Earnings Call: Q1 2020

Apr 28, 2020

Ladies and gentlemen, good morning. Welcome to the UBS First Quarter 2020 Presentation. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Martin Otsinga, UBS Investor Relations. Please go ahead, sir. Good morning, and welcome to our Q1 2020 earnings call. Before we start, I should draw your attention to our slide regarding forward looking statements at the end of our presentation. For more information, please refer to the risk factors in our latest annual reports, together with the additional disclosures included in our Q1 reports and related SEC filings. Now over to Sergio. Good morning, and thank you all for joining us today. I hope you and your families are safe and healthy. Our thoughts are with all the people affected by the virus as well as those fighting its spread at the frontline day in, day out. All of us at UBS are humbled and inspired by their example. I would also like to take a moment to commemorate Marcel Ostel, our former Chairman and Jorg Zellner, former member of the Group Executive Board, who both passed away recently. Marcel laid the foundation of our firm as we know it today, and Europe helped building our unique wealth management franchise. Our key messages for today are summarized on this slide. This quarter, I can comfortably say that you saw UBS at its best in all dimensions. Starting with our support to overcome the shocks on the economy and society we are currently experiencing. A huge collective effort is needed. Unlike the financial crisis, banks can be part of the solution this time around by supporting clients as well as working in partnership with policymakers and regulators to provide an effective transmission mechanism for government support. UBS is and wants to be part of the solution. Social responsibility was already a key part of UBS' agenda, so supporting our employees, clients and communities is a natural extension of what we are already doing. Our first priority from the very beginning has been the safety and well-being of our employees. We introduced enhanced procedures to safeguard tools whose presence in our facilities is critical and almost everybody in the firm now has the ability to work from home. We know the current situation is challenging for many of our staff, so we are providing extra support and help to balance work and expanded family care needs. Across the organization, from our technology and operation teams right through our client facing staff, our employees made sure that we continue to deliver for our clients. We provided them with advice when they needed the most and more. Thanks to disciplined risk management and resource allocation going into the crisis. We have the capacity to land and provide liquidity to our clients, big and small. With a $16,000,000,000 increase in loans in the quarter, we went well beyond participation in the government relief programs. From the very beginning, we supported and played an active role in shaping the Swiss SME lending program, which I will cover in a minute. We have also been active in the U. S. Where we have nearly a third of our staff. There, we expect to make up to $2,000,000,000 available for loans to small businesses under the federal plan. To help those who are fighting against the virus at the front lines and for people in need, UBS is contributing 30,000,000 for global aid and local projects in our communities. This amount was funded out of the variable compensation pool. The group executive board and our employees around the world are donating their time and money to coronavirus related efforts in their communities, something we actively support in many ways. Crisis like this one show the true character of people and organizations. And I have to say, our employees' response across the entire firm has been remarkable. So I'd like to thank all of my colleagues for their efforts. Our operational resilience, strong financial position and successful business model has been and continue to be a great asset in particularly particularly in this environment. They are the result of investment and disciplined execution of our strategy over the years. We have been consistently investing over 10% of our revenues in technology for years, building a rock solid infrastructure and client centric digital capabilities. And today, those investments are really paying off. Our business continuity plans proved effective as we adapted and responded to the current situation, showing a higher degree of digital agility at scale. It was a remarkable feat. While managing the business efficiently and effectively, we leveraged our investments and early Asia experiences helped us to rapidly scale up flexible working capabilities globally. Today, 90,000 people can connect from home on UBS' systems. They are able to do that at any point in time and with access to core capabilities they need. This includes our employees and external staff, all part of the UBS ecosystem. We successfully managed March's high volume and activity across our trading and client platforms, including peaks of 3x the normal levels, which enabled us to gain market share and share of wallet with our clients. We believe many of the operational changes will be permanent. So learning from today will make us even better tomorrow. This challenging environment has also brought us even closer together. Every day, I see example of even better collaboration being driven by a sense of urgency to help each other and to do the best for clients. Many of us at UBS are finding that being apart can actually bring us closer together. This operational resilience and strong culture is complemented by our strong financial position and clear strategic direction. Over the last decade, we significantly reduced our risk profile, putting financial strength, asset gathering businesses and our Universal Bank at the heart of our strategy. This is complemented by our focused investment bank. We have been hard at work developing our unique and complementary business portfolio and geographic footprint, leveraging our integrated bank approach. Our capacity to generate capital, diversified earnings stream and attractive business mix mean we are well equipped to handle adverse conditions. This makes us attractive for depositors and bondholders seeking stability. We are very mindful of our responsibilities for those on both sides of our balance sheet. As a Swiss based group and the number one bank in Switzerland, we feel a special responsibility support our home market in weathering the effects of the crisis. We made sure clients who use UBS for their day to day financial needs had uninterrupted access to their funds as well as our transaction capabilities and advice. Their mobile and online activity increased significantly with mobile login up nearly 40% and online onboarding nearly doubling in the quarter. We also kept half of our branches open, maintaining ease of access for our clients, while ensuring the highest health and safety standards. Our commitment to lending and provide resources went well beyond the government back program. We issued $1,000,000,000 in new mortgages to individual clients and provided $2,000,000,000 in net new loans to Swiss corporates. These numbers are on top of the more than €2,500,000,000 we provided to over 21,000 Swiss SMEs under the government backed programs, which we swiftly implemented by mobilizing significant resources. I want to be very clear on 2 points here. 1st, UBS will not make any profits from the government backed loans. If there are any, we will donate them directly to relief efforts. 2nd, we are not pushing out risk to taxpayers. Around 2 thirds of the SMEs who applied for loans under the program did not have a credit line with UBS before. And for the remaining third, who did the vast majority are healthy and should have no issue repaying debt. A good indicator of the strength of our SME client is that as of last Friday, they had drawn only about a third of the credit lines we provided under the program. As I mentioned, our employees' professionalism and expertise in looking after our clients' needs, offering advice and solutions made a big difference this quarter. By smartly adapting to conditions and new ways of working, we were able to deepen our relationship with many of our clients. Our CIO and research teams have played a critical role in delivering timely advice to corporate, institutional and wealth clients. They have issued high quality, differentiating content at lightning speed across a wide range of digital channels. For example, in March alone, our research teams published over 13,000 reports and organized over 1500 conference calls, live streams, web seminars and podcasts and even held a virtual art gallery viewing. These efforts were highly appreciated by clients and we saw significant increase in their engagement levels. The number of CIO interactions more than doubled in the quarter. Let me give you a quick flavor for our most recent investor survey, which will be published tomorrow. Investors remain optimistic over the long term, even if short term sentiment turned more negative, as you can see here. This is especially clear in the U. S. Where the impact of the crisis on the job market has been most pronounced so far. We are not seeing signs of investor panicking, however, with only 16% of them planning to reduce their investments. More than a third are considering increasing their exposure over the next 6 months, showing there is a great potential for us to advise and interact with clients. Now moving on financial results. As I said, this quarter you saw UBS at its best, including our financial performance and confirming our ability to deliver in a variety of conditions. Our net profit increased 40% to $1,600,000,000 and return on CET1 reached 17.7%. The results were driven by strong performances across all our businesses. And very importantly, these were achieved without the help of special items in revenues, costs or tax. Credit losses and mark to market losses are part of banking, and we see them as an integral part of our results. In the current environment, the risk of incurring operational and trading losses is high, but our credit losses were limited, reflecting the quality of our lending book, effective hedging and our disciplined risk return approach over the last decade. We delivered attractive risk adjusted returns in January, February and during the very challenging March. Client engagement market conditions and our operational resilience led to high business volumes and a 10% improvement in operating income despite increased credit loss expenses. Also, we showed effective resource management across the organization. We remain disciplined on efficiency and effectiveness with cost consistent with our plans, leading to a 6% positive operating leverage. The cost income ratio stood at 72%. We maintained high capital ratios in line with our guidance, again, without factoring any benefits from temporary regulatory reliefs. It goes without saying that temporary regulatory relief measures are welcome to help banks to facilitate credit to the economy. Many of the rules implemented after the financial crisis are good and we supported them. Others proved to be less effective or counterproductive, which has become clearer over the last couple of months. What our industry needs right now is fixing those issues, not just through temporary relief, but by permanent changes that will allow for more planning certainty. We will continue to make constructive suggestions to shape a stronger system. During Q1, our CET1 capital increased by $1,100,000,000 after prudently accruing for a 2020 dividend and repurchasing 350,000,000 worth of shares in the first half of the quarter. Our strong capital, funding and liquidity position enable us to support our clients and the economy while paying dividends. Of course, we are mindful that capital returns are an important part of our equity story, but I'm sure you all understand that it is too early to talk about what this may be for this year. We are executing on the strategic priorities we presented in January as we managed through the crisis. We are making good progress on our initiatives across the firm to build a more integrated bank and to deliver the very best of UBS to clients. Let me pick up on Global Wealth Management as an example. In January, Iqbal and Tom outlined steps to unlock the franchise's full potential and these are being delivered at significant speed. We have already completed a number of initiatives such as aligning the ultrahigh net worth segment with the regions and flattening the organizational structure. The more integrated and client oriented setup faster decision making, empowerment and reduced complexity are making a difference already. We are also active in our more long term collaboration plans. For example, we made good progress in the build out of our global family office capabilities and onboarding of new clients. Also, the partnership between Global Wealth Management and Asset Management for our U. S. Wealth Management clients investing in separately managed accounts led to €9,000,000,000 of inflows for asset management in the quarter. This has been a resounding success that by far exceeded our plans. So summing up, I'm proud of how well we delivered this quarter, not only for our clients, but also for our shareholders. I will now hand over to Kurt before some final remarks. Thank you, Sergio. Good morning, everyone. My remarks will focus on divisional performance as you've already heard the group highlights. And I'll also take you through some points on our credit exposure and capital position. Starting with Global Wealth Management. Performance was consistently excellent throughout the quarter with operating income at around 1,500,000,000 dollars in each month, leading to the best result since the financial crisis. But it was a tale of 2 halves in terms of the dynamics driving the business. January February were more risk on, partly due to a strong start to the year, a more positive client sentiment, combined with our own initiatives and client engagement as well as the usual seasonality. March, on the other hand, brought a sharp switch to risk off and a sudden need to reposition portfolios. Coming into the quarter, we plan to significantly increase our client interactions. Consistent with this strategy, we've been extremely proactive in engaging with clients throughout the quarter with more than double the number of client interactions with our CIO compared with 1Q 'nineteen as we shared tailored content and insights and completed tens of thousands of proactive client portfolio reviews during the quarter, with engagement further intensifying after the crisis took hold in March. PBT was up 41% year on year with around $400,000,000 of pre tax profit each month, demonstrating the strength of the business whether in constructive market environment or highly turbulent one. Operating income increased 14% to a new high since the financial crisis, partly reflecting our progress on strategic growth levers throughout the quarter. Costs increased a more modest 6% or 4% excluding restructuring. We had net new money inflows of $12,000,000,000 despite $16,000,000,000 of outflows from our deposit program, which will be P and L accretive. Net new loans were strong at $4,000,000,000 reaching nearly $9,000,000,000 by mid March before COVID-nineteen related deleveraging actions were taken by clients. As market volatility increased and asset prices dropped in March, we naturally managed a significant increase in margin calls. Although for around 3% of clients with a lumbar loan at peak. We experienced a small number of impairments and credit loss expenses were $53,000,000 in the quarter or only 3 basis points of GWM's loan book. Our credit book went through a severe real life stress test this quarter. Not only did we pass, but we did so while continuing to support our clients in winning new business. All of this highlights the high quality of our lumbar portfolio and our risk management framework. Margin calls have returned to a more normal level in April and our loan to value remained at 50% for the overall Lombard book. In the midst of the turmoil, we came together as one firm. For example, the GWM IB collaborative efforts are now in full swing, enhancing our product shelf across structured products and lending. We are also progressing the growth of our GFO segment, where we saw extremely strong performance with income up 32% across the IB and GWM. Recurring fees were up 10% year on year and 3% sequentially. As a reminder, we bill in arrears based on quarter end balances in the Americas and month end balances everywhere else. As such, revenues did not fully reflect the 11% fall in invested assets that we saw in Q1. The lower invested asset base will be a headwind in the Q2 this year. We would expect recurring fee income be down between $200,000,000 $300,000,000 sequentially in the 2nd quarter before management actions. Net interest income was up 2%, mainly driven by growth in loan revenues. This was partly offset by lower deposit revenues on higher volumes. Looking ahead, we expect the further deposit margin compression from U. S. Dollar rate cuts to at least partly offset any benefits from loan growth and effective deposit management. Transaction based income was up 46% on outstanding client engagements. Increased client activity was powered by high advisor productivity as well as timely thought leadership and solutions supported by CIO insights and organized events. Transaction based revenues were fairly consistent across the 3 months, demonstrating the strength of our client engagement model in all types of market environment. And during March, when we transitioned to working from home and interacted with clients remotely, we actually saw an increased level of client interactions. We had record contact rates in Switzerland as we offered new ways of interacting clients via webinars, conference calls and virtual roundtables with CIO analysts. Outside the Americas, there were 30% more inbound calls compared with 4Q 2019, 60% more in APAC as we had very positive client feedback that our advisors were reachable at all times during the crisis. And in the Americas, we had over 30% year on year increase in calls within our wealth advice center. Many of our clients actively manage their investments on our advice to navigate the current market uncertainty. That said, as we go through this crisis, we don't necessarily expect to see a repeat of these activity levels. If trading volumes normalize, we'd expect 2Q 'twenty transaction based income to decrease sequentially. It's also times like these that underscore the value of our long term approach to managing well. What we do is a long way from just investing assets. We sit together with our clients in person or virtually and work through 3 aspects: liquidity, longevity and legacy. That covers short term cash flow, sustainable wealth creation and income generation and thinking about the future, which can be generational wealth transfer, philanthropy or impact investing. This framework leads deeper client conversations and it helps maintain a long term goal oriented focus, while navigating the current market. Our clients need and valued advice, and never more so than in certain times like this. In fact, our investor survey suggests that 81% of investors with an advisor are looking for more guidance. And of those who don't have an advisor, 34% are more open to working with 1 now. All regions had double digit PBT and advisor productivity growth and positive net new money. In the Americas, PBT was a record, driven by improved recurring fees on all time high invested asset levels at year end and excellent transaction based income. Our cost income ratio also hit an all time low. Asia had its best quarter on record. We saw profit double with outstanding transaction revenue supported by very high demand for structured products. Cost discipline also helped expenses come down slightly despite the revenue performance, driving our cost income ratio down to its lowest level ever. Higher transaction revenues and advisor productivity also drove profit growth in EMEA and Switzerland. We furthermore saw a year on year increase in net mandate sales in Switzerland. Moving to P and C. PBT was down 16% as credit loss expenses of CHF74 1,000,000, primarily on corporate loans, offset solid operating performance. Notwithstanding the higher CLE this quarter, P and C still delivered returns above 15%, demonstrating the ability of this business to return well above its cost of capital even when recording higher than usual credit losses. Income before credit provisions was down slightly on lower transaction based revenues, mainly reflecting lower fees from corporate clients and partly due to lower credit card related income, where transaction volumes were down 18% in March as a result of social distancing. For 2Q, we expect continued pressure on credit card related income due to reduced usage, but we're not anticipating noteworthy losses in this business. NII was stable, recurring net fee income was the highest on record and benefited from the shift in business volume from GWM in 4Q 'nineteen. P and C's cost income ratio improved to 58% on lower costs. We continue to support our individual and corporate clients with solutions and funding, and this goes beyond the government sponsored Swiss SME lending program. Outside of this program, we had around CHF2 1,000,000,000 of net new loans to support our corporate clients in the Q1. Asset Management had another very strong quarter with PBT up over 50% to $157,000,000 and 11% positive operating leverage. Operating income was up 15%, primarily driven by net management fees, which increased by 14% on higher average invested assets along with the continued positive momentum of net new run rate fees since the second half of twenty nineteen. Performance fees were up 9,000,000 Net new money was very strong at $33,000,000,000 or $23,000,000,000 excluding money markets, with positive contributions across all channels and very strong inflows into traditional asset classes. And on the GWM AM initiative on separately managed accounts in the Americas, we had $9,000,000,000 net new money during the Q1 and $17,000,000,000 to date, well ahead of our plans. Virtual engagement with clients has been strong. For example, we published around 1 100 strategy updates and white papers since the beginning of March to support clients through current market conditions and hosted more than 50 digital events. VIB had an exceptional quarter with its best PBT since 2015. RIV's capital light business model, which is focused on advice and execution by leveraging digital capabilities, has proven to be robust during this time of extreme volatility and market disruption. There was a significant return of volumes and volatility, and we were well placed to support our clients with advice and reliable uninterrupted access to the markets and funding, helping them navigate extreme volatility. We've seen little to no disruptions in our service to our clients and have successfully managed very high volumes across our businesses, particularly in our trading operations, where our systems were resilient and remain available globally. PBT rose significantly from a week 1Q 2019 to $709,000,000 on 39% operating income growth, including the CLE booked and 12% higher costs. Global Markets revenues increased by 44%, mainly driven by FX, rates and cash equities as they benefited from increased client activity on elevated volatility. We believe we gained market share in electronic trading and FX and equities, reflecting the continued investments in our platforms. Our unified global markets model with integrated equities and FRC allowed us to manage risk more holistically across all asset classes. The combined setup resulted in faster decision making and helped us react more nimbly to market moves. Global Banking revenues were up 44% as well, outperforming fee pools globally. This was mainly due to a number of large transactions in advisory and strong performance in ECM cash. Markdowns on loans in LCM, corporate lending and real estate finance portfolios were more than offset by gains and related hedges. Credit loss expenses were $122,000,000 mostly on energy exposures and security financing transactions related to mortgage REITs. Our cost income ratio improved to 68%. Group functions loss before tax was $410,000,000 In group treasury, we saw negative $131,000,000 dollars including losses from accounting asymmetries, partly offset by gains from hedge accounting ineffectiveness. The former included negative income on own credit valuations that are largely attributable to funding spread widening on derivatives in the Investment Bank and non core and legacy portfolio. These asset side funding valuation adjustment losses are booked through P and L, but there are also liability side owned credit related valuation gains after tax of $934,000,000 that are recorded through OCI and Equity. We also booked valuation losses of $143,000,000 in NCL on our remaining exposures to auction rate securities. Total auction rate securities assets were $1,400,000,000 all of which are AA rated. At the group level, we booked credit losses of $268,000,000 in the quarter, of which $89,000,000 related to Stage 12 and 179 related to Stage 3. Now let me take you through the moving parts. First of all, we upgraded we updated the macroeconomic assumptions in our baseline scenario and waiting to apply to other scenarios, which drove 26,000,000 dollars this within Stage 1 and 2 positions. Other Stage 1 and 2 positions added another $63,000,000 most of which related to oil and gas and securities financing exposures in the IB. The Stage 1 and 2 CLE did not impact our CET1 capital as they were offset against our existing Basel III expected loss. Stage 3 CLE of 179,000,000 mainly related to various impairments in the IB, GWM and P and C. 1 third was in P and C and though these predominantly stem from a deterioration in recoveries expected from loans to corporate clients that were already credit impaired at year end 2019. IB oil and gas exposures and securities financing together added another 60,000,000 dollars Lombard loans and securities backed lending were the primary drivers of $41,000,000 in GWM with just 4 cases of losses above 1,000,000 dollars At the end of the quarter, our total allowances on balance sheet were 1,300,000,000 dollars When comparing credit loss expenses across banks, naturally the most important consideration is the nature of the credit books, but accounting differences are relevant as well. UBS reports under IFRS and has therefore been subject to IFRS 9 since January 2018, like most non U. S. Banks. U. S. GAAP has a broadly equivalent concept called current expected credit loss or CECL, which was introduced for the first time this quarter. Under CECL, a financial institution recognizes each asset's lifetime expected credit loss upfront, requiring forecasting and modeling. Unlike CECL, IFRS bifurcates expected credit losses prior to being credit impaired into 2 stages. Stage 1 applies to all loans originated or purchased and reflects possible default events within the next 12 months. Stage 2 behaves similarly to the initial stage of CECL by capturing loans that have experienced a significant increase in credit risk since initial recognition and subjecting them to a lifetime expected loss allowance. In the Q1, in addition to our review of the quality of the credit portfolio, we updated our scenarios to consider the deterioration of the environment in our forecasting assumptions, while also following the guidance issued by regulators and standard setters. As an approximation to CECL under an all stage 2 approach, we would have reported around $80,000,000 of additional credit loss expense in the quarter for a total CLE of around $350,000,000 and our total allowance balance would be around $450,000,000 higher at the end of the quarter or around $1,700,000,000 There are of course other differences between U. S. GAAP and IFRS. Overall, we do not believe that there is a net benefit or disadvantage to reporting under the one or the other when we compare both accounting standards. Expected cross loss estimates are highly sensitive to economic forecasts. Considering the recent developments, we are therefore likely to continue to see elevated credit loss expenses over the next quarter. I will spend a couple of minutes providing an update on our lending book. We have $338,000,000,000 of loans on our balance sheet and another $90,000,000,000 off balance sheet. Our total allowance balance against these instruments is 26 basis points and only $2,800,000,000 or 65 basis points are credit impaired. Of the $338,000,000,000 of loans, the vast majority is secured by real estate or securities. Our mortgage exposure is predominantly in Switzerland and mostly owner occupied residential mortgages where we have no signs of stress so far. Our exposure to commercial real estate is limited. Affordability criteria are very strict and LTVs are generally low. Credit loss expenses of $8,000,000 in Q1 were 4 basis points of our mortgage book. A third of our balance sheet exposure is Lombard and securities based lending, mostly in GWM. These are fully collateralized loans that can be canceled immediately if collateral quality deteriorates or margin calls are not met. Our losses were limited at 3 basis points. Of the $27,000,000,000 corporate loans, nearly half is with Swiss small and medium sized enterprises, with the rest split between large corporates in Switzerland and RIB's global lending portfolio. 2 thirds of our off balance sheet exposure is credit lines and loan commitments. Most of the rest guarantees where historical losses have been small. These exposures are mostly in P&C. Our oil and gas net lending exposure is $1,500,000,000 down significantly in the last 4 years when we made a strategic decision to reduce our financial exposure and footprint in this sector related to both risk and sustainability considerations. More than half of our exposure is with investment grade related counterparties and about half of our total exposure is to the integrated and midstream segments, which we would consider to be less susceptible to prolonged periods of low oil price. Under a scenario where WTI oil prices are $10 we would expect around $250,000,000 of losses over the next 2 years. We had $11,000,000,000 of low underwriting commitments in our IB as of the end of last week. We have syndicated $3,500,000,000 of which $3,000,000,000 sub investment grade, reducing our outstanding loan underwriting commitments to $7,300,000,000 Of this amount, dollars 2,900,000,000 is investment grade. The remaining $4,500,000,000 includes a few large transactions with good credit fundamentals and an overall diverse set of exposures. As Sergio has already said, we have been and will continue to support our clients with credit liquidity. During the quarter, we extended $5,000,000,000 of loans and credit lines across P and C and the IB. Through April 22, we saw an incremental $1,000,000,000 in drawdowns. In an unlikely scenario where our clients draw down 100 percent of their facilities, we would see a $9,000,000,000 rise in RWA or a manageable 40 basis point decrease in our CET1 scenario. Risk weighted assets rose by 10% or 27,000,000,000 the quarter, with increases from both credit and market risks, the majority of which related to supporting our clients as they confronted the implications of COVID-nineteen along with the impact of extreme market volatility. During the quarter, we had an increase of $1,800,000,000 from the full implementation of SACRA. More than half of the $18,000,000,000 higher credit risk RWA was driven by new business and drawdowns on existing credit facilities. We saw a rise in derivative exposures as a result of higher market volatility and client activity as well as more securities financing transactions. Higher average regulatory and stress bar from unprecedented and sharp market moves across asset classes drove $10,000,000,000 higher market risk RWA from extremely low levels exiting 4Q 2019. Given that higher market volatility is likely to persist in 2Q and considering the 3 month window for regulatory bar, we expect market risk RWA to further rise in the Q2. Importantly, this does not imply any actual increase in our risk, but rather is driven by the technical nature of regulatory and stress far. RRWA did not benefit from any regulatory granted exemptions or relief during the quarter. While there is some potential to hedge our regulatory and stress bar, we are always we always assess the cost of hedging against our cost of capital along with any risk management consideration in determining appropriate hedging actions. Our capital position remains strong with capital ratios consistent with our guidance and comfortably above regulatory requirements. Again, that's without taking into account any of FINMA's relief measures. Our CET1 capital was 12.8% with higher expected market risk RWA that I just referenced and the deployment of further balance sheet to support our clients. Our CET1 ratio could be slightly below the lower end of our guidance in the second quarter. Excluding the temporary COVID-nineteen related FINMA exemption for site deposits at Central Banks, our CET1 leverage ratio was 3.8%. Early in the quarter, we effectively managed our liquidity, allowing us to weather the most challenging periods of stress. In particular, we were able to avoid any term issuance until the markets returned to more attractive pricing levels. Our liquidity and overall financial position continue to be very strong. Now back to Sergio for closing remarks. Thank you, Kurt. Let me sum up here before moving to questions. The very strong quarter is the result of years of disciplined strategy execution, responsible risk management and sustained investments. As we look ahead, of course, Novari is under the illusion that things are going to be easy. The range of potential outcomes for this crisis remains very wide. We entered these turbulent times in a position of strength. UBS financial position is strong and our business model is fundamentally resilient, built around our integrated business model in which each business has a vital role for the success of the others. Our diversification and risk profile is different from that of many other banks, and I'm convinced that we are well equipped to and probably better than most to deal with adverse scenarios. We will continue to execute on our strategic priorities, serving clients and last but not least, delivering for shareholders. With that, let's open up for questions. We will now begin the Q and A session for analysts and investors. The first question from the phone comes from Kian Abu Hussain with JPMorgan. Please go ahead. Yes. Thank you for taking my question. The first question is related to first of all, thank you very much for the guidance on recurring fees in the Wealth Management business. Can you also comment on the NII? How you see the NII developing considering the lower rates? That's the first question. And the second question is on your macro assumptions for IFRS 9, what have you assumed? And in that context, if I look at your report, the larger report, you talk about the ECL and the fact that you are covering at a lower level, at 100%, and you had discussed that a level of 100% coverage would be more like US600 $1,000,000 impact rather than more like the US400 $1,000,000 that you taken. So can you just discuss how we square the macro assumption as well as your ECL allowances, so we can get a better picture around provisioning outlook? Kian, thank you. Thank you for both your questions. In terms of net interest income, what I highlighted is that we do expect to see the impact of the rate cuts from the U. S. Show up in the Q2. That would represent headwinds overall to our net interest income in our wealth management business. And also, we do see continued further headwinds in terms of where rates are currently for Swiss francs as well as euros for our P and C business. Having said that, we haven't currently provided specific guidance on what we expect the quarter on quarter impact to be. Just on your question about IFRS 9, as we indicated in our report, of course, we went through an exercise to update our scenarios and we did a couple of things. Firstly, our baseline scenario, as you would expect, now reflects higher unemployment and overall GDP contraction. In addition to that, we felt that our severely adverse or more adverse scenario was appropriate for the Q1, although we currently are going through a revision of that scenario as we enter the Q2. The other thing that we did is we eliminated the upside scenario and we also eliminated the mild depression scenario. So we ended up with a 30% 70% -thirty percent mix between baseline and also our adverse scenario. And that resulted in the Stage 1 and Stage 2 that you saw that we booked for the quarter. Now in terms of your question around ECL, I think what we highlighted is just given the fact that our Basel III expected loss is higher than our current total balance for ECL from Stage 12, we don't see any impact in our CET1 capital from the P and L that we booked for our credit loss expense. So I think that's probably what you were reading through in terms of the reference and the impact of what we booked versus our capital overall. Yes. Maybe just to add on NII, I would just probably want to add that in addition to what Kurt says on the headwinds, partially we will mitigate those headwinds because of the credit we deploy out are also creating some counter effects and which, as I said, will mitigate or manage that situation. So that's probably If I can, just one follow-up. On the economic scenarios, baseline and more the severe and mild downside, can you just quantify them? Because I don't find anywhere input data in terms of real GDP assumptions or unemployment, if you could just give us that for this year, next year? Yes, Kiyan, we didn't provide any specific details on the assumptions for those scenarios. I guess I would only comment in terms of the baseline. As I mentioned, it was a deterioration from our assumptions at the end of the Q4 as you would expect. And in terms of our severe global crisis scenario, I would only mention that if you look at those factors, they tend to be more adverse than what you see in the severely adverse CCAR scenario, what you see in the ECB ICAP scenario. And so it does encompass a very significant narrative around global downturn. And I think as with all our peers, we're going to continue to update our scenarios as we see the overall crisis evolve. Okay. Thank you. The next question from the phone comes from Anke Reingen with Royal Bank of Canada. Please go ahead. Yes. Thank you very much. I had two questions. The first is on capital. You indicated that the capital ratio might fall in the Q2 below your target range. But I just wonder if you were to apply the temporary leave in the capital, would that could that potentially be an offset? And any indication about the dividend accrual for financial year 2020? And then just a follow-up question on the cost of risk. You've been quite cautious in your comment. Is it fair to assume that Q2 could be higher than the P and L charge in Q1? But could you be more specific in how much buffer you have in terms of the hit against capital? Thank you very much. Yes, Anke, thank you for your questions. In terms of capital, just to be clear, what I indicated, as I said that we could fall slightly below our guidance range. And the lower end of our guidance range on CET1 capital is 12.7%. Now importantly, if you look at the removal of the countercyclical buffer, which was granted by FINMA as well as other regulators, that puts our total requirement at 9.7%. So that still leaves us with a very, very significant buffer to our actual requirement. Now also importantly, while we have a removal of the buffer for our requirement, it doesn't help the ratio at all. So, there's nothing right now in terms of relief that's been made available that we've availed ourselves of that has made any impact on our current CET1 capital ratio that we reported at 12.8%. In respect of dividend, Henke, I don't think I have much more to say. I think that at this stage, we can only tell you that I believe it's both prudent not to talk about it, but it's also prudent to take in consideration that, as I mentioned before, capital returns is part of our equity story. So we are accruing for a dividend in 2020, but it's very premature to talk about levels and any other topic around this other than saying that we are well aware that there are we have to balance capital solidity and the ability to respond to the crisis, but also to continue to have an attractive capital return story. And maybe, Anke, I would just add to Sergio's comments that in terms of our 2020 dividend for the half that has been postponed, we continue to maintain a special reserve for the payment of that second half that has not yet been accretive back to our capital and that's just as consistent with our current expectation that we will pay that. Now on your question on the risk side, I think that the question is that the comments we made on risk is that the elevated level are elevated in terms of our own historical standards. And I consider the Q1, although it's a strong performance in relative terms to peers, on a limited level. So it's difficult to do a forecast right now on how much they will be. We have been trying to show scenarios. And of course, we need to adapt any major negative developments in the macroeconomic assumptions. As Kurt pointed out, very coherent with the way we manage risk and risk reward, you can assume that our existing underlying macro assumptions are quite severe. And but now we don't know exactly what the next round of economist outlook is going to be. We take external views. It's not only our UBS internal macroeconomic view that we take in consideration. So but even if we stress our portfolio, it's very difficult to see any meaningful results out of this crisis. Thank you very much. The next question from the phone comes from Jeremy Sidi with Exane. Please go ahead, sir. Good morning. Thank you. Just a couple of clarifications, please. First one is on the CET1 and RWA discussion that we've already been having. You mentioned that you expect further expansion in market risk RWAs from the sort of averaging effect of that. I just wondered if you could put some scale around that. Are we talking about a similar expansion to what we saw in Q1 or something less than that? And linked to that, are there any other movements that you kind of expect already in RWAs, either from technical rule changes or anything, if there are any moving parts that you could explain to us? And then my second question is really just a clarification. You said that you're prudently accruing a dividend for 2020. Is that dividend in line with your existing policy of small year on year increases in the dividend? As I said, it's premature. I understand that, Jeremy, the need of clarity, but there is not a lot of things I can say around the dividend. You can only assume that we are accruing a dividend, which is aligned with the current market conditions and the need I mentioned before. So hopefully, we will be able to give more guidance and clarity on dividends, I suppose, after the summer. I think before then, I think I don't think it's appropriate and it's not in the interest of anybody to talk too much about this topic. So we keep our focus on execution and delivering capital and generation and then the issue will be results it will result itself. Yes, Jeremy, in terms of your question on RWA, first just to highlight, of course, we were coming off of extremely low market risk RWA as of the end of Q4. You see that just 7,000,000,000 dollars And so, therefore, when you look at the increase, I think it's a bit amplified because of the low base. But nevertheless, also as I highlighted, as we just look at the technical nature of how Reg VAR and Stress VAR impacts our market risk for RWA and knowing that volatility remains at higher levels. And you think about the 3 month Reg Bar window that we're certainly in and continues to extend as we see higher levels of volatility. All of that suggests that we're going to see a further increase in the second quarter. I would only say as well, we would expect and we're making, of course, capacity available to continue to support our clients. And that is both through some level of potential drawdowns existing facilities, but also we're still open for new business and we see very, very attractive opportunities to continue to deploy capital and given the fact that we still have attractive buffers, we're going to do so and we're going to support our clients and our shareholders as we go through the Q2. Now overall, when I look at both sides of that equation, what I mentioned is that we would expect to be right now possibly slightly below our 12.7%. That is the range that we've guided on. Away from that, there's no additional regulatory or other related increases. What we mentioned as well is during the quarter, we fully implemented SACRA. So we no longer have any phase in for SACRA. And over the past couple of years, we've been diligently implementing basically what has been the overall progress towards Basel III. And there's no further such increases that we anticipate for this year. And just as you think about, as you say, you've got very strong buffers above your regulatory minimums and there are opportunities to deploy balance sheet. What's your sort of levels of comfort? I mean, you could easily go down to, say, 12% and we would still look at that and say, well, that's still a pretty decent ratio. I mean, is that what's your tolerance for lower ratios in this environment? Yes. Well, Nick, Jeremy, I think that we are mindful that the buffers are there to be used. But also, as I mentioned before, it's very important that those buffers are used also with a time frame in mind. So it would not be really wise to go out and use the buffer immediately. We don't know how the crisis will play out. We need to be careful in managing any dimension. We believe that we have enough capital generation and ability to serve clients and support the economy without going deep into using the buffers. So I don't think that I want to speculate about what is the level that we will be down. But of course, everything which has a 12 in front is, I believe, is both in absolute and relative terms, very important, because I think that we can comfortably say that if you look at our CET1 ratio right now, which is absence of any kind of concessions on a relative basis is extremely strong. And of course, but capital strength as the largest wealth manager in the world is an absolute must. And we are we also have a duty, as I mentioned before, to protect our clients being the one who have off balance sheet assets with us, but also the one who have liabilities with us. So we are always very mindful to make sure that the full picture of how we look at our stakeholders and clients, bondholders is fully reflected in the way we manage risk and capital. The next question from the phone comes from John Peace with Credit Suisse. Yes, morning. My first question is, you've talked about some of the revenue headwinds going into the Q2. But would you say in this environment that activity is still elevated across the bank, maybe particularly in the investment bank compared with a normal April? And my second question is on the French tax appeal verdict. I think we'd originally been hoping for an update on that perhaps around September, October. Do you think in this current environment that's likely to be delayed? Do you have any visibility there? Thank you. So I think it's very difficult to talk about the environment, but as Kurt mentioned in his remarks, we all know that the Q1 was very active with 2 different kind of connotations, the first half and the second half. In the second half, we were very profitable also including loan loss provisions and marks down. But of course, with a different nature of profitability and levels, I would say that the environment we see so far is similar to the March environment than it is to January February, but it's way too early to call for any trends. I'm referring to the ID environments. Of course, Kurt already extensively spoke about wealth management and what it means. So of course, we need to understand that there is also some kind of seasonality coming into the 2nd quarter. Although nowadays, I would say the last 12 months or 20 or so talking about seasonality is a little bit difficult. But of course, we have some seasonality factors and so it's premature. But I would say that so far, we are not seeing a dramatic change of the environment compared to the way March went. On the French tax, we were other than more updates, we were expecting any outcome probably by September, which we all know now that we will find out on June 2. The trial was supposed to start on June 2. Now what we know is that on June 2, we will find out the new date of the trial. So till June 2, we have no updates. And then based on that, you can assume that still we believe that from the day of the beginning of the trial, you have to put a few months, 3 months maybe, I don't know, 2, 3 months, 4 months time frame between the end of the trial and the verdict of the second round. So more information will come out during June. I'm sure you're going to see publicly, and we will be able, if anything, to make comments for Q2 results. Great. Thank you. The next question from the phone comes from the line of Stefan Stalmann with Autonomous Research. Please go ahead, sir. Hi, good morning, gentlemen. I have two questions, please. The first one, on your sensitivity of net interest income to rising interest rates, which you helpfully disclose every quarter. That has actually doubled compared to year end to the upside, but it has not changed to the downside of falling rates. Could you maybe talk a little bit about what has triggered this much higher upside sensitivity? Is it positioning? Or is it just a different way of estimating the impact of a given move? And the second question goes back to IFRS 9 and expected losses. I think the disclosure is very helpful about what the provisioning impact is by moving to a severely adverse scenario. But I'm surprised how small that difference actually is. It turns out you only need €170,000,000 extra provisions to move to an adverse scenario, which according to your annual report, it's something like 6% to 9% GDP contraction. I find that quite counterintuitive. Maybe you could talk a little bit about how the additional provisions in that kind of move be so low in Stage 2? And maybe in that context, could you maybe roughly guide what you would expect to see in Stage 3 assets and Stage 3 provisions if you move into your severe downside scenario under IFRS 9? Thank you. Yes, Stefan. In terms of your first question, if you look at what's taken place with interest rates now that the U. S. Rates have cut down close to 0, what you see now when we model the upside, particularly since a lot of our assets are very short term, is that the pickup on the upside now that we've had such compression just tends to be much more favorable, particularly given some of the model beta assumptions overall on both the deposit side as well as what we would expect in terms of the asset pricing side. And all of that together contributes to a more significant overall pickup with the 100 basis point move. Now on the downside, the reason why that that's far less than the upside, it's again because of the compression. And when you start to model into negative rates and you assume floors, particularly on your asset margins, your asset margins actually tend to stay fairly firm if you see any further downturn in rates. And we've seen that very much in terms of how our NII has behaved in Switzerland with the negative rates. Now overall in IFRS 9, the reason when we model the assumption of what happens we move from seventythirty to say 100% with our severe scenario, we model that on the existing mix between stage 1 and stage 2. And so because you still see a very high percentage of our loans overall that remain in stage 1, So we don't include any significant increase in credit risk. Then the impact overall is the one that we've indicated, which is somewhat over $100,000,000 but it's not that severe overall beyond that. Just as I said, because at the same time, we don't include any modeling of further migration from Stage 1 to Stage 2. Now regarding your question on modeling the impact on impairments, that's not something that currently we've disclosed. As you would expect, we continuously run our stress models and we look at the full impact of our credit exposure as we think about the adequacy of our capital buffers and how we manage that. Thank you very much. The next question from the phone comes from Andrew Coombs with Citi. Please go ahead, sir. Good morning. Thank you for your comments, and I'll commend you as well on your commitments to support the COVID relief projects. If I could just follow-up with a couple more on the reserve build and interaction with capital. The first question would just be looking at the disclosure you provide on Page 77 of the report where you say that if you did apply a life time of expected credit losses on all Stage 1 and 2 exposures, the ECL would have climbed from 42900 to 900 I'm just trying to square the circle with how that compares to the EUR 80,000,000 incremental you guided to on Slide 18 if you were to adopt Settle, because the incremental number in the report seems somewhat higher. So perhaps you could just clarify there. And the second question would just be on the remarks about the capital expected loss under the IRB model less the existing provisions. If I look at that, it did decline slightly from EUR 4.95 billion to EUR 4.29 billion, but it declined by less than the loss that you actually booked through the P and L. So trying to understand what moving parts there? And also, does this mean that you could take up to another $430,000,000 provisions without it essentially impacting your capital position? Thank you. Yes, Andrew. So maybe it would be helpful if you go to Slide 18 of the presentation. And what we do there is that we model what our provisioning and our allowance balance would have been under SESL. And importantly, what you see is the starting point is coming into the quarter, we would have already had a total allowance balance of $1,400,000,000 which already would have been 372,000,000 dollars higher than our balance would have been under IFRS 9 or was actually under IFRS 9. So there, we would have already in the process of adopting CECL, we would have already booked the $372,000,000 increase directly to equity, similar to when we adopted IFRS 9 and similar to what you saw with the U. S. Banks and also the Swiss bank reports under U. S. GAAP. So then the impact during the quarter was an incremental $80,000,000 in Stage 2 on top of what we would have booked under IFRS 9. And so that then takes the total increase. You see our increase goes up to $429,000,000 and then we would have seen the $80,000,000 on top of $372,000,000 to get to 450,000,000 dollars under CECL. So that results in the total of $890,000,000 in allowance balances of the end of the quarter. I hope that's clear. That is clear. So I missed the step up at the end 2019 day. I guess just to round out this whole debate, if we're trying to essentially kitchen sink, I'm not sure it's not clearly not the right thing to do, but if we were to look at kitchen sinking sensitivity. You talk about ECL allowance if you were to move to so there's 2 parts to your equation. One is essentially if you were to do the lifetime expected credit losses in all Stage 12, which goes from €49,000,000 to €900,000,000 to €470,000,000 incremental. And on top of that, you talk about if you were to move to severe downside scenario, it would be an incremental 170. If you were to move to 100% severe scenario and move to a lifetime of expected credit losses, So as I said, it's not the base case, but if we supply that sensitivity, then presumably, you'd be looking at the 470,000,000 plus the 170,000,000 plus an incremental number because you'd be taking on the lifetime expected credit losses under a whole severe 100 percent scenario. Does that make sense? Yes, just Andrew. So, we run those models and you're right, our total allowance balance would have further increased if we would apply to 100% of the severe scenario plus the full fiscal impact. And you can assume that we would have been nicely above $1,000,000,000 And we just run those scenarios just so we understand the sensitivity in the reporting and what would happen and what ifs. But of course, it's not relevant because we'll report under IFRS 9 going forward. And it goes against equity. Yes. And well, and at that point, the question is how much of that would have gone against equity, which kind of gets into your second question. And you can't exactly look at dollar for dollar in terms of what we book because the structure of our Basel III expected loss, it sits in capital. That balance has an assumption across different parts of the portfolio. So depending on what you booked for stage 1 and stage 2, it would determine whether or not a portion of that goes to equity or a portion does not is offset. So it's a little bit more complicated and nuanced in terms of the actual impact. We can get back to you and just reconcile what took place during the Q1. No, I appreciate that. We're all having to adapt to the complexities of IFRS 9, but thank you. That's very helpful. The next question from the phone comes from Benjamin Goy with Deutsche Bank. Please go ahead. Yes. Hi, good morning. Two questions, please. First, on your client survey, sounds relatively constructive. So do you think you can keep your fee margin more stable this time unlike in previous crisis? And then secondly, on the €183,000,000 of write downs that were more than fully offset by hedges, just wondering is that your general hedging policy or could you act swiftly as the pandemic unfolded? Thank you. So, I mean, 1st of all, I think that if you look at from a historical standpoint of view, when you look at margin protection, so if you I don't know if you refer back to the financial crisis where we had more of an idiosyncratic situation. Of course, protecting margins there was a function of outflows. But in general, I can say that in an environment like this one, we can price advice, we can get margins up on transaction business. So I don't think that there is an issue of margins. As you can see, it's all about client activity levels and the way we engage with them. If anything, in many cases, we are able to price our services while staying competitive in a way that is recognized by the client as being added value. In respect of our hedging strategy, it's very much what I said. It's not that we were particularly quick in reacting to the pandemic. It's part of our the way we've managed risk across the cycle. So I remember that, that means that maybe there are quarters in the past in which we could have seen a little bit of a better momentum in NII and any other dimension of the business, but we always say that what matters for us is risk adjusted returns and return on deployed capital and looking at also our cost base versus the return on risk weighted assets. And in this quarter, you saw this being fully deployed. So no, we were not quicker or smarter during the crisis. We were co event over the cycle entering into the crisis with the same discipline that we had over the last decade. The next question comes from Adam Perela with Mediobanca. Yes, good morning. I wanted to dig back into GWN NII. I know you're hesitant to give any formal guidance, but I wanted to understand whether we can still think about the $60,000,000 cut that we had last year as potential headwinds. And then how we're thinking about loan growth on the other side? Clearly, you're sticking to your 13% midterm guidance on CET1, but there are lingering COVID-nineteen RWA coming through. Does that mean that your loan growth aspirations for GWM have been downgraded? Or is there any impact, should we say, given that there's some balance sheet that needs to be set aside for COVID crisis? And then finally, could you just give us a bit of color on the deposit outflows you saw clearly you didn't repricing there? Whether you could quantify the benefit for the quarter and what that could be for the coming quarters as well? Thank you. Yes. Thank you, Adam. Just in terms of our capital deployment, and I already highlighted when I addressed how we saw our RWA progressing as we go through quarter 2. And I think importantly, what I indicated is we do expect and there is a portion of capital that we expect to deploy for lending purposes. And that cuts across any potential drawdowns along with any additional business that we would do within our P and C business as well as our ID and GWM. Very importantly, we'll continue to prioritize allocation of RWA for further GWM loan growth. And what you saw in the Q1 is actually our loan growth was trending very, very positively as we got through the first half of the quarter. In fact, we reached almost $9,000,000,000 but then we did see some deleveraging from COVID. We ended up with about just short of $4,000,000,000 in net new loans. We continue to have a good pipeline of opportunity in GWM and we would expect to continue to see lending growth as we make our way through Q2. That will, in turn, help offset part of the net interest income headwinds that we see from the rate cuts that we've referred to where very clearly if you model that through, there is going to be a step down, particularly in deposit margin as we go through the quarter, and we'll do everything we can on the deposit management side along with loan growth to offset that as much as possible. In terms of the deposit outflows, what I reference is that we saw $16,000,000,000 outflows from the programs that we announced that we would implement at the end of the Q4 coming into the Q1. I did say that that was accretive overall for NII. That also will have a positive impact to partially offset some of the headwinds that we're seeing. We didn't indicate how accretive, but it does have an important impact overall on net interest income. And then more than offsetting that actually what you saw also during the quarter is that we did have very strong deposit inflows, particularly in the U. S. And I think that just references, 1st of all, UBS is our view as being a safe haven and a secure place put your cash along with moves that clients make where they did go out of investments into cash. And so they are holding more cash now, including with us. Great. Thank you. The next question from the phone comes from Marta Elena Stopplosa with Morgan Stanley. Please go ahead, madam. Thank you very much. Really, 2 quick questions, one on costs and another one on medium term targets. So on costs, of course, we've discussed some caution on revenue trajectory from here. But how do you see your cost flex as a potential for the offset of the revenue challenges and particularly in 2020? And my second question really, how do you see the medium term targets now kind of post 2020 as kind of numbers that you would like to deliver or aspire to beyond this year? Thank you. Thank you, Magdalena. So I mean, first of all, in terms of the midterms target, the aspiration remains the same. Midterms, of course, we are not really moving away and we need to have more visibility about how the environments develop. To talk about 2020, it's very dependent on that medium to long term. I'm totally convinced that particularly in 2021, we will see a more normalized environment. And therefore, there is no reason for us to put in doubt our medium to long term targets range. Short term, I'm glad that we have a strong start to the year. We have and we do our best to get at the targets and but it's very premature to talk about that. But I remain totally convinced and the Q1 gives me higher even higher confidence that while it's not really appropriate to talk about targets in this environments, one cannot stop to think about how to manage the crisis and how to manage the near terms and the medium terms stories. So overall, on cost flex, first of all, I have to say that we will we still are still working on taking down $1,000,000,000 of cost in for this year. A chunk of it will be fully annualized into our numbers, but we are also of the view. And if anything, this quarter was a vindication of our story that the issue is that if you don't continue to invest in your capabilities, you are not able to have infrastructure that allows you to serve clients, to be effective and efficient and to capture opportunities. So the flexibility we have, we have some natural edges on our cost side as a function of how revenues works in the compensation, for example. We can delay or spread over time some of those investments that we want to do. Therefore, we gain further flexibility, but I don't see us adding a necessity to take draconian action on costs because as you can see, the issue is all relative about how the revenues environment performs and therefore, we need to stay focused on creating value long term and not take actions that are not constructive for the future. But we have some degree of flexibility across natural edges and delays on how we implement. The next question comes from Iernao Machan with Goldman Sachs. Please go ahead, sir. Yes, good morning from my side as well. I have three questions. I think so, Sebastien, in your opening remarks, you made reference to select regulatory changes that were implemented, but have been implemented so far on a temporary basis and that you were hopeful that some of them could become permanent or should become permanent. Can I just ask you if you're willing to be more concrete as to exactly what measures you have in mind? The second question is on, again, Sergey, in your opening remarks, when you were talking about government plans in which UBS is playing an active role. You commented that UBS will not make any profit out of these programs and whatever profit is made will be donated. I was just wondering, so as a starting point, what are the asset prices for these loans? Because I'm assuming if the starting position is resolving this for breakeven, that you would get asset prices, which are asset rates rather, which are very, very attractive from a borrower's perspective. And then my third and final question is just so obviously, all the focus is on credit losses and the credit quality outlook. And I'd like you maybe to comment in a different manner. Pedro, obviously, you were in European Banking at the time of the global financial crisis and the European Sovereign crisis. And I was just wondering, you mentioned that there is still a very wide range of possible outcomes for this current crisis we are going through. In your mind, how likely is it that the credit loss experience in this crisis, just the credit loss, I'm not talking about mark to market or any of those things, but the credit loss experience in this crisis is less severe than what we've seen in 'eight, 'nine and 'eleven, 'twelve? Thank you very much. So thank you. Well, I mean, I don't want to go through a very comprehensive review of detailed regulatory issues, but I would say that from my standpoint of view, as I mentioned, there are great merits of the regulatory framework and regulation that responded to the 208 Financial Crisis. As I mentioned, I believe that the vast majority is absolutely was necessary, is necessary. But inevitably, when you make so many changes, we have a situation in which you create intended or unintended consequences that then prove to be counterproductive over the years. And I believe that recognizing also that this crisis is not like the financial crisis on which the entire regulatory regimes were de facto build. We need to respond and adapt now to the crisis and fixing those issues. In my point of view, I mean, I can tell you two examples where I believe that there is a need of rebalancing. For example, the temporary relief on LRD calculation for cash deposited at central banks being taken out of the LRD calculation. It's something that I think is a structural issue that should have never been there. It's not very coherent also with the way risk weightings are assessed on some of the sovereigns. Therefore, I would have said that this should be a permanent use. In our example, we are faced we are right now more risk weighted asset constraints, so we don't really have an LRD need, but also having an LRD concession that has 2 months or 3 months of time horizon is useless because you can't really deploy $50,000,000,000 or $6,000,000,000 of LRD with a danger of those LRD being pulled back in 3 months' time. The procyclicality of some of the provisionings, although, again, we are very comfortable with our provisionings, As I mentioned before and Kirk really explained this matter comprehensively, the true of the matter is that the outcome of our CLEs is a reflection of our credit risk. And therefore but I do see that some of the IFRS and the accounting standard are putting too much procyclicality. I would expect maybe in good times to be able to build up more reserves and adding less volatility around this issue, particularly in the first phase of the situation. So this is something that are at minor effect. They are not necessarily comments that are reflecting UBS, by the way. Government plans, we make I mean, there are if you look at the Swiss program, there are two aspects. One is for the very small SMEs, where the government is guaranteeing 100% and there is no interest rates. And so we make no profit out of the credit. We have potentially a funding we have a funding advantage because we can refinance those loans at the Central Bank. So if you take out our cost, potentially, if you're of serving the clients and so on, potentially, we would be left with some marginal out of the funding between the 0 that we apply to the clients and the refunding at the Swiss National Bank. And that's where we think that we will not book those profits. We will eventually, if there are any profits, are going to put them into our relief fund. For the 2nd tranche, we have we take 15% of the risk and the risk weighted assets, and we are still able to refund it at Central Bank, but there we take risk other than the cost of service. So we're going to also there try to really manage the line. So the spirit of helping now is not to make money out of this program. The spirit is to become the transmission mechanism for governments and central banks to help the economy and it's not for banks to make any profit out of it. And that's the reason why we take that stance. On credit losses and what happened, it was very difficult to answer that question. I think that's, of course, one of the scenario we are looking, for example, is what happened to our credit risk provisions during the financial crisis in the Swiss business, right? If I take as a reference point that one, over 2,008, 'nine and 'ten, we took in aggregate $250,000,000 of losses. Now each crisis is different. And as you do with stress models, you go across the board, you look at different situations. And we believe that we can see that financial crisis as being one of the outcome or even if it's more or less, it doesn't really meaningfully change our view that we are able to absorb a higher degree of stress in credit without compromising the soundness of our capital and our profitability also importantly. Because if I really run through the Swiss business also to a severe stress, they're going to come out with being able to pay their cost of capital most likely. So that's really the kind of stress we look at when we do scenario analysis. And of course, it's very complex, as you know, and we try to keep it as simple as possible in the external communication. But the most important issue for me is that there is a high degree of prudence and while looking always for risk reward because we are as an organization what I always like to say that we are not risk adverse, we are risk aware. And it means that we are pricing risk appropriately and also taking consideration worst case scenarios. Thank you very much. The next question from the phone comes from Amif Goy with Barclays. Please go ahead. Hi, thank you. So just a follow-up, just on the CET1 capital. Just wanted to check-in terms of rating migration impact, what are you seeing or thinking for that in Q2? Because I think a number of banks have kind of called that out as a potential impact. I saw, obviously, on the undrawn commitment slide, Slide 22, I think there you're referring to stable risk weights on drawn exposure, but I think that's maybe a slightly different thing. So just wanted to get your thoughts because just trying to understand really where CET1 capital may trough in Q2? Thank you. Also a little bit difficult to answer the question because it depends on what you assume for your rating migration. But obviously, rating downgrades certainly will have an impact and will increase our RWA. And we include that in our modeling. We look at that in our stress scenarios and we add that to consideration in terms of how we deploy capital and what our buffer retention should be. But it's not a straightforward question to answer unless we talk about multiple different scenarios and what kinds of downgrades. Well, but I guess at the end of the day, we have given you a guidance on what we expect our CET1 ratio to be in Q2. Kurt clearly say that it may be slightly below our range guidance. So you have to assume that our scenario coming into 2nd quarter is embedding the recent developments and our other dimension on capital generation. So but who knows what happened in few weeks' time. So I think that this is at this point in time, we are comfortable with that statement. Maybe just to kind of further make the point, I think if you look at our Slide 19, you see that rating migration really is impactful to our corporate loan portfolio, which is pretty confined at $27,000,000,000 So perhaps unlike others, we don't have a large portion of our portfolio where Ray E migration could have a substantial impact in RWA spikes. Okay. Thank you. The next question from the phone comes from Pierce Brown with HSBC. Please go ahead, sir. Yeah, good morning. Quite a few of my questions have already been addressed. I've just got a couple of small follow ups. Just firstly on the coming back to the question of the CET1 temporary exemptions where you've talked about not having availed of some of them. I think we've had a couple of them already outlined in terms of, think, in the slide packs, you talked about the VAR backtesting exception and how that didn't really help your market risk number. And you've also talked to SA CCR that you fully implemented that rather than phasing. But just I mean, is it fundamentally the case that you chose not to avail of other exemptions, regulatory exemptions? Or is it just that any other items outside of those 2 that you've highlighted weren't material for you this quarter? That's the first question. And then just on the second question, just coming back to some of the mark to market losses that you've highlighted on the auction rate positions and the $183,000,000 on the LCM and the other items in the investment bank. I wonder if you could just talk to how those positions might have behaved so far in the Q2. Obviously, we've had a pretty big recovery in credit, whether some of those positions may have reverted back to closer to where they were in terms of valuation pre marks. Thank you. On the RWA, Pierce, on the RWA question, I think firstly, we actually didn't need to be able to avail ourselves of any of the opportunities, let's call them, that were on offer, nor were there others that were offered to us that might have been helped. So in terms of backtesting exception, it just wasn't something that we required because we actually didn't hit a threshold that would have then triggered a multiplier. On the mark to market losses, first of all, if you look at the ARS positions, I think as you know, what happened in the market during the Q1, of course, with the significant dry up of liquidity, particularly in the tax free market, just along with the drop in interest rates. On the liquidity side, we have seen liquidity come back a little bit and you would assume that that's going to be helpful to those positions. Obviously, on the interest rate side, they remain low. But I would just rehighlight the fact that the notional underpinning the 143 that we referenced on the page is AA. And so we have full confidence that we'll recover 100% of that notional. There's no concern at all that we have around that overall quality. And we also expect to we're currently earning very, very good net interest income. So the margin on those positions are actually also quite attractive to us. So as long as they're on the books, we're earning quite well from them. Now in terms of the LCM positions, it's a little bit harder to call because markets remain quite volatile and you also have different impacts that are idiosyncratic across sectors. So if you look at oil and gas, if you look at how different sectors are continuing to respond to the crisis, it's going to have a flow through impact and the second order impact on how any other either LCM or corporate lending or real estate portfolios, which are the 3 portfolios we referenced that where we incurred the $183,000,000 of mark to market losses with also the point that we highlighted that we did offset those losses fully with gains on hedges. Could I just briefly follow-up? You gave a number for the ARS book, I think it's $1,400,000,000 Are you able to just enable to just to be able to give some indication in terms of sizing? The LCM books, how big are they? Or you able to give any information in terms of the size of those portfolios? You can't really correspond specifically the LCM with those losses because as I mentioned, they did a cut across other portfolios, including our commercial real estate portfolios. But what we did do is we outlined on slide 21. We just gave you an overall profile of our LCM exposure And we were at 10.8 as of the end of the quarter. And I think importantly, what we saw even in these challenging markets, we were able to derisk between the end of the quarter and the end of last week $3,500,000,000 So our current exposure there is $7,300,000,000 of which about 40% is investment grade. And actually, a larger portion of what we derisk was in sub investment versus investment grade. And also what we highlight here is in the sub investment grade, it all is with business that are core clients of ours, where we have a great confidence in the credit fundamentals and also on the strategic merit of the business that we're doing with them. Okay, that's great. Thank you very much. The next question comes from Patrick Lee with Santander. Please go ahead, sir. Hi, good morning, everyone. Thanks for taking my question. I just have 2 quick follow-up questions on the wealth management revenue. Firstly, on the recurring fee headwinds that you mentioned the $200,000,000 to $300,000,000 I just want to check with you how much of this is purely the mechanical effect of the U. S. Quarterly billing Or how much of it is some sort of subjective view from your side in terms of where asset prices would be by the end of June? And well, I guess, hypothetically, if the market goes back to 2019 level, would that make a big change to that assumption or to that guidance? Secondly, relating to transaction revenues, which has a very, very strong quarter, on Slide 12, you gave a bit more color in terms of that evolution by geography. For example, APAC doubling is, I guess, kind of expected. But I was surprised that Swiss actually saw such a big jump in transaction revenues. And I know you mentioned that there are more interactions and all that. But is there anything special in that line that we should be aware of in terms of like transfer of business? Or is this just a new normal in that particular geography? Thanks. Yes. Patrick, in terms of your first question, any time we provide any kind of guidance, it's modeling off of asset rates, interest rates, forward, anything that we can reference from a market perspective. We generally do not overlay any kind of management actions or any assumptions we might make otherwise. So therefore, when you look at the $200,000,000 to $300,000,000 mechanically, if you look at our overall invested assets, which you see quite clearly on slide 11, so there was an 11% drop. We were at 2,300,000,000 dollars Roughly half of that is U. S. And that's the billing base for the U. S. Business throughout the quarter. The other half that's international, we bill on a monthly basis. And so, of course, if in fact, the market performance we already saw in the month of April, assuming it holds through the end of April, will have a positive impact on our international business. And then it really depends on the international side, what happens over the next couple of months. In terms of your transaction revenues, one of the things I mentioned that I think did have a really important impact on the overall level of transaction revenue we saw from clients was the increased engagement level. And Tom and Iqbal were very focused on purposely increasing substantially the level of client interaction we had across all our regions. And we highlighted in fact in Switzerland, there was a 30% increase in client interaction levels. That combined with just the fixed stream volatility that we had in the quarter that actually made available structured product and other repositioning opportunities where our CIO was very focused on pushing out solutions resulted in the very good transaction revenue performance that we had in the quarter and it's certainly included in Switzerland. So it expanded across all regions. Great. Thanks. Ladies and gentlemen, the webcast and Q and A session for analysts and investors