Ladies and gentlemen, good morning. Welcome to the UBS Q1 2018 Results Presentation. All participants will be in listen-only mode, and the conference call is being recorded. After the presentation, there'll be two separate Q&A sessions. Questions from analysts and investors will be taken first, followed by questions from the media. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance during the call, please press star and zero to call an operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to UBS. Please go ahead.
Good morning, everyone. It's Caroline Stewart here, Head of Investor Relations at UBS, and welcome to our Q1 results presentation. This morning, Sergio will provide an overview of the results, and Kirt will take you through the details, and after that, we'll be happy to take your questions. Before I hand over to Sergio, 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, are uncertain and outside of the firm's control, and our actual results and financial condition may vary materially from our belief. Please see the cautionary statements included in today's presentation on the discussion of risk factors in our annual report 2017 for a description of some of the factors that may affect our future results and financial condition.
Thank you, and with that, I'd like to hand over to Sergio.
Thank you, Caroline. Good morning, everyone. We started 2018 on a positive note with strong net profit growth, higher returns, and strong capital position. The quarter turned out to be a tale of two halves, with an exuberant start in January that went well beyond typical seasonality, followed by a more muted finish. Once again, our results show the power of our diversified business with strong divisional results in the Investment Bank and Global Wealth Management and strong regional performances in the Americas and Asia Pacific. Net profit increased by 19% to over CHF 1.5 billion, and we reported nearly CHF 2 billion in pre-tax profit. Our adjusted return on tangible equity, ex-DTA, reached a three-year high of almost 18%. The CET1 leverage ratio, which we currently view as our binding constraint, increased to 3.76%.
As anticipated, our CET1 capital ratio is strong at 13.1%, and our loss absorbing capacity remains around CHF 80 billion. Our excellent headline earnings went hand in hand with very strong underlying operating performance, which improved by 20% or 27% in U.S. dollars, all while continuing to invest for growth and efficiency. Bear in mind that all of our businesses are affected by continued headwinds from higher funding and Swiss franc and euro interest rates. There are a few highlights of our Q1 performance I'd like to draw out. Global Wealth Management delivered growth across all revenue lines and in all regions. Adjusted pre-tax profit increased 14% in dollars, which I will come back to shortly. Our Swiss Personal & Corporate Banking business delivered strong underlying results, increasing transaction-based and recurring fee income amid persistent headwinds from low-interest rates.
I'm also pleased about the continued good net new business volume growth. With over CHF 30 billion in inflows, Asset Management had another very strong net new money quarter, and its invested assets reached a decade high. The IB delivered a strong 25% return on attributable equity. The result demonstrates that we are very competitive in all market conditions. The best performances came from our traditional areas of strength, equities and Corporate Client Solutions. While FICC recovered from last year's challenging H2. Our business' strong performance was partially offset by Group Asset and Liability Management results, which were affected by the widening of U.S. Treasury OIS spreads in our HQLA, which we report through the P&L rather than OCI, like many of our peers.
These market factors are most likely temporary, but we also saw the higher funding costs we had highlighted in the past, and these are likely to remain elevated. Kirt will explain the details later. Throughout the quarter, we continued to invest in technology. In line with our earlier announcement, our spend increased by over CHF 100 million year-over-year. We also completed the process necessary to launch our three-year buyback program, so we will start buying this quarter with a target of CHF 550 million for the year. As I mentioned earlier, Global Wealth Management had an excellent Q1. The results were driven by particularly strong performances in our areas of strategic focus. The Americas and APAC saw double-digit growth to record levels, underlying our unique positioning in these large and fast-growing markets. In addition, profit from in our unrivaled global ultra-high-net-worth business grew by a third.
As well as our strong pre-tax growth, we also saw good momentum in net new money, and our cost-income ratio improved. In addition, we delivered a further increase in mandate penetration and growth in loans. So overall, we are in a great position to sustain high-quality, long-term growth. We are also pleased with the progress we are making in creating a new organization. In the first 80 days, our focus was on aligning support and control functions, establishing a more global ultra-high-net-worth organization, redesigning our operations in Latin America, and streamlining marketing to further increase client acquisition and retention, just to name a few examples. We are also combining technology roadmaps to deliver the best global solutions for our clients where possible and economically sensible. There are a number of other areas that we are looking at to support our priorities over the next few years.
In a nutshell, with more resource usage and by globalizing best-in-class processes, products, and services, we will support the strong growth expectations we have for the business. To conclude, I am very pleased with the Q1. The business is in good shape. Looking ahead, our momentum is positive. We expect the strength of our balanced business model to remain evident in the Q2's performance. With this, I would like to hand over to Kirt.
Thank you, Sergio. Good morning, everyone. As usual, my comments will compare year-on-year quarters and reference adjusted results unless otherwise stated. We have adjusted for restructuring expense of CHF 128 million that relate to our legacy cost-reduction programs. In principle, we are not expecting to make adjustments for restructuring expenses related to new cost initiatives. As you know, we expect our reported and adjusted results to gradually converge, with restructuring cost adjustments declining to about a half a billion CHF this year and under CHF 200 million next year. As of January 1st, we adopted IFRS 9, which substantially changes how we calculate credit losses and classify and measure financial assets. This has resulted in a reduction in our IFRS equity of about CHF 600 million and CHF 300 million in our CET1 capital.
Our taxes this quarter include a CHF 13 million provision for BEAT effects, in line with the CHF 60 million potential impact for 2018 that I referenced last quarter. We are working to mitigate these effects. This is the Q1 we've reported results for our combined Global Wealth Management division. I will refer to U.S. dollars, given how significant the foreign currency translation movement was for the business, with roughly 70% of invested assets and revenue based in $, as you clearly see on slide 21. PBT was up a very strong 14%. Our performance was high quality and broad-based, as we saw growth in all regions, in all revenue lines, another quarter of loan growth, record mandate penetration, and positive net new money in all regions. Operating income rose 12%.
Recurring net fee income was up 14%, benefiting from higher invested assets and record mandate penetration, which stands at one-third of our invested assets. It is the first time in two years that we've seen growth in recurring fee income outstrip invested assets, as we have put the cross-border effect substantially behind us. Net interest income improved 11% on net interest margin and 16% higher loan balances, partly offset by lower net interest from Group ALM, which I'll come to later. Transaction-based income was 7% higher. We saw increases in all regions outside of the Americas, which had a strong Q1 last year. Costs increased by 11%, partly on better revenues, but also on higher IT investments, mostly related to migrating our international business onto one platform and launching a new digital offering in the Americas, as well as higher regulatory costs.
Despite this, the cost-to-income ratio improved, in part, as we are benefiting from the changes we made in our Americas operating model in 2016, and we're confident that we'll see continued efficiency improvements. The regional split on this slide reflects how Global Wealth Management is managed. I just want to pick out a few highlights here. We've had record profits in the Americas with a 19% increase. Reducing our reliance on recruiting while focusing on retention and productivity is clearly paying off. We saw CHF 150 million annualized reduction in costs related to recruitment loans versus a year ago. FA compensation was up in line with revenues as we have fully absorbed the increase in pay grades related to our new operating model. We are also seeing results in our net new money, where same-store advisors delivered a record CHF 11 billion.
In this Q2, we're anticipating the typical seasonal outflows for tax payments in the U.S., which were in the CHF 3 billion-CHF 4 billion range in previous Q2s. Our investment in the muni space is showing promising results, as year-to-date sales increased fivefold along with a significant improvement in our lead table position. APAC profits also reached a new high, up 14%, with record transaction revenues, continued strong mandate sales, and lending growth. We further strengthened our number one leadership position in Asia, as measured by invested assets, where we are 50% larger than the number two player. Not only that, we delivered higher one-year and five-year growth in invested assets than the next three competitors. With cross-border effects largely behind us, we see strong momentum in EMEA that should drive quarter-on-quarter growth going forward. Loans are up 16% year-on-year.
Net new money was nearly CHF 5 billion, a 4% annualized growth rate, we had double-digit transaction-based income growth. We are also pleased with our consistent performance in Switzerland, where net new money growth was 3% on an annualized basis, and PBT was up a very strong 8% in CHF. In short, a very strong, well-balanced performance for our Global Wealth Management with positive momentum. Personal & Corporate Banking PBT was CHF 393 million, a very solid result, including a number of one-off effects. We continue to see very strong growth in recurring net fees and transaction-based income on higher referral, FX, custody, and mandate fees. Net interest income decreased only slightly as increased deposit revenues were more than offset by lower ALM allocations, which again, I'll come back to later.
Other income was about CHF 20 million lower as we booked a one-time gain of CHF 20 million related to the sale of a mortgage portfolio in Q1 2017. Credit loss expense increased by CHF 20 million year-over-year as we had a net recovery of CHF 7 million last year versus the build of CHF 13 million in 1Q18. The implementation of IFRS 9 had a minimal impact on provisions for the quarter. As mentioned last year, we initiated a multi-year program to digitize our Swiss Universal Bank and expect to see elevated technology investments as a result, with both revenue and cost benefits beginning to accrue in 2019. Net new business volume growth was very strong at 6.3%, the second-best quarter since 2017.
PBT for asset management was CHF 108 million, with a decrease from last year primarily reflecting the sale of our fund administration business in Q4, which contributed around CHF 10 million of profits per quarter. Operating income reflects higher management fees on higher average invested assets, offset by lower performance fees. Expenses increased on higher personnel costs related to variable compensation accounting. Once again, asset management recorded excellent net new money of CHF 27 billion, excluding money markets. At CHF 792 billion, invested assets were at the highest level we've seen for a decade. Absent any one-time items, we expect PBT to trend around current levels for the next few quarters. Our investment bank delivered an excellent quarter with 20% PBT growth in U.S. dollars, a cost income of 72%, and return on attributed equity of 25%. As with GWM, I'll refer to U.S. dollar growth rates.
On a regional basis, we had particularly strong performance in Asia Pacific, where profits more than doubled. Corporate Client Solutions was up 22%, with strong performance across ECM, DCM, and advisory, where the global M&A fee pool was down. Within ICS, equities increased 25% with higher revenues across all regions and products, but mostly in derivatives. This doesn't include corporate derivatives, which we report in CCS. If we were to report them in equities, like many of our peers do, growth would have been an even stronger 32%. FRC, at CHF 400 million, was down from a strong Q1 last year, but recovered from the latter half of 2017. Costs were up 15%, mostly on higher variable comp, as well as IT investments and regulatory expenses.
Risk-weighted assets increased from the prior quarter, mainly as the spikes in volatility in February led to increased market risk RWA, although from historically low levels. Without any major volatility spikes, we expect market risk RWA to come down. We keep investing for growth while managing costs and resources prudently. To name a few examples, we have created scope to grow our M&A business, particularly in the U.S. In FX, investments in our e-trading platform last year have benefited our clients, and we have captured increased volumes. In equities, we continue to invest in electronic execution. Our goal remains to be the best investment bank, not the biggest, by focusing on these areas where we choose to compete and by delivering sustainable performance over the cycle. The Corporate Center loss before tax was CHF 380 million.
Services PBT improved by CHF 60 million, and Group ALM posted a CHF 222 million loss. Non-core and Legacy portfolio posted a small loss of CHF 11 million, helped by small one-off items, and its LRD is now down to just CHF 13 billion. In the past six months, we have insourced around 2,000 jobs, mostly contractors in technology, with the primary objective of improving effectiveness and efficiency. Overall, we have reduced our total workforce by nearly 600. Looking at cost more generally, we have commenced a number of programs to support improved operating leverage. Aside from general hygiene around headcount, consulting, recruitment, and contractor spend, we are more closely aligning Corporate Center with the business divisions they support. And I created a new team to drive ongoing cost management and efficiency. All of this gives us confidence that we will take our group cost-to-income ratio below 75%.
Group Asset and Liability Management results are under pressure from a combination of market and previously highlighted regulatory factors, including the build-out of our legal entity structure. Revenue lines that are fully allocated to the businesses declined CHF 113 million year-on-year, impacting their net interest income. This was driven by factors we previously highlighted, such as persistently low or negative interest rates and higher volumes of AT1 and TLAC. In addition, a portfolio of interest rate hedges that expired in 4Q 2017 contributed to lower banking book income. We saw CHF 120 million year-on-year negative variance due to Treasury OIS basis movements. As you can see on slide 22 in the appendix. During the quarter, the widening of this basis resulted in a roughly CHF 40 million loss reflected in our P&L on our portfolio of U.S. Treasuries that are hedged by OIS instruments.
During the Q1 of 2017, we saw the opposite effect, leading to an CHF 80 million gain. Banks that account for any mark-to-market gains or losses on HQLA through OCI see a direct impact on shareholders' equity, bypassing the P&L, especially to the extent that their HQLA portfolios are unhedged in whole or in part. Apart from this effect, we also saw an incremental CHF 85 million of losses retained in GAL. Firstly, interest rate expense of CHF 37 million related to FX hedging was reclassified from accounting asymmetries to risk management net income. Secondly, the remainder is driven by increased levels of long-term funding in HQLA held by GAL in response to the build-out of our legal entity structure to meet regulatory requirements, while the business divisions are consuming less.
Given current market conditions in finance resource consumption, we expect that our retained Group ALM negative income will be around CHF 100 million per quarter for the remainder of the year. We are planning and executing a number of optimization actions with the aim of bringing us back towards the negative CHF 50 million a quarter. Our risk-weighted assets grew by CHF 16 billion in the quarter to CHF 254 billion. We had flagged increases in credit market risk RWA related to the regulatory and methodology changes we expected for the quarter. As I previously mentioned, the largest increase came from IB equities market risk. Of the roughly CHF 11 billion RWA increase we expect from regulatory changes over the next three quarters, about CHF 4 billion will come in the Q2.
Our capital position remains very strong, with TLAC above CHF 79 billion, and our CET1 ratios are comfortably above the 2020 requirements. Year-over-year, we kept our LRD flat while increasing CET1 capital by CHF 1.8 billion, which drove the improvement to a 3.76% CET1 leverage ratio. To wrap up, 2018 started well. The business has good momentum, and we are in good shape to deliver on our financial targets. With that, Sergio and I will open up for questions.
We'll now begin the Q&A session for analysts and investors. If you wish to ask a question, you may press star and one on your touch-tone telephone. The first question from the phone comes from Al Alevizakos from HSBC. Please go ahead.
Hi. Good morning. Thank you for taking my questions. My first question is regarding the Global Wealth Management performance, particularly on slide nine. I can see that there is a large difference in terms of investment asset growth performance between Asia-Pacific, Switzerland, EMEA, and Americas. I just was trying to wonder, is that just a difference in currency split, or is it also the type of investments that the Asia clients prefer?
Yes, Al. Thank you for your question. The differences that you see in invested asset growth is a combination of the three factors that drives our invested asset growth. It's net new money, it's market performance, and it's currency mix.
Then, of course, within the composition of invested assets, it also reflects the nature of investments that our clients in each of those regions have made.
Okay. If I can follow up with a kind of larger strategic question. You mentioned a lot about the cost initiatives that you will be doing on the GWM. What about the revenue synergy opportunities?
Well, on revenue synergies, the main aspect is the one to enlarge our global ultra-net worth capabilities into the U.S., into the Americas. This is something we've been working on. We already reorganized the business under one leadership, and this is, I would call it, the major initiative in that respect. If you look at the Latin American businesses, the fact that we are working together under one roof is going to help also coordinate our capabilities, opening up the entire platforms, the booking center platform to all our clients, including the U.S. one, is going to definitely help to create a differentiated offering. Those are the main opportunities we see at this stage. Of course, what we mentioned in terms of giving the best products and best capabilities with the integration of our IPS services, so the product and investment vehicles, it's another topic.
Great. Thank you very much.
The next question comes from Magdalena Toporzowa from Morgan Stanley. Please go ahead.
Thank you very much. I've got two questions. First, thank you very much for your disclosure on the LIBOR-OIS spreads. Could you help us understand the moving parts of your Group ALM portfolio kind of going forward? We've got two things flagged. One, of course, is the LIBOR-OIS widening. Second is your long-term debt issuance and overall funding and issuance of capital instruments as well going up. You flagged it last quarter and, of course, also this quarter in the commentary around 2Q. Just for us, you told us that the negative impact that you see over this year is about CHF 100 million per quarter versus your previous numbers of CHF 50 million, sorry, CHF 100 million versus CHF 50 million per quarter.
For us to be able to see how sensitive you are to the movement, how sensitive you are to your increased issuance, what are the moving parts that we should be particularly sensitive to? That's the first question. The second is really on your margin, last quarter's margin in Global Wealth Management, last quarter, you told us that we will see a little bit of a kind of negative revenue effect from the last wave of regularization costs. Your net new money this quarter was very strong across the regions. Really my question is, did we see some seasonality in those net new money flows? Have they worked for you all quarter, or will we see the positive effect of it coming in the Q2 as well? Thank you.
Thank you, Magdalena, for your two questions. Let me first, of course, address your first question. Just very quickly, if we turn to slide 15. As you highlighted, the year-on-year negative variance of CHF 120 million from the LIBOR-OIS spread, excuse me, the Treasury-OIS spread, that is something that we wouldn't expect it to repeat unless we saw continued movement in that particular basis spread. What drove that CHF 120 million, as we highlight here, is we had an CHF 80 million gain the prior year. What you see on slide 22 is actually that those spreads tightened during the Q1 of last year, whereas during the Q1 of this year, they widened, and that led to the CHF 40 million loss. In addition to that, we highlight the CHF 37 million, which is an accounting reclass.
If you think about the CHF 50 million I previously guided on, we do now expect to see this additional CHF 37 million reflected in our risk management net income after allocation. That CHF 37 million has increased in terms of its negative variance year-on-year, mostly driven to the fact that EUR versus U.S. LIBOR spreads have widened considerably. Finally, if you look at the higher costs that are related to managing our long-term funding and also our HQLA, as I highlighted in my speech, we're holding more of that at Corporate Center, even though the business divisions are consuming less. That's a cost that structurally is going to continue to be with us.
Finally, in my speech, you heard that I mentioned that we are pursuing a number of actions to further optimize our ability to better manage these resources across the group, particularly within our legal entity and subsidiary structure. We do expect that over time, that's going to allow us to bring down the total loss that we're going to hold in Group ALM. Hence, the CHF 100 million that I guided on with an aim to get that back down to CHF 50 million.
On your second question, I guess if you look at our margins overall in Global Wealth Management, I think what's most important to reflect on is the fact that our efficiency ratio is down to 73%. We're very confident with the tailwinds that we see that we are going to get down towards the lower end, at least down into the 60s over the next couple of years for our efficiency ratio for that business. Sergio put a nice slide up there to kind of show that that momentum over time should get us down well into the low 70s and then into the high 60s. In terms of the net new money you saw of CHF 19 billion, very balanced across regions. We would expect to see strong net new money in the Q1, and we saw it.
Nice, well-balanced, that gives us good confidence that we should be able to achieve the 2%-4% growth that we've guided for net new money going forward.
Thank you.
The next question comes from Anke Reingen from Royal Bank of Canada. Please go ahead.
Thank you.
Yeah, good morning. Two questions. The first is on capital and the risk-weighted assets. The CHF 7 billion increase are driven by VaR and stress VaR. Did I understand you correctly, we should basically assume this is going to reverse to some extent? Then, is your guidance on the risk-weighted assets inflation, the CHF 20 billion we had, has that come down now to CHF 17 billion as we take the six plus the 11 for the remainder of the year? Maybe just secondly, on the interest rate gearing. I was wondering, it seems as if the higher rates at the moment are more of a negative. For the previous quarter, you gave us the guidance about the higher rates. Would that still sort of like stand directionally, or is it more negative than you previously thought?
Also given that there might be more headwinds in the wealth management from higher deposit betas. Thank you very much.
Thank you, Anke. If you look at slide 16, as you see, we did experience CHF 6 billion of regulatory-related and methodology increases. The CHF 7 billion related to the spike in volatility that drove our VaR from a very low 10. I would emphasize, if you compare our VaR and our market risk RWA with peers, it's well below our peers. Therefore, off of a low base, it increased to 15, that drove the CHF 7 billion increase. Given technically how our VaR works, it's a 12-week rolling average. Assuming we don't see a further spike in volatility over the upcoming four to six weeks or so, we should expect to actually see that VaR and that RWA come down throughout the quarter. Naturally, it depends, of course, on market trends. In terms of what we guided for the CHF 20 billion.
The CHF 20 billion overall, I guess if we look at the CHF 6 billion plus the CHF 11 billion for the remainder of the year, we also expect to see some regulatory increases in the Q1 of next year. We're going to be slightly below the CHF 20 billion overall, but that's still roughly a good guide for the Q1 this year through the Q1 of next year. Let me comment on your second question related to higher rates. Actually, the guidance we provided last quarter, stands the increase in net interest income that we expect, assuming the forward rates, we continue. There's been no change in that at all. Overall, if you look at the drop-off of what was reflected in our financial disclosures, it's rounding, first of all.
We went from 0.7 to 0.6 related to the 100-basis point parallel shift of the curve, that was driven by two factors. One, as we had a reduction in our overall shareholders' equity related to the DTA impairment. Secondly, we did implement some changes and some retiering in the pricing of our U.S. business that actually allowed us to retain more of the increase or actually improved our beta overall going forward. That did reduce the overall upside from a parallel shift in interest rates that we would expect.
Thank you very much.
The next question comes from Kinner Lakhani from Deutsche Bank. Please go ahead.
Yes, hi. Good morning. I just wanted to revisit the NII point, particularly relating to the business divisions. Clearly the allocation that we're seeing in the Corporate Center to the business divisions has shifted by the tune of about CHF 100 million year-on-year. Looking at GWM, loan growth is 10%, NII growth is only 5%. I'm still not able to kind of put the pieces together as to why business division GWM NII is lagging quite significantly what I would have expected. My second question is on Asset Management, where the kind of refreshed guidance that you're giving us seems to be a function of a significant pressure in terms of the management fee margins. I think last year they were running at 25 basis points, this year below 22 basis points.
I know net new money is strong, there seems to be some concern that I have around the management margin. Thank you.
Yeah, Kinner. What you're seeing, if you focus on Global Wealth Management for net interest income, you're seeing divergent impacts in terms of, on the one hand, the U.S. dollar is absolutely benefiting the business, as is the increase in loan growth. On the other hand, you're seeing a reduction in deposits, of course, that partly offset that. Our deposit book is a bit smaller in the U.S. If you look at the overall growth, I think it's important to look at the growth in U.S. dollars, not actually in Swiss francs as we report. Net interest income is up 11%, which I think relative to what you've seen, given the combination of the impact of the U.S.
U.S. dollar against some of the headwinds that we've highlighted with the increased funding costs and the allocations in the banking book in particular from GALM to the business, which partially offset the positive impact of U.S. dollar rates and the growth in the loans that you're seeing. Now 11% is just about right. It's exactly what you would expect to see. In terms of asset management, naturally what you've seen in the industry is that there has been a reduction overall in margin. As we've seen less in the way of active flows, less in the way in particular of hedge fund flows as the hedge fund industry has gone through a fair bit of challenge over the last year and into the Q1 of this year.
If you look at our flows, our flows have actually been extremely strong relative to the industry overall, a large portion of our flows and earn flows have been in passive, that does have a mix change in terms of impact on overall on margin. I would highlight though, if you look at the flows from passive during the Q1, they did have an accretive impact on the business. Our net new run rate fees were positive.
Thank you. . Just to clarify, the loan growth that I should be comparing in U.S. dollars should be 16%, right? For GWM, compared to the 11% in IAGR?
That's correct. A lot of that loan growth, actually, if you look at our WMA loan growth in U.S. dollars, it was 5%. A big chunk of our loan growth has been in Asia Pacific, where loans are up 30%.
Great. Thank you.
The next question comes from Andrew Coombs from Citigroup. Please go ahead, sir.
Good morning. Two questions, please. Firstly, on the investment bank, a good top-line result. You have income up 17% in CHF terms. You've also increased variable compensation by 18% in CHF terms. Just what are you seeing there in terms of competitive pressures, and why did you feel the need to increase variable compensation to that extent? Second question would just be on slide six. You've again highlighted the growth in Asia Pacific, especially China, over 2018 to 2020. Just get a feel for how much of your current net new money, you said it's CHF 6 billion in the quarter, is from Mainland China. I assume it's small at present, but what's the scale of the opportunity here? Thank you.
First, just on the investment bank, I think as you highlighted overall, we had very good PBT growth, 20% USD, which we think holds up really nicely on an absolute and also on a relative basis. If you look at our expenses, personnel expenses were up 18%. A lot of that is firstly seasonality. Secondly, it's mix in terms of where we saw the performance, particularly with CCS, and then it's accounting. There were some accounting changes, like some changes to our deferral rates, and that had an overall impact on the year-over-year growth in our compensation. To comment on APAC. As you mentioned, APAC, very strong, was up 14% year-over-year. Record overall PBT. Naturally, the strength for us in our franchise in Asia Pacific, as we highlighted, is in Greater China.
Certainly you can expect that growth in Greater China, both in terms of the net new money flows that you saw, transaction revenue growth, lending growth, all of that is definitely going to be driven out of Greater China. Also, of course, we saw good performance as well in Southeast Asia and the southern part of the region. We see tremendous potential going forward for continued very strong growth out of Greater China.
Just to be clear, it's Greater China, not Mainland China, that you're seeing the growth potential.
That's right. We refer to the region as China, Hong Kong, and Taiwan. A lot of the growth that you see generated across that region is generated out of Mainland Chinese that are investing, wealthy Chinese that are investing in Hong Kong. It is the region overall that we refer to when we look at Northern Asia.
Thank you.
The next question comes from Andrew Stimpson from Bank of America. Please go ahead.
Morning, everyone. Thank you. First question, the CHF 7 billion spike that you saw in the VaR-related risk-weighted assets this quarter was, maybe this is details here, but it seemed a lot more than the CHF 5 billion that you saw in 3Q15 when the FICC spike was actually even higher than what it was in 1Q18, which seemed odd to me. Why is it more sensitive this time? Is it that you took up positions when vol was low, and then the move in vol was too quick, and you got caught out, or why is it higher this time? My follow-up question to that would be a bit more philosophical.
If you've got this volatility in the risk-weighted assets, does that mean that the IB needs to run with lower positions on average in the future so it doesn't go above the one-third of balance sheet level again if volatility spikes up again next time? Thanks.
Andrew, I don't really have the details for what happened back in 2015. All I can comment on is we were at a very low level overall With our VaR at 10. The increase from 10 to 15 really drove the CHF 7 billion. I would comment is, all of the increase was really driven out of our equity franchise, and it was a combination of a spike in volatility and just how we risk managed the books that led to the CHF 7 billion increase. I think importantly, to your point about consumption of resource by the business division, we stand with the one-third, and we think that that's more than adequate, in terms of the sufficient capital for the investment bank to be able to fully take advantage of the market opportunities available to it.
We would comment that the CHF 7 billion spike naturally will come down assuming we don't see further spikes in volatility. If we did see an increase in volatility, we'd more likely keep it at current levels rather than increase it further.
Last but not least, I would add, Andrew, that we have no problem to see a spike in consumption of risk-weighted assets if the returns delivered are the one that we just presented. I think that this is totally coherent with what we've said. If there is a necessity to deploy resources to accommodate client business, we will do so within our announced targets. The sensitivity of regulatory VaR and stress VaR, when you have such a low starting position, is much higher. I think that we are comfortable that the correlation between profitability and usage of resources is the right one.
Andrew, another point. My colleagues are reminding me that the last spike we saw in the Q1 of 2015 was the peg removal. A lot of that spike was across foreign FX. That spike, in terms of interest sensitivity, is going to be a very different profile than a spike in equities-related volatility that we saw in early February.
It was 3Q 2015 was when the equities VIX spiked, that looked like a CHF 5 billion increase. I think you answered the question anyway.
We'll get back to you with just a follow-up.
Sure. That's helpful. Thank you.
The next question comes from Jon Peace from Credit Suisse. Please go ahead, sir.
Thank you. The first question was on the transaction margin. You made a comment in the text that it had slowed down into March, just wondered if you could talk to us a little bit about why that was and how you expect that to trend going forward. Related to this roughly, in the outlook statement, you note that momentum in the business is good. What were you thinking of there in particular? Is that across the business? Was it trading related? Was it net new money? Just a little more color would be great. Thank you.
Just in terms of transaction margin, I think as Sergio highlighted very clearly, the pattern of the quarter was we saw very strong activity levels in the early part of the quarter, and they tapered off much more muted in the latter part, and that's very consistent with what we saw from our wealth management clients. As you know, every quarter we do a survey of our Wealth Management Americas clients, and what that survey indicated is their overall outlook was less positive than it was coming out of the Q4, where it was at quite high levels. They still remain reasonably positive, but not as optimistic as they previously were. In terms of the second question.
In terms of momentum, the momentum, as we pointed out in the outlook statement, is the one typical to the Q2. If I look across the board in the last few quarters, we always had a good momentum on the business. The operating performance is there. We are also clear to point out that geopolitical and geoeconomic tensions are starting to affect client sentiments. Having said that, we are well positioned to continue to create value also in the foreseeable future.
Thank you.
The next question from Kian Abouhossein from JP Morgan. Please go ahead.
Yes, hi. Page 14, can you just explain a bit how the dynamic between external and internal staff will change over the years, and how much more expensive external staffing is, and what these people actually do?
Sure, Kian. Yes, as I highlighted in my speech, when we went through our CHF 2.1 billion program, we naturally took advantage of outsourcing. We outsourced a fairly large number of roles across our middle and back-office functions. As we reassessed that and we looked at our business going forward, we felt there was an opportunity and need to rebalance. A lot of that rebalancing has been taken in Group Technology, where the percentage of outsource to retain was too high, we felt. We started rebalancing that, and we expect that to continue over the next three years. We will be looking to insource a fair number of resources that currently are in the external workforce. As we do that, we would expect, on the one hand, to reduce the markup on those resources.
There will be a cost, though, an upfront cost to that insourcing. Importantly, we do think it's going to help us improve our effectiveness and efficiency. Now, the other point I'll make is we look at automating and also robotics. That focus will be on just reducing some of the activity that we outsource. We would expect, rather than insourcing some of the external workforce, actually just to eliminate them altogether, as they are focused on very definable activities that are more easily automated than some of the activities that we operate with our internal workforce.
The second question I have is regarding Global Wealth Management on page nine. Sergio, you mentioned, for example, geopolitical issues which can impact the regions in Asia, for example. You mentioned H1, H2 changes in the quarter. Can you just run us through how the environment is today, or even coming out of the quarter, and how you position yourself in Asia Pacific? I saw you've done net hires relative to the Q4 in terms of advisors when I calculated myself. Just trying to understand, what are you doing in Asia from a bottom-up perspective, and how you position this if there's an environment change, how you're positioned for that.
Now, look. First of all, if I look at how the situation has been playing out, as I mentioned in my opening remarks, January was very exuberant, well beyond the seasonality factors that you usually expect. You look at February and March, they were much more similar to what we have been seeing in 2016 and 2017. It's something that, together with a typical Q2 pattern, we will continue to see going forward. Of course, this escalation of protectionism and tensions, you can feel it not only in terms of business activity, but when we go through our own surveys of clients' sentiment and the external one you see, they are starting to somehow dent the confidence of investors. Having said that, when you look at our Asian business, we got similar question over the last couple of years.
The truth of the matter is that we keep to investing. We grow faster in absolute terms and in percentage terms than our three next big competitors. We constantly look at investments across the board, not necessarily just in hiring people, but also, for example, in October last year, we rolled out our improved technology platform, which will allow us to sustain growth with marginal cost base in the region. We are investing in onshore China, which is a long play. It's not something that you will see translate into meaningful profitability in the short term. We are totally convinced that this is something that over the next few years, it will play out in the right direction.
In that sense, the opening of the Chinese government reconfirmed a few weeks ago about the foreign firms being able to increase their stakes in local subsidiaries and contribute to the opening of capital markets and financial services in China will play well to our strategic position, both in the IB, but also in wealth and asset management, where we, I guess you could see it this morning also on the FT, there was a nice report on our position in asset management in China, for example. This is a long-term game. In the meantime, current business activity, despite all the rumors and indication of the competitive landscape becoming tougher, we are growing faster than our peers.
Thank you.
The next question comes from Amit Goel from Barclays. Please go ahead.
Hi, thank you. Just a question within the Global Wealth Management. I think I heard you say earlier that the same-store AUM growth in the U.S. was CHF 11 billion. Just curious, basically what you're seeing in terms of the advisor attrition still within that business, because I guess it implies about CHF three and a half billion of outflows. Secondly, within that business, just post-exiting the broker protocol, what you're seeing and thinking there. Thank you.
Yes, as we highlighted, I think there are a couple trends that converged, and Tom likes to describe this as sort of making our way through the J-curve. If you look at the prior three quarters where we saw quite significant outflows due to net recruiting, and at the same time, you saw that we were just starting to get a pickup in the net inflows from our same-store FAs. That trend kind of continued to strengthen as we went through those quarters. What you saw in the Q1, we had the record CHF 11 billion inflows that was still offset by some outflows due to net recruiting, but the level of net recruiting outflows actually has come down a bit. We would expect going forward for the net recruiting-related outflows to further come down.
Our goal overall would be to kind of have net recruiting be around neutral, but to drive most of our growth through same-store FAs. What we saw is that FA attrition during the quarter was at a record low. Again, we would expect to see attrition levels remain low, just given what we've done to reposition our pay grid and how we're incenting our FAs. We think that that's an investment that is clearly paying off for us. In terms of the protocol, we've exited the protocol, and I think there's really not a lot more to say. We think that structurally that was the right thing to happen in the U.S. industry. Naturally, when we saw one of our competitors make the move, we were comfortable that it was the right thing to do directionally.
Okay. Thank you.
The next question comes from Daniel Regli from MainFirst. Please go ahead, sir.
Good morning. Thank you for taking the question. Just maybe, may I follow up on the question about the financial advisor attrition and same-store net new money? I'm just curious about these numbers we see in the Americas subdivision you show now. How much of this is Latin America respectively? If I add all your numbers correctly together, the majority of this CHF 7.5 billion was the formal Wealth Management Americas division. Is this correct?
Yes, Daniel, that's correct. Latin America overall is a relatively small percentage of our total Americas business. The vast majority of the net new money that we're reporting there is generated out of Americas. Having said that, I think as Sergio highlighted, we have actually created a new dynamic in Latin America. We actually have a converged overall organization structure, which means that we can seamlessly serve our clients to allow them to book wherever they prefer, be it in Miami or New York or Switzerland. We do think that we expect to see really good growth out of our Latin America business. But still, if you look at the CHF 1.2 billion in invested assets, Latin America comprises a relatively small percentage.
Okay, great. May I ask a second question regarding the transaction activity in Q1? Obviously, there was a divergence between Investment Banking client activity and Global Wealth Management client activity. Can you give me somehow more of a feeling about what was driving the activity of Global Wealth Management clients, and what should we expect going forward there?
Overall, I think Sergio has really characterized the quarter really quite well. We saw the same pattern in Global Wealth Management as we saw in the Investment Bank, where we saw much stronger transaction activity in the first part of the quarter. That's driven by seasonality and the fact that our clients were slightly more positive, followed by more muted transaction levels during the latter half. What we highlighted is we actually saw growth in all regions outside of the Americas, and that is due certainly to, in part, the fact that Americas had a very strong transaction quarter last year following the Still a little bit of the Trump exuberance, as it was called, that led to quite a peak in transaction activity in the Americas. We saw a record in Asia Pacific in terms of overall transaction activity.
I would also note that I highlighted a double-digit growth in transaction activity in EMEA, which gives us good momentum going forward.
Okay, great. Thank you so much.
The next question comes from Jeremy Sigee from Exane. Please go ahead, sir.
Thank you. These are just follow-ups now, really. One is on the FICC revenues. You mentioned steady performance in FX. I was surprised, given the strong volumes we've seen in FX, that you haven't done perhaps better than that. I just wondered if you could talk about that. Second question, really just following up on the previous couple of questions about wealth management. I was just curious whether there's any change in client risk appetites after the volatility swings we've seen in the quarter. Is there any change in the kind of conversations you're having right now with your wealth management clients?
Yes. What we highlighted in terms of our foreign exchange business within FICC is that we actually did see, and we believe we captured a higher percentage of the total volume during the quarter. Naturally, that's electronic volume. You also have to look at the relative margins on volume. You have to look at electronic versus voice. Naturally, across the industry, the margins on electronic are far lower than the margins on voice, and that dynamic has been playing out in the industry overall. I would also highlight the fact that our FICC business overall recovered from quite low levels. It was good to see it back up at the 400 benchmark, which is quite important for us. I'm sorry, your second question, Jeremy, could you repeat it, please?
Just a question about what you're seeing. You talked about the shape of transaction activity during the quarter. You said strong H1 and weaker H2 in the quarter. I just really wondered about how you view client risk appetites at the end of that sort of quite large swing in volatility, whether they've been sort of rattled at all by these changes in markets, whether there's any change in the sorts of conversations you're having with clients reflective of risk appetite changes.
Again, I think we've covered that pretty clearly. It's after the first part of the quarter with a spike in volatility and then the somewhat heightened concerns around some of the geopolitical issues, including protectionism. Naturally, we saw our clients become a bit more defensive. Sergio described it as their optimism was dented a bit. That carries into the Q2 along with seasonality. Clearly, we still remain optimistic if you look at our CIO view on the markets. Of course, we always invest with our clients over the cycle, and we haven't changed that posture at all. Naturally, we'll make tactical moves in reaction to overall market conditions.
Okay, thank you.
The next question comes from Adam Terelak from Mediobanca. Please go ahead.
Hi, good morning. I had a couple of questions. Firstly, on NII in GWM. I'm still trying to get my head around the weakness. How much of it is mix and how much is funding allocation? Clearly deposits are down. Whether we should think about this going forward in terms of client risk appetite, or is there some U.S. dollar weakness in there as well? Then secondly, we've spoken about the trading patterns January versus February and March. I was wondering about IBD, because you've had a strong quarter. Some of the peer group have spoken about a deferral of pipeline. Can you just chat about that and potentially what the pipeline's looking like into Q2? Thank you.
Yeah, I would repeat, of course, the NII question was already asked. I mean, you just look at NII up 11% in US dollar terms. I think it's exactly what you would expect. We saw a very good increase in deposits driven by US dollar rates principally, even though there was a reduction overall in our deposit book. Secondly, our loan book increase also contributed to good growth in net interest income. That was offset by the funding headwinds that we highlighted, the fact that we took off a long-term interest rate hedge, reduced the overall income to banking book from allocations from Group Asset Liability Management. That partly offset what otherwise would have been higher growth in net interest income.
We see good momentum in interest rates going forward, but Actually, the headwinds from our long-term funding will be with us as we go forward during the year. Second question on pipeline.
I don't think that there is anything.
There's really nothing we can comment on in terms of pipeline.
There is, of course, always a little bit of volatility in terms of execution of mandates and closing of mandates. I wouldn't really comment beyond what you reported being observed by competitors. I think that the macroeconomic and geopolitical situation that we described before is also not only affecting our private and institutional clients, but also corporates as they assess any M&A activity. You also saw in the IPO markets a few situations being postponed or withdrawn from market. The market is very sensitive to the environment and very sensitive to pricing. I think that those kind of conditions will continue to play out also in the Q2.
Okay. Thank you.
Ladies and gentlemen, the Q&A session for analysts and investors is over. Analysts and investors may now disconnect their lines.