Ladies and gentlemen, welcome to the Vontobel Half Year Results 2023 Presentation. I am Sandra, the conference call operator. I would like to remind you that all participants have been listen only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions or comment in writing by the relative field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dr. Zeno Staub, CEO. Please go ahead, sir.
Thank you very much, a warm welcome to all of you on the call. Thanks for your interest in Vontobel. I'm here with Thomas Heinzl, our Chief Financial Officer.
Good morning.
We are very happy to give you an update on half year numbers 2023. As usual, I will start with an update on the highlights and achievements of H1, and an update on how we do against our Lighthouse, our business plan, our strategy. Thomas will guide us through all the numbers in detail, I will be back with the outlook and how business has started. After that, we will obviously both be very happy to take your questions. Before we go into the details and look into the slides, let me create a little bit of context from on where we are.
After record year 2021, a very challenging 2022 for any investment firm, with the weakest and most negative performance of any 50/50 investment portfolio of stocks and bonds, probably since 40 or 50 years, and a very dismal second half year in 2022. In terms of profitability, we are moving in the right direction and things are improving across the board. What we see is that we continue to run our global, diversified business model as a pure-play investment firm. When we look into how we do in the different client arenas, we do outstandingly well in Wealth Management, with annual growth rate of 8.4% of the going concern part of the business. We do sensibly well and very robustly in DI and SST against a very low backdrop of client activity and transactions.
We do exactly as the rest of the highly active, high-octane Asset Management industry is doing with Institutional Clients. Now, let's go and look into it in more detail. We've seen recovering markets, but we also see persistent uncertainty. However, the macro environment remains uncertain, but we believe we're approaching the end of the interest rate hiking cycle. We have delivered robust financial results after these two very exceptional years I alluded to, with Wealth Management leading the pack with very strong underlying growth. We have seen DI normalizing, we also see improving trends in Asset Management. Our results are supported by strong net interest income, though, as a pure-play investment firm, the relative weight in our revenues is obviously lower.
We also see first signs of improving investor confidence and are actually expecting that this will improve now over the next couple of months, given on where we are in the interest rate cycle. We are structurally addressing costs while continue to seize the unique opportunity, because very much on the long term. We have reviewed our business portfolio, and we will deliver against the cost target of CHF 65 million, and we are on track, and Thomas will share more insights about that. We have accelerated and are expanded our Wealth Management hiring, and we have already signed 50 RMs in first half year. I'll be back with more detail around that. Our strategy, our Lighthouse, pure-play investment firm, focused on client needs that predominantly come from mature markets, has already put us in a very good position relative to the geopolitical tensions and geopolitical risks.
However, we have decided to fast-track the adoption of our footprint relative to the geopolitical tensions, and we are through with more than 75% of what needs to be done in this field. We have further strengthened our balance sheet and our capital ratio. We have navigated the first half year that brought a regional banking crisis in the U.S., that brought an idiosyncratic risk in Switzerland. We have navigated this with a capital position and a liquidity position that is as solid as ever. This brings us a lot of credibility towards the many, many, many clients that choose us. Let's look at the numbers. Assets under management are up by 4%, create added value against our cost of capital with a return on equity of 12.5. CET1 is up 60 basis points to 17.3.
We delivered this number against quite the interesting backdrop of markets and environment. Global equity markets have recovered somewhat, and they keep recovering as we speak. Bonds markets have at least stabilized. We see us moving towards the end of the interest rate hiking cycle, where central banks are closer to being achieving their targeted exit rates, and we believe that this will be positive for the willingness of special institution clients to deploy capital going forward. Volatility on the equity side, very low, higher on the interest rate bond side. Flows in the industry, and here it is obviously important to compare apples against apples. When we look at active fund flows, because we are a pure active manager, cross-border flows are still negative, but getting lower, so we're delivering exactly within line of the industry.
Obviously, we intend to do better than the industry in each and every opportunity. Quite a number of important themes in H1 2023, the rate hikes and the impact on inflation and growth, the financial system stability that was put into question. We think we are beyond that. The regulators and the government have acted very decisively, both in the U.S. as well as here in Switzerland. We, as Vontobel, have shown that once again, we have navigated challenging waters with very solid numbers and a very, very controlled risk appetite, and this risk appetite will not change, also in an environment where we very decisively seize opportunities to win market share.
We also have seen what we think is a new wave in the potential of technology and AI to finally now deliver on the year-long promise of technology to boost efficiency and productivity. We think we are at the forefront of deploying that, given our year-long track record in investing in tech. Our investment performance has become more constructive, especially on the fixed income side, where we have always guided that we needed to go through this period of adjustment. This period of adjustment of fast hikes will cause pain, also for our relative performance, as we are getting closer to the end of the cycle. Perhaps in the U.S., have actually already reached it with yesterday's decision. Our relative performance and peer positioning is improving.
Same is true on the equity side. We are delivering solidly on multi-asset class, especially when we talk about mandates, both for institutional as well as for private wealth. Some of our quant-driven models are also finding it more easily now to adapt to the environment as it has returned to a more standard economic setting, and we believe that this is a coherent, reliable bedrock to do business going forward. Sustainability and ESG is an important topic and keeps being an important topic. It has moved globally more towards seizing investment opportunities, and we just highlighted here one of our key options, key solutions for our clients, Global Environmental Change Fund, a product that we have since 2008. As it happens sometimes, we have been very early in bringing these opportunities to investors.
We now see really global appetite across the theaters from the U.S., sustainability-driven, opportunity-driven. We have always argued that at the end, investment solutions need to answer both things: do well, but also address the challenges of a more sustainable world, but deliver investment performance, and that's exactly what we do, and we see a strong interest of our clients in that. How are we doing against our priorities? We have identified four. Let me quickly go through them, as delivering consistently against our plan is very important to us. We think the new regimes are offering us the opportunity to deliver a more constructive investment performance, especially in fixed income. The adoption was challenging. We think we are seeing the end of the tunnel.
Private markets, we will be in a position in Q3 to launch a very sophisticated offering for our Private Clients, and there is more to come on this. I already talked about the transition to sustainability, where we not only offer investment solutions, but also the advice to help clients navigate the sustainability topic. On Wealth Management and delivering best-in-class experience to our Private Clients, we have keep delivering outstanding underlying growth of 8.4%, which we think is industry-leading. This is thanks to our positioning, our competencies, our capabilities, our great talent, and we have accelerated the adoption of our footprint to the global situation. In the U.S., we have completed the merger with SFA. We are now one company, one firm, when it comes to Wealth Management in the U.S.
We're the largest Swiss-based, SEC-registered investment advisor. We are looking forward to use that position as well as the cooperation with UBS Americas. We have also won the first institutional mandate from a U.S. investor produced in Switzerland. We think that we are uniquely positioned in our industry, being able to export first-class, institutional pedigree, investment quality into the largest, biggest deepest market in the world. We are in the position to do that, thanks to the long-term strategic decisions, the investments in systems and processes. We also have a very close eye on scaling our value creation. We will deliver on the cost promise. Thomas will go into more details on that. We have, in a challenging environment, again, improved the capital position. We intend to keep this capital position both for stability as well as for optionality.
We continue to harvest the potential on technology, where thanks to our year-long investments into cloud, AI, and big data infrastructure, we are very well-positioned to put the promise of AI to work and to deliver efficiency. Let me deep dive a little bit deeper into the Wealth Management organic growth opportunity. What we've want to stress here is that we have now, for years, built a franchise that is based on being client-centric and investment-led, at the same time, that has delivered consistent organic growth. Over the last couple of years, we have consistently delivered annualized growth of 5%, more or less in the range of CHF 4 billion on a yearly basis.
We have further improved the efficiency and the productivity of our relationship managers by giving them tools, systems, and processes that allows our relationship managers now to look after CHF 300 million per capita on an average basis. Now we seize the opportunity of the environment. We have hired 50 people in addition. 20 have started, 30 will start in the second half year. We strongly believe that this is a unique opportunity. We are equally as confident that we will be able to continue then, going forward, to grow the bigger book and the bigger franchise, at least with 4%-6% going forward. We will also gone through more than 70% of the required adoption.
With that update on the potential of our Wealth Management business and what we see in the books and what we look forward to realize, I hand over to Thomas, our Chief Financial Officer.
Thank you very much. Welcome, also from my side, I would like to guide you now through the financial results. What is important for you to remember is we do not adjust our numbers. Sometimes our numbers need a bit of deeper digging and need a bit of explanation, and this is one of these times where we need to do it. It also means that if you look into comparisons, you will also have to dig a little bit deeper to compare us with our peer group in order to make sure that it is an apples-to-apples comparison. Assets under management are standing at CHF 212 billion, which is up 4%. Operating income, CHF 696 million, or up 1% from the first half of 2022.
The operating expenses at 546 are up 8%. We will talk a bit about why this increase is so strong. That all leads us to a group net profit of CHF 127.6 million. This is a reduction of 16% vs the first half of last year, but it is also an increase of over 60% vs the second half of last year. At that point, I want to remind you a little bit about 2022. What happened is, in the first couple of months, in the first weeks and months, we still having this bonanza of retail trading. January was an excellent month, and that then started with all the negative effect, negative incidents that happened.
The war in the Ukraine, interest rates, which continued to increase in the second half of the year, the debacle with the U.K. pension funds. We had a series of negative news. If you look at the numbers on a monthly basis, what we see is we see, if you seasonally adjust, the trough around October, November. At 78.2%, the return on equity with 12.5% is above the first half of 2022, which you will then see when we try to explain a bit the revenues and what happened in that regard. Assets under management development, net new money, -0.5%.
If we adjust for the impact of our market focus initiative, it will be plus CHF 0.5 over Wealth Management and Asset Management. FX in that regard has cost us CHF 2.2 billion, and performance has delivered CHF 10.6 to take us to the CHF 212 billion. If you look into the assets under management and net new money by client unit, what you can see is Asset Management's assets under management have declined by 8% year-over-year, and is slightly up since the second half of the year. In Wealth Management, we have seen an increase of 14% from CHF 86 billion- CHF 98 billion. Even if you adjust for SFA, that would be an increase of roughly 8%. Now, net new money.
Net new money development is CHF 0.9 billion, basically consists of three different things that need to be taken into account. First of all, the Wealth Management, the core engine of Wealth Management, has delivered CHF 3.9 billion, which is an 8.54% annualized growth rate, net new money over assets, average assets under management. A very, very strong number here. We have this initiative, which we have announced, which led to CHF 1.8 billion outflows, which is basically, we exit the business with Russian-domiciled clients, and we exit the business, the B2C business in Asia, with a local rep office that we have closed down as part of the cost initiative. Asset Management, on the other side, had an outflow of CHF 3 billion, which in total led us to an official number of - CHF 0.9 billion.
If you adjust for the outflows, it will be +0.9 billion. The operating income, there's a couple of remarkable things here to mention. First of all, operating income is up 1% year-over-year. FX here hurt us by CHF 15 million, so that is roughly, that number would be roughly 4% increase year-over-year. What you can see as well, is one of the strong drivers has been net interest income. Net interest income has tripled over the period of time to CHF 95 million, that is also expect above our expectations. The reason for this is, why it is over our expectations, with the strong Asset Management inflows, a lot of the money has arrived at cash, and it stayed on our deposits for quite a bit, before it then got deployed into the investment side.
The net fee and commission income, with stable margins, which we'll talk about in a second, and lower average AUM, you see it coming down, but slightly improving over the second half. On the trading income, that has recovered a lot vs the second half of last year. Despite the fact that we closed down our Hong Kong operations, again, B2C business that we're working on closing down, which is also CHF single digit million number in revenues that have fallen away. What you see here as well, now I'm moving to the operating income, is the digital income, which reflects the self-directed clients that do the trading. They have not yet recovered to the same degree as we have seen on the institutional side.
These self-directed clients, which were basically the ones fueling this huge 2021 development, at the 2021 bonanza, they're still very careful, and they're still on the sidelines. If you look into Wealth Management, that's a 23% increase year-over-year in revenues. Asset Management is down 18%, and this 18% is explained by the average AUM, the reduction that we had over the first half of last year, hence, the comparison is slightly down. Moving to the return on assets. What you can see on Asset Management, not a lot of movement. There is minor business mix effect of 0.3 basis points. Normally, we wouldn't even show the rounded number, but it is almost flat, nothing happened on the Asset Management side on the, on the margin.
That is a reflection that even in times when we see outflows, we're very strict on our pricing discipline, and we hold the pricing discipline. The effects here were also minor effects on business mix. Wealth Management has increased significantly, not surprisingly as well. Commission income has remained stable. The commission income, the transaction-based commission income, has been recovering, so clients have been more active than in the second half, roughly at the level of the first half. Still, clients are a bit careful, in particular, those that have missed the uptick from the first half year, are very cautious now to get into the market, because obviously, they're afraid that they're now exiting at a high, and then we will see a decline in September.
Should we see the markets continuing to involve, or even if we should we see the market going down, we're expecting that these clients, who are generally also more optimistic but have timing questions, will re-engage with us, and then the commission income could increase. Finally, net interest income, which we have mentioned already, most of the net interest income that we generate, is here reflected in Wealth Management, which took the margin to 82 basis points. Operating expenses, the number that needs a bit of explanation, the 8% increase. Let me start from the right-hand side to go down by the other direction. First of all, we had an item that is an IFRS, a non-recurring IFRS booking item, that is related and incentive accruals.
The main driver were the massive reduction in our bonus pool in 2022, and the fact that there was an extremely strong price movement in front of our shares between year-end 2021 and the grant date of our shares in March 2022. That contributed a lot, and this year it was going in the other direction, explaining CHF 21 million. Moving to the next point, Wealth Management growth. The SFA acquisition, don't forget the acquisition has been closed in August, and the full costs, because some of the people moved in then in September. The full costs, this is the first half year where we have the full costs of SFA on our books. Then we have said it already as a strategic direction, the organic growth in Wealth Management has cost another CHF 10 million.
Moving to the cost side, what you can see here is we have mentioned that we have the CHF 65 million exit rate cost target. We said we, the cost to achieve the CHF 65 million are CHF 15 million, in our estimate, roughly CHF 15 million. What you see already is in year, so to say, we have CHF 15 million gross reductions achieved already. The costs to achieve these reductions, severance payments, and other things amount to CHF 9 million. Moving on, the costs that we have incurred, and that I just explained, show up mostly in the personnel line item.
If you look at the cost-income ratio, 78.2%, even if you correct for the one-off, even if you correct for the FX, which would take us 2.5%-3% down, the number is still too high. We have more work to do here on the cost-income ratio. The structural efficiency measure, as mentioned, are on track. More work to be done. Capital, I will talk a bit about the balance sheet now. On the deposit side, our balance sheet, the deposits are CHF 11.5 billion, if you look into our balance sheet. That, however, doesn't reflect our deposits. We have a product called Term Note, which is, in essence, a term deposit, a Fixed Term Deposit, but it is tradable, and as such, is treated under IFRS like a structured product.
You will find this in other liabilities at fair value, that's CHF 2.5 billion. Our total deposit base is CHF 14 billion and hasn't changed a lot over the first half of 2022. If you look at the loans, the loan book is down CHF 320 million, again here, we've seen a very limited amount of deleveraging. What the CHF 320 million where the CHF 320 million are coming from is mostly to do with the market, the market focus and the clients that we have let go, which typically had a higher usage of loans and Lombard loans. That explains that.
We have further strengthened the balance sheet, capital deposit, the bond portfolio liquidity, all of our ratios have been going up. CET1 is up 60 basis points. The RWA, despite the RWA being slightly up by CHF 300 million, roughly, the leverage ratio is unchanged at 5.5%. We had a very strong funding position throughout the year, with a liquidity coverage ratio of just short of 180%. I've also mentioned a couple of times that we have a conservative risk stance. We kept this. This was very helpful last year in the second half. It was also very helpful here in the first half.
Currently, we're still being careful in the outlook, but we're currently already discussing that we should move to a more neutral stance in terms of the risks, because we see a slight recovery. We have not moved yet, but we will contemplate that over the summer. On the business model, I've mentioned it already, return on equity is at 12.5%. We are in creating value, as we do since 2014. Every year, we have created value for the shareholders. The return on CET1 ratio, we just mentioned this for comparability, is 22.8%. Our objective for the ROE is stands at 40%, and we are committed to get back to this 40% in the very near future. Comparing to our targets, the balance sheet targets are very good.
CET1 ratio, total capital ratio. On the P&L ratio, we have a bit more... On the P&L-related targets, we have a bit more to do, as I said earlier. Now, if you synthesize very quickly, we're on the path of improvement. Wealth Management had an excellent year. Asset Management is in line with the industry, and clients are still waiting. Our balance sheet is very strong and has even grown stronger over the course of the year, and the costs are driven a lot by one-off costs or explainable effects. Still, we have more to do there. With that, I hand over back to Zeno.
Thank you very much, Thomas. I'll be back with a quick recap and outlook. We have delivered robust numbers against an environment and fully in line with our business model and our strategy. We believe that the developments that we see have actually validated our strategic priorities and our positioning. It has validated that our investment-led approach works as a strong organic growth driver in Wealth Management. Our focus on developed markets has been validated, too, A, by the fact that we can win market share in mature markets. B, that we obviously have a good, strong, low-risk position to adopt to the geopolitical tensions.
As we have shown, we have fast-tracked our adoption to the geopolitical environment, even if tensions should move from the European theater to the Asian theater, we will be done with the adoptions of our business books already. How are we looking into H2 of 2023? Couple of thoughts around that. First, we will deliver the structural cost relief, which we think is very important, that it focuses our business model, and it focuses our strengths and our ambitions on areas where we see future growth. We will complete the adoption of our footprint to the new geopolitical realities. We have already done more than 70%, and we expect this to be finished before year-end. Our capital position, our balance sheet position, will remain our fortress.
We will use it both for stability and trust towards the strong organic growth, but also for optionality, should inorganic opportunities arise. What do we see in the first weeks? What do we see in our pipelines? What do we see when we talk to clients, when we grow through our businesses? On the Wealth Management side, we are very convinced that we can use the market environment to structurally grow our Wealth Management franchise. We have delivered and built a franchise that has shown 5% annualized growth on average, CHF 300 million load per RM, CHF 4 billion+ net new money at an absolute size. We have now a market environment where we can do organically.
change that would usually only be available through M&A, and we are confident that we have the brand, the competencies, the capabilities, the people, then to continue to grow the larger book with at least the target range of 4%-6% going forward. When we go into DI and SST, obviously, we can not kind of predict the appetite for our transactions from self-guided clients, but what we see is that, when I look at market shares, market positioning, or the partnership discussions we're having, when I look at what we roll out from a technology standpoint of view, we will be able to repeat what we've shown in H1, that against very low trading volumes, we deliver low risk, resilient revenues. On the Asset Management side, I keep repeating myself now for the third time in a row. I know.
I'm aware of that we need to see the end of the cycle of the interest rate hiking in order to trigger the willingness of institutions to put capital to work in more high-octane fixed income products. We are ready to get these flows. As you have seen, the performance is constructive enough, and our product range is as attractive as ever, and we have significantly moved closer to the end of this rating hike. Obviously, we have a strong intention to move back to our pattern that we do better than the industry. That's it from our side, with an update on strategy, where we are, details on the numbers and a quick outlook. With that, both Thomas and I are very happy to have your questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on the touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to use only handsets and eventually turn off the volume of the webcast. Webcast viewers may submit their questions or comments in writing via the relative field. Anyone with a question may press star one at this time. The first question comes from Nicholas Herman from Citi. Please go ahead.
Oh, yes, good morning. Thank you for the presentation and for taking my questions. Can you hear me okay?
Yes.
All right. Perfect. Lovely. Four from me, if that's okay. I hope that's not too many. Just hopefully they're also a little bit quick. On net interest income, you talked about NII outperforming your expectations. Just curious what the ongoing run rate for NII is, please. That's the first one. In wealth, I wasn't quite sure I understood you. It sounds as like from the release that you haven't done the 50 hires yet, but the slides look like you have made those hires, or maybe they're not yet joined. Is that so? Which one is just correct? Is the ambition to be 50 higher at the end of the year, or is it, or more than that?
Are these gross hires or net hires? Excuse me. Actually, if you could also give us a sense of, you know, who you're hiring, I guess, regionally, proportion by those teams, AUM per relationship manager vs the current book, that would also be very helpful. In asset... Thirdly, in Asset Management, I'd just like to dig into the flows, and I don't want... I'm sorry if I'm making you repeat yourself for the third time. I guess I hear you, that you performed in line with the industry as a whole. I guess I was under the impression that being an institutional franchise rather than a wholesale franchise is a bit more advantageous right now. It looks like we've seen some investors start to move back towards quality.
I was looking at Aberdeen, for example, they see some good inflows in their EM equity strategy. Just curious why, with your quality bias and your improved performance, you haven't benefited quite as much? Finally, from an M&A alternatives, is there any update on whether you can update the market with your ambition to move into alternatives and Asset Management? Do you see any opportunities in the market, active dialogue, at all? I'd be interested in anything you can say there. Thank you.
Thanks, Nicholas. I will perhaps start with covering the Asset Management piece and then a little bit talking about to what kind of relationship managers or what are our hiring approaches and what is important to us. I would ask Thomas to clarify the numbers around the RMs for everybody and the NII question.
Yeah.
Does that make sense? Good. As I mentioned, within the - CHF 3 million, there is one large single quant-type mandate that has nothing to do with our services or our performance, but actually with a risk allocation decision from the client. There is a significant kind of chunk in that flow. We are probably 50/50 in our business mix from wholesale to institutional. Over the last years, global banks, meaning wholesale, has been a significant driver of growth. We have seen therefore, the business mix exposes us a little bit to the risk appetite that we see in the industry. When it comes to institutional activity, searches, RFPs, finals, yes, we see an uptick in Q2. We have more activity.
We have more pitches. We see more interest. We have also seen a couple of wins that will come through, but we are also one or twice coming second. We are in the race, and we believe that through time, this should be in our favor. So far, we can't prove it to you now with actual realized numbers. On alternatives, we do three things globally as a firm. One thing is we will go live here in Q3. We will work with a partnership to give access to our Private Clients for private market investments.
On becoming a private market producer ourselves, we do two things: We work on building out of the TwentyFour franchise with that very strong track record and credibility in asset-backed securities. We are very close to move into private debt and launch related private debt strategies. We are confident that out of the TwentyFour skill set, we can build that organically. Beyond organically, we have a very open mind and very clear criterias when it comes to M&A, that you know, you know, we want to do things that we can adopt, integrate over time, adopt culturally, make them part of Vontobel. Obviously, in the private market area, we would be very willing to allocate capital if it makes sense, also from a shareholder and profitability perspective.
We have an open mind, but as usually, M&A is hard to predict. On the type of RMs and hires, just to give you, perhaps it's worth sharing two or three facts, you know, behind the 50 hires, and Thomas will become more detailed on the numbers, there are talks and discussions with more or less 500 people. We are very careful in a couple of aspects. First, we want to select people that have a high probability to be successful at Vontobel, meaning that the clients they talk to can be served with our service offering, with our capabilities, with our competencies, that they themselves fit into our culture, that the clients fit into our risk appetite, and they themselves fit into our incentive approaches. This needs a lot of scrutiny, due diligence from both sides.
Just to show you the willingness to commit is around 10% of what happens actually as potential talks in the market. We are very happy with the amount, the quality, and the fit to our franchise, but we also remain very strict and very selective, and with more formal updates on the numbers, happy to hand over to you, Thomas.
Thank you. Let me make the numbers clear again. We have hired, signed contracts for 50 people. 20 of them have started, but they have started mostly, I mean, the largest chunk has started in June. 30 of them will start next year. Why is this important?
Next half year.
Next half year, I'm sorry, next half year. Why is this important? If you look at this CHF 10 million Wealth Management cost that we have shown, this includes all the recruiting costs for all of the 50, and it includes any form of replacement awards for the people that have started already for the 20. We can book this only when the person starts. For the 30, this is still to come. If you look at our numbers in general, and if you want to make a prediction of the relationship managers at year-end, right? Our churn rates are very low. In particular, if you look at the categories, most of the people, when they leave, they leave because they retire.
The second largest reason is that we have people, everybody who joins us, joins us on a business case, right? Making this business case is a crucial thing, and if, of course, unfortunately, if this business case is not hit or if it's not, you know, we're not at 99%, but if it's a clear miss, then we will have to separate, unfortunately, from the person. Only the last part, which is a very small part, is people who actively leave us. Our churn rate, or if you add this all, the amount of people leaving in any year or half year, is significantly, in a full year, is significantly below 10%.
We're optimistic that this number will increase because the 50 is what we did already, and we still have a pipeline of relationship managers that we're going to hire in the second half of the year. I hope this answers this question. On net interest income, I mean, you can do the math. Our run rate is between CHF 13 million and CHF 15 million. I would still expect that we see a little bit of pressure on this, not because in the core deposits, We are seeing, not because of the core deposits, that we see the interest rates rising, but we are more seeing that people, of course, switch from the core deposits, where you take the full margin from whatever you pay, to more term deposits, Term Notes, call money, and other instruments which have a lower margin.
Here we see a flow into that product. They stay on our balance sheet, so from a balance sheet perspective, it is not an issue, but we see slight pressure for the second half on the net interest income margins.
That's very helpful. Thank you. Just one, I mean, I have a few more, but I'll leave the, I'll leave the floor open to others to ask questions first. Just one follow-up on that, though. Wealth Management hires, the relationship manager hires, excuse me. I think your AUM per RM is slightly north of CHF 300 million per relationship manager.
Yeah.
Just would you expect the new joiners to basically effectively have a, bring in the same level or greater, level of assets, on average?
Our business cases that we are doing are going at the average ratio, at the average rate, which is CHF 300 million. The thing is, it takes a little bit of time, first of all, until.
Sure, sure.
All of the money has come in, yeah?
Mm-hmm.
Our business cases are three years. After three years, they are not yet typically at the full CHF 300 million, so the business cases are a bit lower, but a good 80%, 70% should be achieved after three years.
Very helpful. Thank you very much.
The next question comes from Daniel Regli, from Credit Suisse. Please go ahead.
Good morning. Thank you for taking my questions. I have also four, if I may, and some are a little bit follow-ups to Nick's questions already. Obviously, a quick follow-up on the NII. Could you maybe just give us a bit of color on the movements? As you said, some people have moved out of the classic deposits in other products, which are then treated as structured products. Is this revenue you generate on these structured products then still counted as a net interest income, or will this then be kind of fee income or something else? A second question on the net interest income. I think your AT1 bond is callable in H2, given your CET1 ratio being quite high.
Can we assume that you will call this AT1 bond and not replace it by another kind of fixed income instrument? A bit on the trends in net new money. Can you maybe elaborate a bit, you know, the trends Q2 vs Q1? I think with some of your peers, we have seen a kind of acceleration into Q2. We have not seen the same with you. Was this kind of related to this market focus thing? Maybe here, can you talk a bit about, is this already done now, or should we expect some further impact on H2 net new money numbers coming from this market focusing in Wealth Management? Last but not least, quickly on costs.
You alluded to that the SFA integrate or consolidation added CHF 15 million to the cost. Can you maybe give us the number? What was the impact on the revenue side? Secondly, you alluded to that you have to do more, can we expect the CHF 65 million number to grow from here, or do you still have just a lot of things to do to achieve this CHF 65 million, where exactly are you taking out these costs? Sorry, a lot of questions, I apologize for this.
Thomas will have all the answers. Yep.
Wonderful.
The movements, the first thing is, these Term Notes will show up in the net interest income. That has to do with the fact they are net interest income. It's a term deposit that has an ISIN. That's the point behind it. That's why the number has grown to CHF 2.5 billion. We have launched this product basically last year, in summer last year. You can do a little bit the math around the movements that you can see here. On the AT1, the AT1 is a very important instrument for us, and with what happened during the first quarter, we will need to see whether we are going to call or not going to call, right?
We would like to have the AT1. We believe it's a very healthy financing structure that we do have. We will look into calling and rolling. The question, though, is, we do not want to do this at any price. We have not made the decision. The decision will be made in September. If we call, we have to call end of September for end of October. That's all I can say at this point in time. We will look very carefully into the shareholder situation. We very much like the strategic freedom that we get from having an AT1. We believe it is a very attractive financing instrument, in particular, since we have less flexibility on the equity side.
Net new money, first quarter one vs quarter two. That's true, we didn't see an acceleration, but we had already very good numbers in quarter one. What we saw is a very steady development over the course of the half year, which basically gives us a lot of comfort. I said this a couple of times, across all our regions and across all the months, we have a very, very steady development, which shows us that the engine is working well. It's not lumpy inflows, outflows, and stuff like that. It is a really very good, very steady development. What you see is the number. Let's take aside for a second the markets that we have chosen to exit, mean the number is extremely high, and that has started already in quarter one.
... where we have been clearly perceived as a safe haven bank and got a lot of inflows. That has continued now into the second half of this year, into the second quarter of this year. Regarding future outflows, the CHF 1.8 billion, we are currently roughly three quarters done. You can expect another CHF 600 million-ish, CHF 500 million-CHF 700 million, in terms of outflows for the second half of this year from this initiative, because we're executing very strictly and very fast on this one. The last question on SFA, you can assume for the half year, it was that we had a profit on SFA of roughly CHF 5 million per half year. That's the background to this. The last question, sorry, the CHF 65 million and more to go. No, we will stick with the CHF 65 million.
What I was referring to is we are working to make sure that we not only do the CHF 65 million and declare victory on the CHF 65 million, we want to achieve 72% cost-income ratio, and we are working against that target.
Okay, thank you so much. May I add a quick and other question on your RM hiring? Maybe in how far was this RM hiring caused by the special situation on the market at the moment, and probably which created some opportunities for you? In how far this was, like, planned for a longer time period. Can you elaborate on this?
Yes, I can. We have now for a couple of years, invested very consistently into our Wealth Management franchise. Those of you who look on us now for many, many years, you may remember that during the Notenstein La Roche integration, we once had to stop for 18 months, and that cost us then one or two half years in terms of net new money growth. We understand that this has to be a consistent process. We also have, as you've seen from the Wealth Management investment numbers, continued to do so. We already went into the year with a commitment to grow and to bring on new talent.
It is what we are doing now is an acceleration, as we see this as, being a unique market environment. We have already delivered against this, unique opportunity set with the 50 people that have signed with us. It's a combination of both.
Okay.
It's a very clear expectation of us that this is a one-off size change in the franchise, and from that, we will continue to deliver 4%-6% on the bigger book.
Thank you. Very clear.
As a reminder, if you wish to register for a question, please press star followed by one. The next question comes from Mate Nemes, from UBS. Please go ahead.
Yes, good morning, thank you for your presentation. I have in the second half of the year coming mainly from higher fund financing costs. I was just wondering if you could provide us with a downside interest income sensitivity to lower rates in dollar, euro, and Swiss francs The second question is a follow-up on run rate savings. How much of that is done exactly, and what is still to come by the end of the year? Taking the first year cost base and deducting the was it CHF 25 million impact, the one-off impact, that gets me to around CHF 525 million.
Is that a good starting point, going into second half, or could there be other kind of moving parts beyond the cost savings on that? The last question is on cross margins in the Wealth Management business. You clearly saw some benefits from NII, and that's fine, and in a way, that's exogenous. You also mentioned that the retail trading activity or trading sentiment is not really back to where it was prior to 2022. That's also partly beyond your control. However, what you can certainly control is the recurring bits on commission income. I'm just wondering if you could talk a little bit about what else you are doing to perhaps increase that and offset maybe an eventual turnaround in the NII component.
I know you're working on the private equity and then private markets, product and access, but if you could give us a bit more color on what you're doing on the recurring bit on commission income. Thank you.
Yeah. Yeah. Shall I quickly kick off with point four? The recurring bit, I mean, we are actually doing probably three things very systematically. One, you already mentioned. We will bring private market offering to our Wealth Management clients in a more systematic way. We think that this long term, a very important initiative, but obviously, this is a slow burner as it takes time. We will also be again very investment-led and disciplined, and go out there with actually a very systematic vintage year after vintage year offering, in order to recommend to clients to build that evolving portfolios that then start to self-finance themself over time. We obviously over time, this will be a significant contribution to the returns our clients can achieve, to deepening the relationship.
The consistency of our relationship with the clients, it will also be helpful for margins. Second thing, we have already a very strong investment-led offering on the liquid side. Actually the use of mandates keeps increasing. We have a very strong offering on the discretionary side. We're also very happy with the performance of our mandates. You may be able to check them, because our mandate strategies are also available as a investment fund wrapper. Feel free to reach out and look at the numbers. We think we do very well in the multi-asset class side, on the mandate side, and we get a lot of positive response from clients. We also have launched years ago, I would say, a very significant ability to do tailored mandates to answer to very specific needs.
Mandate penetration is the second tool. The third is, we will review in the course of the second half and first half next year, pricing discipline also in Wealth Management. We have had now years of very, very significant growth. This is a hygiene exercise that you need to do from time to time. Pricing power will also be one of the tools that we will deploy over the next 12 months.
I will then go with the other questions. Net interest income, we're not giving the sensitivity by currency, but what we said is 1% across all currencies is roughly CHF 60 million-CHF 70 million. If interest rates go down by 1%, the impact is CHF 60 million-CHF 70 million, negative or positive. What you can do is you know, I've said a couple of times, you know, we are clearly, most of our, most of our deposits are in Swiss francs. Most of the net interest income comes from Swiss francs, very closely followed by U.S. dollar, and then a far distance to the euro. That should help a bit determine what the numbers are.
On the cost management, the number is as follows, I think there is also a question from Anne-Chantal Picaud, Chantal, going in the same direction. What have we done? We have said the CHF 65 million is the exit run rate, the CHF 65 million you will not see in the P&L. However, the CHF 15 million that we said for the costs to achieve, that you will see in the P&L. They are normally front-loaded, because when we do a restructuring, we take the hit immediately, and the benefits then come as, for example, people roll off from the firm.
The status is we're slightly below in terms of run rate, slightly below the 65/ 2, we're at around CHF 30 million, slightly above CHF 30 million run rate that we have achieved, and we have spent CHF 9 million so far to achieve this. That's why we're saying we will deliver these cost savings, and we're on a good track. We're not behind plan, but, you know, in order to get this started, also something that I said at the Investor Day, it takes a bit of time until you get all the things started, and we're very positive that these cost reductions are now coming through for the second half of the year.
Perfect. Good. Thank you.
We have a follow-up question from Daniel Regli from Credit Suisse. Please, go ahead.
Hello, thank you for taking my quick follow-up. One, again, on the Wealth Management margin, and just quickly, can you maybe talk a bit about what was the margin on these exited markets? Respectively, should we expect a margin impact coming from the exit of these markets for Wealth Management? Secondly, sorry again, also follow up on the relationship manager hiring. Can you give us some kind of guidance on what you expect to hire in a normal year in terms of relationship managers? Thank you.
On the waste management margin, that will not change. The effects that we will see from interest rates, from client activity going up or down, will be significantly above what you will see from clients exiting. Put in another, put in another way, we do not have huge changes of the margin over the course of this half year. It has remained relatively stable as clients went out, even if you look at it on a monthly basis. That is one, that is question one. On the RM hiring, we cannot give you significant guidance. Normally, it would be, as I said, be, you know, you saw the numbers in the past, between 2000, 2001, 2000...
Sorry, 2020, 2021, 2022 , where it stayed almost stable. That basically meant, of course, we've hired a lot of clients, of relationship managers, but also a lot of relationship managers left, and that was in balance. This number is, as I said, significantly below 10%.
Mm-hmm.
Our churn is the churn, in particular, people that leaving us and we don't want them to leave, is very low in Wealth Management. You can do a bit of math here and find out what the normal hiring would be. The 50 in half a year is significantly above what we normally do.
obviously, all these.
Clear.
numbers have also been, you know, are obviously relative to the size. We have now, over the years, significantly grown the Wealth Management franchise, and this will then obviously also on a relative basis with the size.
Okay, thank you so much.
Yeah. Next question.
We have another follow-up question from Nicholas Herman from Citi. Please go ahead.
Yes, hello. Just two more, if I could. On the Wealth Management side, as you said yourselves, it will take time for it takes time for relationship managers to bring money in, so not even at full capacity after three years. If you're hiring, you know, significantly more of our relationship managers in the second half of the year, it will take them, I guess, what, six months at least, to start bringing money in? Effectively what I'm saying is, next year you will have front-loaded a significant amount of cost of, I don't know, more than 1% on your cost-income ratio. You will not be getting in all of the revenue yet. So what is it that's giving you confidence on...
You said in your release, that you were confident in delivering your targets. What is it that's making you confident that you can deliver your targets? To be clear, by the way, I'm not saying this is the wrong thing to do. Strategically, absolutely. Just what I'd like to dig into kind of what's giving you confidence that you'll hit your 2024 cost-income target. Secondly, just coming back on to alternatives. Just from, I guess, from a Lighthouse perspective, How do you see the Asset Management division and alternatives, I guess, both in, you know, terms of mix, size, coverage, proportion between public-private, within private or alternatives, the business mix shift?
I guess, I, you know, I don't want... In the context that, you know, we are talking about a sector that has tremendous growth, but at the same time is also consolidating incredibly rapidly, too, with investors and starts consolidating relationships. You, you are obviously, it again, makes sense to enter into, but you are also kind of I guess, starting from a, from a late, a belated position and running to standstill. Yeah, any color there would be helpful, please. Thank you.
Yes, thank you. First, let's start with the alternative ambition. You know, it obviously hinges a little bit on our ability or on the timing on when we see also inorganic opportunities, because we believe that in order to position us meaningfully, it will probably need lift outs or inorganic options as well. If I look into the models we run and the options we consider, probably over the Lighthouse year at the asset level, we could probably land between 5%-10% being allocated to alternatives. That's now then can be obviously something very different on the revenue and profitability basis, but that would be a case where I would say we have executed sensibly well against the Lighthouse plan of 2030.
Actually, you know, we would enter that market in the same spirit as we behave in public markets, meaning that we would position ourselves as a specialist. We would deliver outstanding, focused capabilities that may then again, be parts of broader private market solutions. We would not go from day one to be the kind of the multi-sector, multi-type solution provider in terms of private markets, but we would build organically from the asset-backed security shop of TwentyFour, a private debt offering. Depending on opportunities, other distinguished capabilities that would feed in the institutional market to various specific client demands.
That's what we actually see also, because the institutional buyers of private markets are going through the same cycle as it has happened on the liquid side. They become ever more specialized, they compartmentalize, they, you know. We would not aim predominantly for the wholesale global banks franchise within our Asset Management division. We would really go after Institutional Clients that have the selection capabilities and the overall strategies to buy into specific slices. You may argue that we are late, but, you know, we think this is a very long-term business, and it's never too late to start this in a proper institutional pedigree approach. You sensed a follow-up question to what I've just said. Is that right, Nicholas?
I was just going to say, just to paraphrase you effectively, you see the business, so 5%-10% of it in alternatives, predominantly private credit, potentially also some kind of value add strategies, depending on availability. Actually, I would probably argue that a value add strategy would probably make sense for you, given your track record, you know, as within active ownership.
Absolutely. For example, one of the things that could come to one mind is obviously infrastructure, where you, as an owner, also deploy adding value strategies. Yes, absolutely right. You know, on the cost-income ratio, we have a set of initiatives and a set of plans, both on this structural review of the cost side. We obviously also have the opportunity that we currently see in the market, wrapped in an overall envelope that we would be willing to deploy. We see this as a structural opportunity, we are long-term, we believe that you are long-term, we do it because we think it's the right thing to do, we will not create a completely senseless J-curve with a hiring spree.
You know, we have enveloped this in a very clear plan, discussed it in detail, with the board, and we will execute against this envelope. That, in combination with a couple of other, measures on the cost side and where we have invested in potential scalability, we aim in the budgeting process to match our targets.
Very clear. Thank you very much.
Gentlemen, so far, there are no more questions from the phone.
Good, let's move on to the ones in writing. As I understand the briefing from our team, we will need to read them out, as not everybody can see them. We start with the top, Wealth Management margin, and a question from Anne- Chantal. Wealth Management margin and strong increase to evolve in H2 and 2024. Thomas, I think you already gave some guidance.
We answered this.
Let's move to the next. Anne-Chantal Picaud, if you feel differently, just call IR and we will be at your disposition. Given the macroeconomic condition, as I mentioned, clients have remained cautious in H1. Did you see any sign of improvement through H1? Which of your boutique strategies best positioned to recover in terms of flows? The first one we answered as well. We saw increased activity in Q2. We would think that we are best positioned with our fixed look return credit strategy. You know, these are all bottom-up yield strategies that have invested in quality, that have invested in bonds, that have now suffered through the yield pickup, but nothing is lost. It's just mark to market.
Now, going forward, as soon as we have stability on the interest rate outlook, actually, the carry that is on sale is amazing. We would expect that this matches the appetite as soon as people are willing to deploy. Similar, for the fixed income strategies we do out of Zürich, where our emerging market debt team has a very strong offering. For example, look into the performances of our blend strategy or our local emerging market bond strategy. Also the corporate, both European as well as global, looks very attractive. Same argument, purely bottom-up, selection driven. The yields are more or less locked in as long as the payments come through, which we believe we have a very strong handle on, because we're very good in selection.
As soon as there is stable outlook, we should see people buying into this carry. I think on the equity side, we need more clarity around where are interest rates, where is recession, where is quality going, and then let's see where the allocation opportunities come. Let's move on to the next. Again, from Anne-Chantal Picaud, on the cost side, you have achieved... Yeah, I think this one you answered as well, Thomas?
Yep, I think the last two I answered.
The last one we answered as well, on the negative outflows. Any additional questions, ladies and gentlemen?
No, so far, there are no further questions, sir.
Good. I think you gave us quite an opportunity to work hard this morning. We thank you for that, and we wish you a successful day. Thank you very much.
Thank you.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.