly and we really have to step up on those. So that's But we need to do that as well. And then also on the wealth manager, and you may find it strange, but I do think that if we do a very good job Analyzing the data and applying artificial intelligence In understanding our clients better, in understanding the timing of our clients better, in predicting their needs better, I am convinced we can further support our financial advisers or our client advisers to be much more Supportive and effective with our clients, so with that being more productive as well, while at the same time really investing in all of those core Processes that support them and make them digital, because they still lose quite some time and a lot of processing of the business they do. And I think so it's a support of the financial and client advisers in making everything digital that you can Make Digital. But it's also generating the client intelligence to really support and to be Personal to be there at the right moment to have a bespoke product offering and bespoke pricing. I think Those are the components that I firmly believe in, we can improve and where we can support the wealth manager. That was great. Thank you very much for that. The next question is from Jernej O'Mearn from Goldman Sachs. Please go ahead. Yes. Good morning from my side as well. And welcome, Ralf, to your first results call at UBS. I just have 2 questions left. The first one is on page 16 of your presentation. And what I'd like to ask here is the following. So the loan volume went up by €12,000,000,000 quarter on quarter, €34,000,000,000 year on year, so that's an 18% increase. You say in the commentary here that margins have expanded as well. How do we tell you this 18% increase in volumes, expanding margins and only a 2% increase in net interest income? If the explanation really is the lower deposits revenues in the U. S, that must have been one monster contraction Of the deposit margin in the U. S? And then just a sub question, given that the curve in the U. S. Is both steepening and rising, What how should we think about this for the coming period? That's question 1. And then question 2 on Page 22, The top right exhibit, what does that show? Thank you very much. Could you repeat the second question, please? Page 22, top right exhibit. Can you just explain what this actually shows? I don't understand what the components here are. In the footnote, it says reported PBT divided by average attributed equity, but reported PBT of what? So you've taken divisional PBT results of your U. S. Peers or what have you done here? Thank you. What message are you trying to convey with the top right chart? I don't understand it. Thank you. Yes, Ernie, hi. Good morning. So maybe just in terms of your first question. So I think if you look at our deposit volumes, dollars 348,000,000 in deposits. If you think about the overall U. S. Dollar interest rate contraction year on year And how that translates into margin, that is 130 basis point contraction in margin. So when you apply that to this level of volume, you can see how there is very substantial Net interest income headwind across our U. S. Dollar book. Now actually the volume is helpful. So the fact that we did increase volume That's partially offset that contraction, but that is a massive headwind. Now offsetting that, As you rightly point out, we had the increase overall in lending volume, dollars 34,000,000,000 year on year, your math correct, dollars 12,000,000,000 quarter on quarter, up 19% 6%. In addition to that, we did have some margin improvement. So overall, the fact that we were able to offset that with a lower volume book and with less of a volume increase, I think is, to me, is a strong statement about the performance of our net interest income and what we delivered over the year and what we expect to continue to deliver over the quarters going forward. Now specifically, our loan net interest income on a year on year basis is up A €152,000,000 and up €52,000,000 on a quarter on quarter basis. So again, I think quite significant momentum from our lending. Yes. Maybe, Cerna, you have the margin compression on the full book on your balance sheet basically in dollars, Whereas you have your margin improvement on your new production. And that's those are the parameters that you have to work with. So Actually, we think it's quite an accomplishment. That's what the team has done here. So maybe No, it's an accomplishment. And can I just add a question here? So plus 18% year on year Growth in loans, I think you're doing what you said you would do here and then a bit more. When you look forward, do you think UBS can sustain this Base of growth here. Yes. I mean, our intention is to continue to very much focus on growth in our loan book. Right now, as we look over the next couple of years, we just completed our planning process. We actually do see that GWM, we believe that the plans are in place, the capabilities are in place, all the investments and the actions that we've taken over the next couple of years, The relationship in the joint venture with the IB around structured lending, we think we're well set up to increase. And for us, If you look at our total loan penetration, you compare us, for example, to the other Swiss francs or to our U. S. Peers, You'll see that our loan penetration overall is well below our peers and that also I think gives us good conviction that we can continue to take wallet share. If we turn to slide 22, I mean overall what we're trying to show is Consistent with our model, so we have a model where we hold relatively less inventory than our peers. We take Less market risk is evidenced by the overall bar in the business. And we're just relating that to revenue to show that our Capital productivity and our productivity on risk that we deploy is Relative to our peers is that the upper end overall and that helps to lead to very good return on attributed equity. So we're just really reinforcing and we're providing proof points that our overall investment banking model works well and works particularly well in markets where there's a lot of volatility. Right. But can I just ask, so I understand that, but what I was asking, what does this actually show? So You have taken divisional results of your peer group and you have divided them by allocated equity as reported, right? So this is a divisional comparable Or what? That's correct. That's right. We've taken divisional results of our peers. We've looked at the bar they've reported, the revenue that they've reported and also the attributed equity. And we've compared that on a like for like basis across our peers and, of course, looking at our business. Thank you very much. The next question is from Goel Amit Barclays, please go ahead. Hi, thank you. And also welcome from myself too. So two questions. The first one actually, just going back to the profitability and obviously a very strong set of results So 2020, especially given various headwinds. Just trying to understand in terms of as you think about this going forward And kind of looking at, say, Slide 7, profitability well above the targets. Do you think the level achieved this year is or sorry, in 2020 is sustainable kind of going into 2021 And beyond? Or do you see it as a bit exceptional? And how do you think about that when you're thinking about The targets. And the second question, I mean, actually, I was going to ask on the loan growth, but actually, maybe Slightly different one given the last question we just had. On the IT, just curious, Ralf, obviously, When you've had a look at the systems or the processes, etcetera, just maybe a bit more detail in terms of What your thoughts are on the infrastructure and the IT that you see at UBS? Thank you. Okay. Thank you, Amit. Yes, so clearly 2020, in view of The market volatility, the rotation in the market, the clearly it has worked for us in the investment bank. It also has worked for us in terms of being a very solid, a very trustworthy, a very knowledgeable adviser to many of the clients through which they have entrusted more money with us and you see that all across. So Is the 2020 number in terms of growth and absolute level, is this one that you come back on going forward? Not in full. But underlying, we see a much stronger franchise across all regions, across all business divisions. I think that's what provides a foundation also for us working on some strategic further Strategic fine tuning and how we can best kind of move forward and if that warrants further kind of update On the targets on Slide 7, we will certainly take those along when we give you an update in the Q2. So that's one. Then on the IT side, I think that clearly I've put quite some time in it with the Head of IT here. I've gone through how we manage IT, how we prioritize IT, how we where are we on infrastructure, etcetera, etcetera, etcetera. And I think there is Structure, etcetera, etcetera, etcetera. And I think there is we do a good job if it comes to the ability to use Cloud, how we move towards cloud, what can we do in the public cloud, what can we do in the private cloud, what do we want to continue to do on mainframes and all that. So there's a story there, but there's also there areas of improvement and areas where we can really step up and be more efficient. I think that will the way we go about our technology going forward, if you look at the technology spend that we have, It's not like we need a higher spend per se going forward. If you look at the benches, Looking at technology spend versus revenue, we're right up there. So I think That shows that we're not understanding in technology, but I do think that we can kind of change the rhythm through which we take our investment decisions on a more quarterly basis rather than once a year we allocate Tax spend to the different divisions. I think we have to optimize it across the different divisions. We have to optimize across the different programs. I'm not a big believer in long term programs, although you can have a long term program, but you have to Really set targets and milestones on a more short term basis to ensure that you're delivering, that you're making progress Rather than after quite some time finding out that you haven't been able to deliver, because that leads to impairments and basically not the benefit. So on the how we're doing in technology, I think we're doing well. What are we spending in technology? I think we're up there. I don't think it is We need to do more. How we go about allocating technology spend, prioritizing technology spend and managing technology spend, I think that's where the change will be, the effectiveness of the spend. Okay. Thank you. The next question is from Adam Theorak from Mediobanca. Please go ahead. Yes, good morning. Thank you for the questions. I had 2 on GWM margin dynamics. Sorry to come back. But on the fee margin, I understand your point on The non fee earning AUM base, but to have Q on Q margin erosion, and that would suggest that, that Element of the AUM is growing faster than that is earning the fees? Or is it a fixed fee on those AUMs that It doesn't grow, so it gets diluted over the overall higher AUM base. I'm just really trying to understand why the Q on Q Margin pressure was there from a mix standpoint and how sustainable or whether we should extrapolate that further As the relative elements start to grow with rising markets. And then on the NII front, You mentioned €52,000,000 of higher revenues from lending Q on Q. Could you break that out into margin And new business, I'm trying to understand how sustainable that €50,000,000 would be and whether that's the sort of number we can start modeling if The loan momentum or loan growth momentum stays as it is. Thank you. Yes. Thank you, Adam, for the question. So Just very simply mathematically, if we have $3,000,000,000,000 in invested assets and within the $3,000,000,000,000 If there's $1,500,000,000,000 that where we have relationships with clients that are not contract based, So therefore, they don't attract recurring fees or they attract recurring fees only relative to like custody and some of the other services we provide to them. So therefore, when we see an increase in markets and we see those assets appreciate, We're not seeing a corresponding increase in recurring revenue. So therefore, the recurring revenue that we are receiving and Where we do see an increase is being allocated over a larger invested asset base and mathematically that just results and some erosion in margin. So quite straightforward. In terms of the net interest income and what you should expect to see going forward, I mean, I'm not going to break down the details frankly of the $52,000,000 As I said, that's reflective of the lending that we did leading into the Q4 in addition to partially reflecting the additional $8,000,000,000 of loans during the Q4 along with some margin Anshan. Okay. So we should expect mechanical margin pressure if we continue to see market carrying up AUM On a multiyear basis I think what I indicated is and I think what's most important is that we still expect to offset Incremental quarter on quarter U. S. Dollar interest rate pressure or net interest income on our deposit book through Continued increase in net interest income from our lending. And as we look at Q1, we would expect net interest Income of around €1,000,000,000 Okay. And then on the fee side, the carry on the Fees is always going to be lower than the AUM if markets are positive in green? Yes. I mean that given that we have a portion of our That are transaction based only and don't incur recurring revenue. When we see appreciation, that's going to provide margin pressure, but also when we see Actually valuations come off. You would expect to see some recurring margin benefit, but it's pretty meaningless, which is why we report or we focus on Growth in operating income in PBT. We think it could be very misleading if you start to get involved in all the different mathematical Impacts and dynamics that go into margin overall. Great. Very clear. Thank you. The next question is from Nicholas Paje from Kepler Cheuvreux. Please go ahead. Yes, good morning. Thank you for taking my question. I have 2, please. The first is on transaction income in Wealth Management Pentalobe where you have had a very strong year. And how much How much do you think is sustainable? And more particularly, how much of that is due to the joint venture between the IB and GWM? And the second one will be in Asia. There you have PBT, which almost tripled in IT, almost doubled in Wealth Management. So what should we expect from there? Should we expect the same kind of trend or decrease in PBT for next year? Any outlook on this region will be appreciated. Thank you very much. Yes. In terms of GTI and EM overall, Clearly, if you look at what we could drive and control, it's the flows and the volumes. And you see the very strong momentum in Lend Aid. You also see the strong momentum in net new mandates and you see our focus in transaction revenue and that's something that's going As we go into 2021. Away from that, of course, we're also impacted just by movements in equity markets, just given the Significant leverage recurring revenue. Now the IB and GWM is the kind of the one firm revenue overall, That was an important part of our 2020 results. You saw we highlighted a GFO growth of 25%. Speak more broadly, our one firm revenue was up 17%, and clearly that is growing faster than overall operating income by a fair bit. So we would expect one of the growth drivers for us going forward to actually be the revenue that we generate across Firm and we would expect that to continue to grow faster than the GWM only revenue. Now in terms of PBT in Asia Pacific, we still expect if you think about the structural trends in Asia overall, That indeed is going to be our growth region going forward and hence the reason that we place such strategic emphasis on Asia. And it is important for us to see growth in Asia to in order to see growth overall for GWM. And so yes, we think that while there's going to be Cyclicality, we see that. We see years when Asia does less well. We think the trend over the next 5 years is going to be for strong growth out of Asia Pacific, particularly in Wealth Management. And we expect to remain the leader over that period. Yes. So if you look at from a Wealth Management perspective, Where is it that you want to be and need to be as a global wealth manager? Asia is where the growth is and where the pool will grow the fastest. And U. S. Is where the pool is right now and that's why it's also important for us to be there. But Asia is certainly the growth region. Will this year be see the same parameters as last year? I think on the GWM perspective, why not? Because this is a combination of a demographic trend and a further kind of improvement in the middle class economy with pushing up also some on the wealth side. On the other side, we also had a tremendous strong year, a tremendously strong year on the Investment Bank in Asia. And yes, that may be a bit more volatile. But if there is one area as well where The one UBS truly comes across to our clients, it is Asia in general, and I think that worked very well in order to make it work. It is certainly the success formula for our Asian clientele. And there is, yes, quite some growth potential. That's also why that's Specific workstream out of the 14 workstreams that kind of I mentioned, growth in Asia Pacific is a crucial one for us. Thank you. The next question is from John Peace from Credit Suisse. Please go ahead. Yes, thanks. Can I just ask a couple of clarifications, please? So firstly, when you talk about leading shareholder returns on Slide 8, Do you see yourself in a European Banking peer group or in a Global Bank peer group? And Do you intend to turn on CET1 still to be your primary metric rather than return on tangible equity? And then the second question is, Do you expect to hear the results of French tax appeal soon after March hearing? Or could it be delayed a few months? And just technically, is the idea that you would pause your Buyback after Q1 pending that decision. Thank you. Hey, John. Yes. So on the French case, We actually don't know. As I said, it starts on March 8. It will last until March 24th, I think, and normal procedure is that at that moment we get a date at which we will hear the ordeal. So I can't really look into the future there as to what that period will be, but we will know on the 24th. So that's one. In terms of return on capital, CET1 capital, It is the parameter that we currently have. This is not the moment to change these things. Clearly, as In going through our strategic updates, we're also looking at that and where we see return on capital going. But we are in Europe and a lot of our business is also outside of Europe. So Let us certainly kind of be better than Europeans and have an ambition to be there with the others. Thank you. The next question is from Tom Howlett from KBW. Please go ahead. Hi, guys. A couple of questions for me, please. I was just wondering what your strategic intentions are in asset management. In the presentation, you mentioned the benefits from scale for clients. And M and A is clearly becoming a big theme for peers, particularly in the U. S, which do seem to be embracing the scale, but also larger strategic shifts. So I'm just wondering or curious at what Stage does UBS need to change CAC and inorganically grow the business? And what conditions would need to be met to become More open to such a move. And then secondly, I know we're only a month into the New Year, but I'm just wondering how clients are engaging and positioned in wealth across regions, Particularly in the context of the reflation trade? And can you also just remind us what RWA impacts we should be expecting within CET1 over the coming year? Thanks. That's a handful, Tom. Let me start with the first one on Asset Management, but I'm going to generalize a little bit here. So clearly, We start our exercise from a position of strength. You can see that the results that we have this year, and not only in PBT, but also in invested assets and also on the asset manager, It's very clear that what Suni is doing is truly very successful in growing the franchise and making the right Decisions around what new product needs to be there. So The sustainability call is certainly one that came from there. The Chinese active strategy has Been very successful. Our hedge fund has been very successful there. And with that, we have been really successful with our clients, building scale to almost SEK 1,100,000,000,000. So is that sufficient scale in an asset management business? One never knows, does the asset manager support in capabilities what we need also for the wealth manager? Absolutely. Now in all of these cases, whether it is the asset manager or not, we do see room for further organic growth. But clearly, if there is an inorganic opportunity out there that could accelerate some of the growth or efficiencies that we want to accomplish in whichever business. We will have we will take and look at it. But that is the order. We are looking for organic growth because we feel that we have the right management, we have the right product, we have the right alignment The different divisions and last year we have proven that we can do it organically, but if an opportunity presents itself To accelerate some of that, we may consider it. That's on one. Then the other questions Maybe Yes, I mean, 2, I think that was a multifaceted question. But in terms of RWA, We expect around $10,000,000,000 of increase overall from methodology and regulatory changes. Away from that, I won't comment on what business increases we're likely to see. But naturally, I think as we've highlighted pretty consistently, You can assume that we're going to continue to deploy capital to GWM to support its ongoing growth in lending. Okay. Thank you. Sorry, just maybe one last question on that I sort of talked about in terms of the How clients are engaging and positioned as well in the context of the reflation trade? In terms of in the context of the reflation trade, how plants are sort of seeing I don't really have that detail available. I think so if you look at the segments, so we do client segment research You see that clients are positive towards markets. So I think the percentage is 61% are positive towards investing. 8 out of 10 of our clients are seeking active advice given all of the things that are going on. And that's where we are super well placed with our network of financial advisers and client advisers. So clearly, The uncertainties that are in the market play to the strength of our franchise. Clients need advice, and that's what we can provide them. Okay. Thank you. The last question is from Pierce Proun Just maybe one final one for me on credit losses. And we've obviously seen, as you had previously guided to, big drop offs in credit loss expense second half over the first half. And if I look to the consensus for full year 2021, I think the market is looking for about another halving of the credit loss expense charge. So I mean just in the context of the tougher lockdowns we're seeing, particularly in Europe over the last month or so, is there anything in the trajectory of economic recovery or changed Trajectory of the economic recovery, which makes you think that, that sort of assumption Might be incorrect. And how you would be thinking about some of the model updates you may be putting through, in the Q1 for credit losses? Thanks very much. Yes, Piers. So overall CLE of $66,000,000 driven by Stage 3 for the quarter, where we had $99,000,000 of impairments, partially offset by $33,000,000 of Stage 1 and 2 releases. Now overall, as a consequence of updating our the economic factors for our scenarios That actually informed a further release, which we overlaid. We felt it was premature to actually release additional reserves into the P and L. In addition to that, we also rebalanced the weightings on our baseline versus Adverse scenario from seventythirty to sixtyforty and that is because we do see despite the optimism around the vaccine, we See a fair bit of uncertainty around how the recoveries are going to unfold and what the impact of the current lockdowns are going to be. So we acknowledge that that then creates of course quite a bit of range of potential scenarios for 2021 and how that might then Impact overall credit loss expense. So still a fair degree of variability and uncertainty around that. Overall, we would expect In 2021, it should see more expense on the impairment side than we would on the Stage 1 and 2 side. Ladies and gentlemen, the webcast and Q and A session for analysts and investors is over. You may disconnect your lines. We will shortly start the media Q and A session.

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