Earnings Call: Q4 2018

Jan 22, 2019

Ladies and gentlemen, good morning. Welcome to the UBS 4th Quarter 2018 Presentation. After today's recorded presentation, there will be 2 separate Q The conference must now be recorded for publication or broadcast. At this time, it's my pleasure to hand over to UBS. Please go ahead. Good morning. Martin Musinga from the Investor Relations team. Welcome to our Q4 2018 results presentation. I'd like to remind you that today's call may include forward looking statements. These statements represent the firm's belief regarding future events that, by their very nature, may be uncertain and outside of the firm's control. Our actual results and financial condition may vary materially from this belief. Please see the important information slide and cautionary statements included in today's presentation on the discussion of risk factors in our annual report for a description of the financial factors that may affect our future results and financial condition. I'll now hand over to Sergio. Thank you, Martin, and good morning, everyone. For those of you who don't know, Caroline has been promoted to CFO of the Investment Bank. So as you can hear, Martin is now in the hot seat. As we told you in October, we changed our functional currency and we are reporting in U. S. Dollars for the first time today. The change will bring material benefits to our NII and improve our risk and capital management. It required a lot of work behind the scenes, so a big thank you to our colleagues who made it happen smoothly. Now on the quarter, you are well aware on how tough market conditions were out there. Equity markets had one of the worst Q4 performances since Great Depression. The convergence of macroeconomic, geopolitical and geoeconomic concerns continued to negatively affect client sentiment, which along with negative seasonality factors had an impact on liquidity creating a bitter cocktail. As a consequence, both private and institutional client activity dropped significantly and much earlier than usual for a 4th quarter and market conditions were very tense in the last 2 weeks of the year. Despite this very challenging backdrop, we again showed the strength of our strategic choices and diversified franchise delivering a resilient performance in the quarter. PBT was up slightly to $862,000,000 with a 4% reduction in expenses more than offsetting external revenue pressures. The various one time income adjustments in both years largely canceled each other out. Our net profit increased by a third to around $700,000,000 adjusted for last year's impairment related to the U. S. Corporate tax law changes. The 4th quarter closed what was a very successful year for us. Our net profit increased by 25% to 4,900,000,000 dollars We again demonstrated our model's capacity to delivering under various market conditions in a year when nearly all asset classes had negative market performance. In the 1st year of combined operation, Global Wealth Management reached a decade high pretax profit of $4,000,000,000 driven by record results in the net interest and recurring fee income. The Investment Bank also had a particularly good year with pretax profit up 29% supported by higher equities and FRC results while maintaining cost and resource discipline. Personal and Corporate Banking delivered nearly $2,000,000,000 in earnings, helped by gains on the 6 worldwide transactions, which mitigated NII headwinds. Asset Management performance improved throughout the year, helped by cost actions offsetting pressures on invested assets and the impact of previous years' investments. Net new money was $32,000,000,000 a 4% growth rate so far comparing very well with the industry. We delivered 3% positive operating leverage and we increased revenues and reduced expenses. Costs went down by $432,000,000 despite higher technology spend and regulatory costs. Most of the gains were driven by continued curbing of restructuring expenses and lower litigation. Reported cost income ratio improved by 3 percentage points to 79% and we remain committed to lowering it further. Our business model is geared towards high capital generation. We deliver attractive shareholder returns while maintaining a strong capital position and investing for growth. In 2018, we accrued for a higher dividend and exceeded our share buyback goal by CHF200 1,000,000. At the same time, TLAC increased to over $84,000,000,000 and we meet our regulatory capital requirements a year ahead of their full implementation. We intend to propose an 8% increase in our dividend to R70 per share, consistent with our capital returns policy. Combined with the share buyback of CHF 750,000,000, our total payout ratio will reach 70%. In 2019, we plan to repurchase shares worth up to $1,000,000,000 The UBS franchise is unique. We are the only truly global wealth manager. Our business is diversified geographically, and we are well positioned in the largest and fastest growing markets. More than half of our profit comes from asset gathering businesses and our Swiss business further contributes to the stability of our earnings. The strength of our franchise has clearly been on display over the last 5 years, a period during which we generated $19,000,000,000 in net profits. As we put our legacy and restructuring issues behind us, adjusted and reported profit have been converging. Through increased operating profitability, we were able to add to our capital and offer attractive shareholder returns, all while absorbing nearly $9,000,000,000 in regulatory and litigation costs. Now a familiar chart as a reminder of our core We do not look at cost efficiency in isolation, and I believe neither should you. It's only half of the equation. It is quite striking to see so many experts, stakeholders comment on or compare our cost income ratio to banks with completely different business models and far lower capital efficiency. In addition, it's also misleading to look at our headcount development without considering our total workforce, including the outsourced portion where we have seen substantial reduction in the last year. Our in sourcing program has and will result in savings and better risk management. We are among the highest valued banks in Europe and already compare well to a number of U. S. Peers. Actually, our 14.2% return on CET1 Capital for the full year is very strong in absolute and relative terms. But our sites are set higher. For us being best in class means delivering returns in line with the best. At our investor update, we highlighted the alpha and beta assumptions underpinning our targets and ambitions. Our goal was to bring to your attention and to be transparent about the factors that we can and cannot control. We do not control the external environment nor equity markets and interest rates. Clearly, the starting point is different than it was last October, making this year's journey towards our target steeper. However, as we all learned too well over the last few years, it's too early to make any judgments on the entire year. Of course, this doesn't mean that we are sitting here passively waiting for markets to improve. We are working on various levers to mitigate the lower beta contribution. We have a range of cost and capital related management actions to run the bank in a fuel saving mode without compromising our long term strategy. Although we cannot and don't want to halt our investments, we can adjust the pace and relative priorities. And in a slowdown, we can be more selective in our hiring plans. In addition, having completed our legal entity transformation and related tech investments, we are now positioned to further optimize our capital and balance sheet. Lastly, we have natural hedges in the business. Lower revenues mean lower pay particularly in GWM, AM and EIB, which are most correlated to EBITDA factors. On the capital side, a less supportive environment with muted client activity and lower risk appetite mean we utilize fewer resources. All these actions will allow us to drive capital generation, maintain our shareholder returns capacity and invest for growth. I'm happy with the progress we made on various initiatives last year, and we have listed some of the highlights here. We have continued to make significant progress on a number of legacy litigation issues, including resolution of the 2 RMBS related matters, the Trustee's suit and the New York Attorney General investigation along with the state AG LIBOR matter. In the 2 most prominent open cases, we chose to defend the bank decisively in court in the best interest of shareholders. While the cases are ongoing, we believe our stakeholders now have a better understanding of why we have taken this route. Looking forward, of course, our aim is to always do better and to strengthen our competitive position. In that respect, we compare ourselves against the best both as a group and across the business divisions. Specifically, in areas like net new money, GWM can and should improve. While some regions showed positive developments in the Americas where net new money was negative, we did better than our key competitors in terms of invested assets development, both on quarter on quarter and year on year basis. The overall results for the year are clearly not satisfactory. To meet our goals, we need to intensify efforts to attract and retain higher portion of our current and prospective clients' assets. In the current environment, it's not only important to execute on the group's existing plans to deliver cost efficiency, but also to constantly look for new opportunities. Likewise, we will continue to foster a culture of partnership across divisions to generate new revenues and even better serve our clients. To summarize, we are taking commercial and responsible actions to mitigate the short term impact of difficult markets and to execute on our long term plans. By looking at valuation in the banking sector, one could think markets expect a meaningful economic downturn. We don't see evidence to support such a negative scenario in our discussions with clients. Rather, the secular trends driving our ambitions and plans for the future such as global wealth creation and the opening of financial markets in China remain intact. With this, I'll hand over to Kurt for the Q4 results. Thank you, Sergio. Good morning, everyone. My comments will compare year on year quarters and reference adjusted results in U. S. Dollars unless otherwise stated. In the Q4, we adjusted for restructuring expenses of $188,000,000 and a net $190,000,000 gain on the income side. For the full year, we incurred restructuring expenses of $561,000,000 That's about a $630,000,000 reduction from the restructuring charge in 2017. We still expect around $200,000,000 in 20 19 with our reported and adjusted results further converging. For our income adjustments, the $190,000,000 included a $460,000,000 valuation gain relating to the sale of 6's payment services business to Worldwide. The gain was booked mainly in personal and corporate banking with some in Global Wealth Management. Partly offsetting this, we had a remeasurement loss of $270,000,000 booked in corporate center services related to the consolidation of UBS Securities in China, following the increase in our stake to 51%. The market environment made for a very challenging quarter for Global Wealth Management. It was a tough end to an otherwise good year, with PBT for the quarter down 22% or 14% excluding litigation. Total operating income was down 2% and I'll take you through the components in a moment. Costs increased by 5% to higher expenses for litigation provisions and legal fees, as well as increased technology and risk control spend. Compared to 3Q, we also saw higher costs related to seasonal items, for example, bank levies and marketing related costs. The cost to income ratio rose to 81% and would have been 77% excluding litigation. Loan balances were up versus the previous year, but net deleveraging from clients in Asia drove a contraction in lending during the Q4. Moving to revenues. Net interest income was broadly stable as 8% higher deposit revenue and a positive contribution from loans, along with some benefit from our currency change, were offset by higher funding costs in the expiry of a hedge portfolio in 4Q 2017. Transaction based income fell to the lowest level in a decade with the largest reductions in the Americas and Asia Pacific. The 23% drop in transaction income in Asia had a particularly significant impact on the region's performance, as this revenue line makes up a large portion of APAC income. Recurring net fee income was resilient, up versus last year, but down from the previous quarter, with an increase in the Americas offsetting declines in EMEA and Switzerland. I want to give you a bit of context on this revenue line, but also as we look ahead into the Q1 of this year. There is a time lag effect between invested assets and recurring fees, which is more pronounced in the Americas than elsewhere. In the Americas, we typically bill based on the prior quarter end balance versus the prior month end for the rest of the world. Therefore, recurring fees will likely be down in 1Q, both quarter on quarter and year on year. Moving to the regional view, we saw continued profit growth in the Americas, driven by higher recurring fees and net interest income. Our other regions were more severely impacted by the market environment as we saw greater market declines and based on how we bill, as I just explained. In APAC, where markets were down in the range of 20%, PBT was down nearly 40% due to the lowest transaction revenue since 2011, as well as higher cost as we added 100 advisors and we continue to invest in China. In EMEA, where markets declined 14% and geopolitical and geoeconomic instability heightened, recurring and transaction based revenues were down. We also incurred higher litigation expenses and legal fees as well as expenses related to bank levies and our acquisition in Luxembourg. Within EMEA, our emerging markets business was more resilient with PBT flat year on year. Switzerland, where markets were down 10%, had a decline of 5% in recurring fees, reflecting a similar drop in invested assets, while expenses were flat. Ultra high net worth performed well considering the market environment capping off a very strong year. In terms of global net new money, we saw $7,900,000,000 of outflows for the quarter, impacted by around $4,000,000,000 of deleveraging, outflows from net recruiting in the Americas and client moves in reaction to the adverse environment. As Sergio highlighted, our net new money results for the quarter and the full year are below expectations. We remain confident in our ability to meet target our target going forward given expected wealth creation, our market leading franchise and actions we're taking. Let me briefly review some of our plans for each region. In the Americas, importantly, our invested asset growth is above peer average year on year and quarter on quarter. Our net new money performance was impacted by outflows from net recruiting, partly offset by record inflows from our same store FAs, consistent with our strategy. We have taken steps to improve the net recruiting side of the equation. In addition, we are particularly excited about our unified coverage model in LatAm, the launch of our accelerated strategy to grow the global family office and ultra high net worth segments, as well as capturing opportunities in the affluent and lower end of the high net worth segment through our advice advantage offering. In APAC, we remain confident in our ability to continue to gain an increased share of new wealth creation as we hire additional client advisors, intensify our focus on lending and build out China onshore. In EMEA, we are establishing dedicated teams with specialized skills to capitalize on clients' liquidity events. In Switzerland, we expect to grow share of wallet and attract new clients with an increased focus on entrepreneurs and executives. PBT in our personal and corporate business was down 13% to CHF373 1,000,000 from previous year. Operating income was down 6% driven by lower transaction based income and higher CLEs. In interest income, we continue to improve our product results, offsetting headwinds from higher funding costs, the expiry of a hedge portfolio and negative interest rates. 4Q NII was the highest quarter during 2018 and flat year on year. Recurring revenue continues to be very stable. Transaction based income decreased due to lower fees from our corporate business as well as the reclassification of certain expenses to the income line from 1Q 2018. We booked $17,000,000 in credit loss expenses, primarily related to a number of smaller corporate loan impairments. Expenses were broadly flat as higher investments in digitization were offset by the reclassification that I referenced as well as good cost control across other expense lines. Business momentum continues to be strong and annualized net new business volume growth was 2.2%. For the full year, growth was 4.2%, the highest level on record. Asset Management had a very good quarter with PBT up 15% to 134,000,000 dollars Operating income was down slightly against a 7% decrease in expenses, mostly driven by cost actions we took in the Q2. Net management fees were resilient in a tough market environment. Performance fees increased slightly versus the prior year as higher fees from our hedge fund businesses in real estate and private markets were largely offset by a decrease in equities. Invested assets decreased to $781,000,000,000 down 2% from the prior year and 6% sequentially. We'd expect some headwind to net management fees in the Q1 given the lower starting point for invested assets. For full year, net new money including money markets was $32,000,000,000 a 4% growth rate in a tough year for the industry. Moving to the IB, we've had a very strong full year despite a difficult final quarter. PBT for the Q4 was 26,000,000 dollars Markets were challenging, especially towards the end of the quarter with correlated volatility across equity indices, widening credit spreads and a general lack of liquidity. Given this backdrop, we saw a sharp fall in client activity levels. Unsurprisingly, many deals were postponed in CCS. Revenues were down 29%, mainly driven by a decrease in ECM. ECM public market revenues were down roughly in line with the market. However, we had a significant reduction on the private side. Advisory was down 21%, driven by lower revenue in APAC as 4Q included a large transaction and lower private transaction fees globally. Nonetheless, we gained share in equity debt in leveraged capital markets. Equities revenues declined by 10% with decreases in all products, mainly driven by lower client activity. With the increase in correlation and higher market volatility, conditions were adverse to new structured product transaction, particularly in APAC where we have a relatively larger franchise versus our peers. However, cash equities in the Americas performed well on higher volumes. FRC had a better quarter with revenues up 14% driven by FX, which is where we're overweight, partly offset by a subdued credit performance. As we mentioned at our investor update, when credit spreads tighten, our fixed income heavy peers have the potential for larger revenue upside. But in a more adverse market conditions like the ones we've seen in the last quarter, our capital light FRC model should outperform and that's pretty much what we've seen to date. Costs were down 3%, mostly on lower personnel expenses. RWAs were up related to higher volatility, while LRD decreased reflecting lower client activity and market trends. The corporate center retained loss improved overall. Corporate services retained P and L was affected by higher funding costs for balance sheet assets. The group ALM loss improved mainly as a result of increased allocations and more favorable market spreads. Non core and legacy portfolio posted a loss of $93,000,000 a more normalized level than in the past two quarters as we no longer benefited from positive marks on our remaining asset rate securities. Given that NCL has been substantially downsized and apart from litigation represents a diminishing drag in our earnings, we will fold the remainder into the new combined corporate center perimeter from 1Q 2018 and no longer report NCL as a separate segment. As a reminder, we will allocate about $700,000,000 of current retained losses along with additional equity of approximately $7,500,000,000 to the business divisions beginning this quarter. With this equity push out, we will be in line with best peer practice. For the full year, total corporate center costs before allocations were down 2% on a reported basis, while increasing our investments in technology and absorbing higher risk control costs. The overall reduction was driven by benefits from previously executed programs and continued cost discipline during the year. We also benefited from cumulative reductions in our legacy litigation portfolio, including the progress this year that Sergio referenced. While I show the $122,000,000 benefit from changes in the Swiss pension plan as a one off benefit, it's important to note that this was the result of deliberate management action to respond to market and other factors related to our pension plan. As we announced in October, we have implemented certain changes on the tax side, which should reduce the volatility in our tax line. There are a couple of moving parts in these changes, but the main driver is that we have eliminated the 7 year DTA remeasurement period for our U. S. Tax losses. Instead, we have recognized the DTAs in our U. S. Intermediate holding company tax group through to their maturity in 2028 and we will start amortizing these from the Q1 2019. This change triggered a net $275,000,000 tax benefit for the Q4, which was neutral to CET1 Capital. We expect our corporate tax rate to be around 25% with a cash tax rate of around 14%. Our U. S. Profits will continue to be shielded from federal as well as most state and local cash taxes through 2028. We wanted to highlight one of the core strengths in a fundamental part of our strategy, the high quality, low risk profile of our balance sheet. 226 or 24 percent of our $958,000,000,000 balance sheet is cash and high quality liquid assets and other liquidity buffers. Our non cash balance is underpaid by $84,000,000,000 in TLAC or an 11% ratio. $337,000,000,000 is our loan portfolio, of which about 50% in mortgages, mainly in Switzerland. Our Swiss mortgage book has an average loan to value ratio below 60% and even with a 20% decrease in Swiss house prices, 99.7% of single and multifamily homes would still be covered. A 3rd of our mortgage portfolio is with Global Wealth Management clients. Around 40% is Lombard loans with around 50% average LTV and where we have seen virtually no losses over the last 5 years. Less than 10% or around $30,000,000,000 is corporate and institutional client loans, of which half is collateralized and the vast majority of the remaining unsecured exposure is investment grade. Average cost of credit over the last 5 years has been less than 3 basis points across the entire lending book. Provisions on the total portfolio is only 33 basis points including the impact of IFRS 9. $104,000,000,000 or 11% is our trading portfolio, which only generates $10,000,000 of management VAR. The vast majority in the IB or about $85,000,000,000 is held as collateral or hedges of client rates. Therefore, we have limited exposure to market risk on these assets. Of the remaining $14,000,000,000 in the IB, dollars 6,000,000,000 is developed market government bonds and $2,000,000,000 in investment grade corporate bonds. The around $5,000,000,000 in group ALM is mostly UK government bonds and U. S. Treasury bills. Only 1.9% of our trading portfolio is in level 3 assets. Dollars 126,000,000,000 is derivatives positive replacement values with a minimal amount in level 3 assets. Under U. S. GAAP, this would be netted down to around $16,000,000,000 dollars Most of the uncollateralized exposure is with investment grade counterparties and in part driven by counterparties with non netable agreements, which are typically with governments, pension funds and insurance companies. We remain confident that we are well positioned should an adverse change in the environment materialize. Considering all the attention recently on leveraged finance, I'll provide a brief overview of our business. We operate our leveraged finance business in the same way as we do the rest of the investment bank, strictly adhering to our return hurdles and our risk appetite, competing selectively where we can add value beyond just committing balance sheet and with an eye to how we would fare under stress. We have oriented our origination and deal acceptance criteria to maintain high balance sheet velocity. In 2018, we supported our clients through $94,000,000,000 of trades. At the same time, we manage our take and hold book down as we deem it sufficiently late in the cycle to want to be cautious, while continuing to take appropriate risk. Our capital position remains strong with our CET1 going concern and gone concern capital ratios above the 2020 requirements. To close, considering the market conditions, we had a very resilient 4th quarter that hasn't diluted the progress we made in the 1st time months of the year. For the full year, we generated strong results and capital returns, reflecting our unique and diversified business model. Looking ahead, there are areas where we can improve further, and we have clear actions to execute on these opportunities. While we're managing UBS for the long term, we will take all necessary actions to mitigate short term fluctuations to deliver attractive shareholder returns while investing for growth. With that, Theragio and I are happy to take your questions. We will now begin the Q and A session for analysts and investors. The first question comes from Jeremy Sigee from Exane. Please go ahead. Good morning. Thank you very much. I was going to ask 2 questions about Wealth Management, please, both on aspects are a little bit disappointing in the quarter. So the first one was about the outflows. I wonder if you could talk more about that. And specifically, the ultra high net worth outflows, were they all in Switzerland? And a bit more about what the other sources of outflows were. You mentioned Asia and deleveraging, but clearly something else is hurting sort of in Switzerland. I wonder if you could talk more about that. And then the second question still in Wealth Management. The cost line looked a little heavy to me even taking out the litigation. It's up about €80,000,000 year on year without that. And I wondered if you could talk about what the underlying cost increases are in Wealth Management and whether some of that can be taken out again in response to this weaker revenue environment? Yes, Jeremy. Thank you for your question. I guess as both Sergio and I highlighted, it was a very difficult quarter, of course, for new money. Think overall, I provided some color in my comments. I would just add, if you look at the two areas where we had net outflows, the Americas, as I mentioned, really was net recruiting and that's consistent with our strategy. Also, as I highlighted, we had growth year on year and quarter on quarter in invested assets, which is critical. Switzerland, a bit more unusual and that was clearly impacted by 1 large outflow. And so overall, if we look at Switzerland, the fact that we are up 1.5% for the year, we still feel very comfortable that we're going to consolidate and take share going forward. I would also highlight for the full year, Asia Pacific, despite rather neutral, slightly positive for the quarter, we were still up 4.5% growth for Asia Pacific for the full year and we're pretty comfortable that we're going to continue to consolidate and take share in that region. Global high net worth, certainly the outflows for the quarter were impacted by Switzerland, but also there were impacts across the Americas and Asia Pacific. Moving to your second question regarding the cost line, I would just highlight for the quarter and if you look at the Q4, it's really important to note that we do have seasonal effects. And in the Q4 for Global Wealth Management, we had bank levies. We also had increased marketing costs. I mentioned the fact that we had a cost related to our acquisition in Luxembourg. And also apart from legal provision, we also saw heightened legal fee expenses overall for the quarter. I think if you were to adjust for all of those, you would find actually the year on year expense trajectory to be quite favorable. And I would also note that during the Investor Day, we indicated that we were targeting $100,000,000 in run rate saves for this year. We've actually overachieved. We've delivered $125,000,000 And I would also note, we indicated that we're targeting $250,000,000 of saves as we continue to execute on those programs next year and we feel comfortable we'll deliver on those as well. Okay. Thank you. The next question from the phone comes from Andrew Stimpson from Bank of America. Please go ahead. Good morning, everyone. First one is going to be on gross margins and then second one on the buyback. On gross margin, what's I'm just trying to think through here on the behavior of clients when markets have dropped like this. You've been doing very well selling the mandates. That penetration continues to increase. But I'm just wondering, most of the increase in those mandates have come when markets have been very good. We've now had a quarter where markets have been have come when markets have been very good. We've now had a quarter where markets have been bad. I know they've come back strongly so far this year. But should we be expecting any pricing pressure to come through as clients see that they've been sold these slightly more expensive products, but which would have inevitably had negative returns. I'm just wondering how those conversations go with the advisers. And then secondly, on the buyback, you said up to $1,000,000,000 I just want to clarify if that's a hard ceiling. So you won't be going above $1,000,000,000 or just I just want to clarify exactly what that language meant, please. Thank you. Yes. Thank you, Andrew. I mean, when you look at growth margin, I think that's, of course, as we showed the trend in terms of mandate penetration and landing penetration and NII developments were quite favorable. I don't think that we have been observing in the last few years and don't see at this point in time any indication of clients backing away from mandates for the reason you mentioned. I think what we saw or we can see is more of a prudent asset allocation within mandates. In that sense, it depends how things develop. You raised the 4th quarter. I think that's I have to say that we have to really look in a more balanced way what happened in the last couple of months. This is not the end of the world. Last year at this point in time, everybody, probably including yourself, were overly enthusiastic about the outlook for the year and for the quarter, only to find ourselves with a more challenging environment. So it's way too early to call for a trend for the full year. And of course, we're going to look at ways to mitigate any potential headwinds. But I don't see the margins being under pressure for the reason you mentioned. Margins are under pressure because we have lower risk appetite by clients deleveraging that is mainly reflected in our transaction line. That's the bottom line. On share buyback, Andrew, the language is a cut and paste of last year language. So I think that I don't need to tell you anything more and we also show very well at Investor Day and today the meaning of the arrows that goes inside and outside the buyback target box. More than that, I can't help you. Perfect. I understand. Very clear. Thank you. The next question from the phone comes from Stefan Stalmann from Autonomous Research. Please go ahead. Good morning, gentlemen. Two questions from my side, please. The first one relates to Slide 10, where you outline potential countermeasures if markets remain weak. Could you provide any numbers around this? And maybe specifically, is this more targeted at achieving your cost income ratio target for the year of 77%? Or is it more about avoiding a further deterioration from the level that we have seen in 2018, which was around 78.5 percent adjusted cost income ratio. And the second question relates to your market risk weighted assets, which had another quarter where they went up quite substantially. Could you shed any further light on what exactly drove this maybe by business line or geography or whether it affected stressed VAR or multipliers, etcetera? And do you expect this to revert back again in more normal quarters please? Thank you very much. Yes. Thank you, Stefan. In terms as Sergio referred to on Slide 10, naturally when we see market disruptions and we see that the adverse impact of what we saw in the Q4, we look for actions that we can take to help mitigate those. And Sergio outlined both on the efficiency side as well as in the capital side that it's very clear that there are specific actions that are available to us and we're actually busy implementing those. I wouldn't specify any particular numbers around that. What I would indicate though clearly and also as Sergio mentioned is while the path to our targets has steepened, it's too early to call that to have any change at all the targets for the full year and we remain focused on those targets that we communicated at the Investor Day. In terms of RWA, the increase was really driven by the investment bank. It was higher levels of volatility, particularly in regulatory and manage VAR at the end of the quarter. It's not unlike what we saw in the Q1 last year where we saw heightened levels of volatility and increase in RWA. And also I think it'd be very consistent if you look at what U. S. Peers reported, they had substantial increases most of them in their overall market risk bar that they reported. And so this is very consistent, I think, to what we're going to see in the industry. Great. Thank you. The next question from the phone comes from Benjamin Goei from Deutsche Bank. Please go ahead. Yes, hi, good morning. Two questions, please. The first one on your cash tax rate. Just wondering whether the change versus the October Investor Day is essentially just a lower profit outlook for the U. S? Or is there anything else behind it? And the second is also on your market risk. Is there any intention to bring down VAR? Because I mean this, of course, was an unfavorable quarter, but we could see sustained volatility here? Thank you. Yes, Benjamin. And in terms of your first question, the slight change in the mix of between cash and non cash in our tax rate was really just as a consequence of completing all the rather significant actions that we took in the Q4 around remeasurement and some other tax planning steps. And when everything settled and we just reassessed our tax rate, there was a slight change to the estimate that we had during Investor Day. In terms of market risk, this is really market driven. You should note that despite the very significant volatility, our management bar in the IB was still only 10%. So still very, very low. I don't know really. I think that there is a little bit of let's remember that our guidelines around capital is around 13% and our binding constraints for the next couple of years is leverage ratio. So any over focus on $2,000,000,000 or $3,000,000,000 variance of risk weighted assets on CET1 is not aligned with what we have been telling you and also our capital planning process and efficiency process. Okay. Thank you very much. The next question from the phone comes from the line of Amit Goel with Barclays. Please go ahead. Hi. Thank you. Do you mind just giving a bit more color in terms of how the start of Q1 has been in terms of some of the trends obviously from Q4 will feed into Q1 as you highlight. But in terms of the better market levels and so forth, how much of the weakness has potentially reversed so far? That was my first question. And to answer my second question was on the cash tax rate, so that's already been answered. Thank you. Yes. I mean, if you as you know, we don't really like to comment on quarter, particularly after 3 weeks considering the volatility we have been experiencing see the see the developments in asset classes performance since the beginning of the year, which have a positive impact to sentiment, although the sentiment I think investor sentiment and conviction level has been hurt. I mean people some people out there are still quite concerned about the developments. I would say that when you look at year on year performance, we should always remind that we had a spectacular January, I would say, in the industry. And last year, we had a more muted development in February March. So to call the environment at this point in time is way too early. As I said before, that doesn't mean that we are implying things are going to normalize on their own. We are really taking proactive actions to see how we can be ahead of the curve should the situation continue to be the one that we saw in the last part of the year. Thank you. The next question from the phone comes from the line of Stoklosa with Morgan Stanley. Please go ahead. Thank you very much. Good morning. I've got two questions. One about the equity business in particular and the second about the developments of the net interest income. So on the equity business side, could you give us the context for the quarterly performance? I'm looking at the slide I think it was Slide 20. And I was just kind of wondering how the 4th quarter looked in terms of the business lines and also kind of geographical mix. You commented a little bit about the Americas and EMEA, but I'm curious to hear how the quarter actually looked like in Asia and what would be the potential read across? And my second question is about net interest income. We saw a very steady development across this year. And again, how should we think about it into 2019 in terms of the loans, in terms of spreads, margins? And also, if you could give us a sense of what should we be aware of in terms of the NSFR, which is likely to be clarified for you by the end of 2019? What would be the impact on the cost of funds? Your preliminary thoughts? Thank you very much. Yes. In terms of the equity business overall, if you look across on a product basis, we saw a much sharper drop in derivatives. And that's really reflective of what I mentioned. It's the fact that we saw increased levels of correlation as we went through the quarter. And with increased level of correlations, of course, structured products become less attractive. And that was very, very pronounced in Asia Pacific, where we tend to have a disproportionate share of that business versus our peers. And so as you might expect, we therefore also on a regional basis saw a sharp drop in Asia that impacted our overall equity results. Conversely, our cash business held up quite well, held up better. It was still down overall, but in the Americas, we were up. So we had a good cash overall results. And our prime brokerage business was down slightly, again, due to the fact that we saw a fall off in overall activity levels. On the net interest income side, clearly, we expect some of the same dynamics that we saw during the year. We as you know, we announced very focused plans on growing our banking books. So we're very focused on growing our loans as well as re energizing our deposit growth. That should provide us with some tailwind as we go through the year. In addition to that, the U. S. Rate environment is still favorable to our book overall. Although I would note that with the last Fed raise, given the fact that we saw an inverted yield curve, it didn't provide any further immediate help. And in addition to that, I would also mention that we continue to face headwinds, of course, on euro rates and Swiss rates, and we don't really see any relief there. In terms of NSFR, given that the Swiss authorities are still determining what the final rules are going to be around NSFR, it's too early to call if it's going to have any kind of impact for us overall. And what we are confident though is that whatever we end up with in Switzerland will be very consistent with international standards. And so from that perspective, we expect to see a level playing field. Thank you. And Glenn, I should say welcome back. Thanks very much. The next question comes from Andrew Coombs from Citigroup. Please go ahead. Good morning all. I'd like to follow-up on Stefan's two questions please. So firstly, on the market risk weighted assets. When we look at the one day average management bar, it's only moved from €9,000,000 to €11,000,000 Q on Q and yet your market RWAs have gone from €11,500,000,000 to €20,000,000,000 which would seem to suggest that actually it's higher multiplier that's driving that. And yet there doesn't seem to be a change in the FIM multipliers based on backtesting exception. So could you just elaborate on exactly how much of the increase in the market RWAs is directly attributable to Dovar versus how much is other factors? It's important for us when we're thinking about the movement 1Q 2019 beyond. And the second question was more of a strategic question, again, coming back to this point of alpha and beta factors and the ability to mitigate the beta factors. At the Investor Day, you gave a great slide looking at the WAR from the cost income ratio. She said 78% costincome at 3Q 2018. You'd expect 9% revenue improvement offset by 3% on performance based compensation and then a flat fixed cost base. That 9% to 3% ratio, should we think about that as being the key link here? So if you took out 4.5% of the beta factors you've assumed, does that mean you can then assume a 1.5% offset in the performance based compensation? Or would you hope to do better than that? Yes, Andrew. Thank you. On the market risk RWA, firstly, you can't read just from looking at management bar in terms of what drove the increase. The increase was driven much more by stress bar and regulatory bar. Now overall, if you look at the total increase, apart from the impact of general market volatility factors, which fed the stress in the regulatory bar increases. We also had some increases related to some methodology and some model changes that were agreed, particularly in risk not in VAR. I think those were around $2,000,000,000 but we'll get back to you with a specific breakout. So it's not all just driven by market factors. Kurt, I would probably add that it doesn't you go back at Q1 2018, you remember the kind of behaviors we had on VAR and the normalization you saw in Q2. So I think history tells you a little bit of the fact that while I don't think that we have so much diversification within our business. So we have higher fluctuations, which tend to reconverge back in the following quarter as soon as market conditions normalize. If you go through what happened in Q4, in terms of volatility, it's what you should expect from our business, honestly. So I think that I'm always a little bit puzzled by saying that people don't understand yet how our business is positioned and the diversification element that is missing is always translated into a late effect on REG and STRESS WAR. Yes, absolutely. We would expect to see normalization. And frankly our outlook for RWA overall for the year has not changed. Your look back period 250 business days, but you seem to be implying that there is a higher weighting on the last quarter. Is that fair? Well, I mean, if you look at the way stress bar behaves and also regulatory bar, particularly stress bar that actually has that actually bounces back or deteriorates much more quickly. It's much more sensitive to more recent volatility factors. Okay, very clear. From the cost to income side, I think your math mathematically actually is spot on, but naturally, of course, as Sergio outlined on the alpha side, clearly, if we see that the beta factors are less attractive, we'll look to do more on the alpha side and potentially in down market conditions, there's opportunity, for example, for us to consolidate wallet share for us to find other opportunities in the market that maybe our competitors would actually not have access to because of their relative size or the relative strength of their capital and their credit standing. So it's the way that it actually pans out is not going to be purely mathematic. You have to insert what we would do as a management team to rebalance that mix going forward. Okay. Thank you, both. The next question from the phone comes from John Peace with Credit Suisse. Please go ahead. Yes. Thank you. My first question is on the net new money. After you saw the outflows in the Q2 of last year, you expressed confidence in the full year, which I think was because you had some visibility of a recovery as you went into July. So I was wondering whether your confidence in the targets for this year reflects what you're seeing through January, I. E, a more normalized pace of inflows? I appreciate it can be quite lumpy. And then second question was just on the Corporate Client Solutions business. Your U. S. Competitors like to talk about a pipeline of activity. How do you see your pipeline at the moment relative to last quarter last year? You. Thanks, John. I think after 2 weeks or 3 weeks in January, it's early to call the trend for net new money. I think that we are in any case not overly paranoid about quarterly performance on net new money. I think that's the year performance is what matter. And I think that it was quite clear that our confidence in respect to the plans we have together and the secular trends supporting our ambitions and competitive position supporting our ambitions are intact. We can and we should do better on any money. So I think that's the numbers are what they are. We have not we didn't take actions to go out and show better net new money even if it's not economically sustainable. It is what it is, but it's not an excuse. Now as Kurt explained very well in his chart, the picture is a mixed one because if you look at Asia, Switzerland and Europe, we have an okay picture. I think that's it's not at the top of what we could expect in a better environment, but 5% in Asia and 1.5% in Switzerland on a year on year basis are quite solid results. The disappointing result is coming from the U. S. There, I like to this is our choice and we speak to our choice of transparency. We are the only firm reporting net new money. And so the only proxy you have to really measure ourselves is the absolute numbers, which again we have to do better and we can do better through different actions. But also we have to look at the relative performance. And when I look invested assets as a proxy for that, it tells you a clear story. On net new money, the implied net new money means that we have been doing better than our key peers during the full year. So this is not an idiosyncratic UBS situation. There is a change in behaviors. By the way, it's quite interesting because in our survey with clients, in Q4, we observed a record high level of cash balances with U. S. Clients at 24 percent. So you can imagine 24% cash balances with U. S. Wealth investors is a quite striking high number. And this is what's going on. So people may have a tendency to take the money outside the wealth management system in the banking, not only UBS and go for other asset classes outside. So that's a little bit of developments. We have plans to increase our GFO and Ultra presence in the U. S. We have planned to increase our share of wallet with U. S. Persons outside the U. S. So we will take actions to really go back into our trajectory of growth. But in the meantime, we have also to take acknowledge that the market conditions out there are very unfavorable. Addition to that, that's the usual third that comes through lending wasn't there for the full year and particularly in Q4 where we saw a degree of deleveraging. Pipeline issue, I think that we had I don't want to go through, but we have a substantial number of deals that were pulled in Q4. I think that the problem is not the pipeline. The problem is not the mandate. The problem is the market environment to execute the mandates. So I feel pretty convinced and comfortable that we have a solid approach and solid penetration of potential mandates. But of course, Q4 was totally not constructive for any kind of transaction and hopefully as the situation normalizes in the near future, we will be able to execute. That's great. Thank you. The next question from the phone comes from Anke Rangan from Royal Bank of Canada. Your line is now open. Please go ahead. Yes. Thank you very much. Just two follow-up questions. Firstly, on the market RWA, given your comments, is it fair to assume that they will have come back again looking at the trends seen Q2, Q3 last year as well Q2, Q1 last year as well? And then sorry, coming back on the cost income ratio. So how strong is your commitment on delivering it? Because I mean, obviously, you said it's too early to say seeing investment opportunities is not the right way to look at it. But I mean how but then you say it's too early to confirm. So how strong is your commitment? Thank you very much. Anke, thanks for the question. I think that we answer really 3 times the question on regulatory aspects of markets. So I mean unless you have a more precise question, I think that I would refer to that. On costincome ratio, of course, we are very committed to execute our absolute cost savings. Costincome ratio is a function of many other factors. We will take, as I say, execution on the existing plan. We are very focused as time goes by. Always there are changes and searching for new opportunities, both strategic and tactical to respond to market conditions. And at this time, I can only look at this one as a reference point. I know that you understand that is you can't talk in isolation cost income ratio. I try to reemphasize the issue that cost income ratio is an important metric, but it's not the one that we can be overly obsessed because fixing cost income ratio as a cost of capital return is not the way to address the issue. So we really work on absolute costs, both strategically and tactically. And also, as I mentioned, there are levers that we can put outside fixed cost and variable cost that goes into optimization of capital and consumption of capital, which has for us is also very important because we want to continue to sustain our capital return objectives and targets. And therefore, we have different levers to play around. Okay. Thank you. The next question comes from Jernej O'Meara from Goldman Sachs. Please go ahead. Yes, good morning from my side as well. I have two questions. One is on the follow-up on your commentary on your equities business and the other one is on the deleveraging on the Private Wealth Management operation. So can I just ask on equities? So Kurt, I think you talked about weakness in Asia and in the derivative business within Asia. But over the past 2, 3 years, I think UBS was the only European bank that kept pace in equities with the U. S. Banks. This quarter, U. S. Is up 6%, UBS is down 10% in equities. I mean, is this this almost looks like bad trading, bad inventory management in one portion of your equities business. So the first question is this, so is the extent of underperformance versus the U. S. A function of decreased client engagement, you reckon or a function of managing your inventory? And the second question I have is, I was looking at we were looking at the supplement on Page 4 on the point that there was deleveraging in the Private Wealth business. So as you point out, there was a €4,000,000,000 reduction in loans. Can I ask, I mean, this reduction, are these margin calls that are being triggered in your Asian operation? Or is these just essentially people extinguishing loans, loan board loans preemptively? And I was just wondering, so if we look at the breakdown of the outflows in Asia, I think 2,800,000,000 dollars of the net new money outflow is due to redemption of contraction of loan borrowed loans, which basically means you still had a fair chunk of net new money outflows even without that. Can you just shed some light on that? So how this breaks down and what is driving the Lambert loan reduction and what is driving just essentially the plain vanilla asset outflow? Thank you very much. Thank you, Jeremy. I always like your very pointed question and absolute statements. I like to understand where you see the U. S. Peers being up 6% year on year on equity on a quarter basis because I have in front of me a table saying down 17%, down 11%, down 16%, one is up 7% and another one is down 4%. And then I would add that in any case as Kurt well explained, we have a business that is more skewed towards the Asia. And I think that he also explained very well the performance of the in business activity and the increase of correlation on the structure side of the equation. So overall, I would say our strong performance for the year seems to indicate a somehow expected outcome considering our business that is skewed towards more towards Europe and Asia than it is to our U. S. Peers. But maybe I missed it on Patrick, can I add something? So I think that the numbers that you read out are sequential figures in equities. Yes, I'm looking at the 5 biggest U. S. Banks year on year equities, yes, we're up 6%, right? And numbers are plus 11%, minus 4%, plus 2%, 0% and plus 17%. But sequentially, you're right. Yes. Okay. So but in any case So my question is this, U. S. Banks year on year are up 6%, UBS is down 10%, which is the first time this has happened over the past 2 years. So I'm just wondering whether there's a one off and we can expect netback or whether there's something else? Yes, I think that I think Kurt explained very well what happened in our equity business is almost like and we are not trying to do victory laps and extrapolating numbers like saying our FRC number is up 14% year on year and compared to the industry trends. So we are not trying to extrapolate 1 quarter doesn't make the full year and doesn't make the future. So we have to put things in perspective. But to answer your question, no, it's a clear convergence of market factors, client activity skewed towards APAC where we have a bigger presence putting this quarterly performance into different lights. I'm comfortable that there is nothing strategic and structural that we should look into it for the future. So, Jernay, in terms of your second question, I think naturally when you see the falls in the markets of the magnitude that we saw in the Q4 and in the case of Asia Pacific, actually it's been more trending full year, but roughly speaking, if you take kind of a midpoint with the Asian markets predominantly driven by North Asia down around 20%. That does a couple of things. Firstly, it leads clients to have less conviction and the overall return profile going forward and therefore less willing to pay for leverage. So they pay down their loans. And in the second case, it does as they see an overall production, it does impact their overall margin levels. Although the deleveraging was much less driven by margin calls, it was much more driven by initiative and actions that our clients took to reposition their overall investment portfolios. That's very helpful. Thank you. The next question from the phone comes from Kian Abu Hussain with JPMorgan. Please go ahead. Yes, hi. I have two questions. The first question is related again to the outlook on Page 1, Sergey, you indicate normalization markets early in 2019. So should we see the current environment so far, and I know it's very early in the quarter, but so far very similar to what we normally see every Q1, I. E, e, very strong start to the year, etcetera, etcetera. And in that context, I'm trying to understand the Q4. Is this just unusual environment that we saw in December, especially second half of December, which dislocated the P and L for most of the banks, including yourself to some extent? Or is this deleveraginglower activity level really what you see more of a cyclical trend, an ongoing trend? And I'm not exactly sure how to interpret generally not just you, but other banks' Q4. And if you can maybe show a little bit of light how the months have progressed in the Q4 without clearly giving a lot of detailed data, but if you can put a little bit of light of how this dislocation, how this lower number actually came into place, both on WM and on the IB? And then the second question is related to your plan, your 3 year plan of EUR 70,000,000,000 additional assets in the ultrahigh network space. And you talked a lot at the Investor Day about the U. S. Expansion or U. S. Client base expansion, I should say. Can you discuss a little bit what setup you have now? And if there has any progress been done? And how is that shaping up considering Kian. I mean, as I mentioned before, first of all, let me tackle a little bit the Q4 question. I think that it's not a subjective or personal interpretation of what happened. I think if you look at different statistics published by even outside observers, the deterioration of market level across all asset classes, which was meaningful when you look at 2018 with I've been seeing reports talking about 90% of asset classes in the market out there being down on a year on year basis quite extraordinary. I think if you look at what happened in December must be the worst month since the Great Depression in terms of market performance. So then what I would add before December, which December had 2 kind of characteristic. I would say the second half, I mean very dramatic market condition with a lot of underlying market volatility supported by almost no volume and business activity. The second one is to say what I would call the early Christmas and early seasonality effect. I mean usually you see seasonality coming in, in the second half of December. To be honest, I think that we observed seasonality this year in the early part of November. October was a decent month, was a good month. And in November, we started really to see this convergence of concerns by investors and the market both. And again, a quite different pattern compared to the last few quarters where you would see more volume and business coming through institutional channels than you would see from wealth management clients as reflected in our transaction line. We have seen a de facto holiday mood coming already into November. And when those discussions about geopolitical, geoeconomic issues, trade tensions, Brexit, things that goes on in Europe between France and Italy and so on have been causing even more concerns with investors. When I look at as I mentioned before, when I look at the Q1 this year, it's really way too early, Kian, to make a call because one can only say that, of course, when you look at a year on year basis, I want I mean, it's quite clear that the picture for January cannot be as good as we had it before. Maybe if you go back in a time series 2016 2017, you will see something more close to what we are experiencing in January. But last year, remember that February March were not up to the level of January. Therefore, we need to wait and see how to determine how the quarter will play. It's absolutely clear that the resolution of few of these outstanding items being trade tensions, geopolitical tensions, what's going on with Brexit needs to be resolved in order to restore confidence in the market. What happened in Q4 has somehow impacted institutional investors and wealth management investors somehow, and we need to reconstruct their conviction level. But this is not the end of the war. So as I said before, we are not going down years years in order to it's probably a matter to say January last year versus January this year, of course, is not a fair comparison. In terms of the 3 year plan, look, we are in execution mode. We are building up, we have been expanding and exporting our capabilities on the GFO and Ultra side into the U. S. We are executing on our plan and this is not a sprint. It's clearly something that we're going to see developing faster than you would see our developing in onshore China, but it's not something that you will see a transformation of the business coming on a quarter on quarter basis, but rather as you observe year on year development. Thank you. The next question from the phone comes from the line of Daniel Regli with MainFirst. Please go ahead, sir. Hello. Good morning. Thanks for taking my question. I have particularly one question regarding the AUM development in Global Markets. And you I think you have well explained the trend we have seen in net new money, but I was a bit surprised by the negative market impact in Q4 coming from I saw MSCI World was down like 7.5%. Your negative impact on the AM was 7%. So can you help me frame this? Were your clients just highly exposed to equities? Or what was the reason for this negative performance on your assets? Daniel, I think you'll see that overall and we show on Slide 32, you'll see a concentration of our invested assets, the concentration in equities, mutual funds, bonds as well of course were impacted during the quarter. So what you saw sharp drop in equity markets and also we've got a good slide that shows the magnitude of that drop overall, which is on 29. So you see emerging markets 17, China, Hong Kong 25 2014 Europe 14, Switzerland 10, United States 6. So that explains, of course, the equity drop was more pronounced than you saw that our drop in invested assets. Credit spreads blew out substantially during the quarter that explains the drop in bond markets. Mutual funds are going to be down the line with that as well. So I think that the math works out very well. If you just look at the overall concentration of our invested assets, it's quite logical that you saw the drop that you saw for the quarter. Okay. Thanks. The next question comes from Andrew Lim with Societe Generale. So firstly, in the Americas, just wondering if the change in rate outlook has changed customer behavior in terms of deposit beta. I think you mentioned in the past that clients were taking out deposits, putting it into credit assets, and that was raising your cost of funding. I don't know if that's changed or continued. And then secondly, on net new money in the Americas as well. I appreciate we've had a tough quarter. But for the full year, the Americas has had outflows. And yet you say you're better than competitors. Is there something structurally which is a concern here? And what are you going to do about it to try and make it positive? So Andrew, just in terms of your first question, we still expect over time our beta around the 40s to 50s and then that's kind of what we guided pretty consistently. I think has there been any change yet in client behavior? Really, we haven't observed any change. We of course, there still is some question now as to how many more rate increases we're going to see during the year. That obviously will have some impact on flows and overall rate performance. In terms of where we view though the outlook, we're still pretty comfortable with our net interest income outlook for GWM. In terms of net new money, I would just repeat what I mentioned, what Sergio has already mentioned. What's most important because we have no transparency on the flows from any of our peers is that our invested assets are higher than our peer average on a year on year and a quarter on quarter basis. And that's what structurally most important in the U. S. Business. Great. Thank you very much. Gentlemen, there are no more questions. We'll then finish the call. Thank you very much. Ladies and gentlemen, the webcast and Q and A session for analysts and investors is over. You may now disconnect your lines.