Earnings Call: H2 2019

Feb 12, 2020

Good morning, ladies and gentlemen. Thank you for joining us on behalf of our full year results, media and analysts conference. A very warm welcome in the name of Vontore together with Martin Dieck, our CFO. A welcome to you here in Zurich as well as to all the people who have joined us on the telephone conference. As usually, I will kick off with a few highlights and a few remarks, then Martin will guide us through the details of the numbers and our annual results. And then I will be back with an update on strategy and outlook. And obviously, Martin and I will be more than delighted to take your questions after our presentation. So let me stress 3 important points. First, we delivered sensible, solid, robust organic growth with revenues up by 9% and very strong net new money of more than €11,000,000,000 at an annualized growth rate of 6.9%. All of this is coming while we are not only protecting, but also slightly extending our healthy margins. So proof points and a strong testimony that our quality led growth strategy works and that clients endorse our differentiated service offering. 2nd, we deliver this robust organic growth with efficient and capital light business model delivering return on equity of 14.2% at the year 1 capital ratio of 19.9%. And third, we are on a well on track on our journey to become a pure play buy side investment firm as announced on December 9. I'm happy to report that since January 1, we are fully operational in this adjusted setup and also the fact that in 2019, our asset related businesses delivered 88% of pre tax profit is a strong sign and a strong proof point to the credibility and the viability of this strategic development. Let's go into the numbers. So client assets by year end stood at SEK 226,100,000,000 of which SEK 198 €900,000,000 in assets under management, which both figures are new record highs in our corporate history. Net new money, predominantly stemming from asset management at €11,700,000,000 translating into this growth rate of 6.9%. Operating income up 9% at CHF 1,261,000. Group net profit under IFRS up 14% on an adjusted basis, up 4%. Earnings per share stand at CHF 4.49 and our board proposes to the AGM a dividend of 2.25 which is both in line with our commitment to a robust, reliable and long term dividend policy as well as to a payout ratio of 50%. Return on equity 14.2 percent CET1 at 13.5 percent Tier 1 at 19 0.9%, very solid numbers heavily above regulatory requirements. What is behind this set of numbers? We're really happy and proud about how clients continue to endorse our products and services, translating into revenue growth, delivering net new money of CHF 11,700,000,000 and also delivering strong investment performance and strong investment results across our book of business. Our asset linked businesses are now responsible for 88% of pre tax profit, and they were able to deliver solid strong growth at stable or even slightly rising margin, which proves that there is a price for quality. We have continued to execute this discipline in financial products with an unchanged risk profile, though we're suffering from lower turnover in markets, which but we were able to push our market shares to protect our market shares and to make our digital platforms grow. The integrations both of Notenstein Lauch as well as of the U. S.-based business of Lombard ODA is now fully completed and digested in H2 of 2019. And we are on this journey to become this pure play buy side investment manager that we aspire to be and we have started well into the new year working already in the new setup. That's it from my side with a few highlights and points about the numbers for 2019. I now hand over gladly to Martin, who will be providing more insights. Thank you very much, Tenno. Good morning, ladies and gentlemen. I would like to start my presentation by looking at the development of Advise client assets on Slide 7. For Montalen, as a wealth and asset manager, advised client assets for the basis for the continuous generation of fee income. Consequently, the volume and the composition of those assets are important factors determining our success. As you can see on the left hand side of this slide, over the last 5 years, we were able to grow our advised client assets by 11% annually. In 2019, total Adlife client assets increased by 17% to $226,000,000,000 and assets under management by 16% to $198,900,000,000 both represent a record level. The increase was driven by strong net new money of €11,700,000,000 a 6.9% growth rate and positive performance of SEK 20,500,000,000 including the negative FX effect. Here on Slide 8, you can see an overview of our diversified asset base. In recent years, we have invested systematically across all divisions in the expansion of our business in our home Swiss market and our defined focus markets. These investments are reflected by our well balanced global private and institutional client base. As you can see from the chart on the left hand side, today, 41% of our assets stem from Swiss clients. This is slightly lower than last year as our Asset Management business has grown strongly internationally. The rest of our client assets are broadly diversified across Europe, Emerging Markets and the United States. From a product perspective, we also have a very good level of diversification at Vontobel. Equity investments represent around onethree of advised client assets and multi asset and fixed income each around 1 quarter. Our clients in combined wealth management hold around 20% of their assets in liquidity. At a group level, this represents around 6% of assets. Other includes structured products and the private label business. Our client base is also very well diversified across private clients, institutionals and intermediaries, And we have a good level of diversification across currencies, with the Swiss franc, euro and the U. S. Dollar each representing 20% to 30% of assets under management. Let us take a closer look at the development of operating income on Slide 9. Operating income rose by 9% to €1,260,000,000 In recent years, One Total has successfully transformed itself from a financial institution that focused predominantly on the Swiss market into an established and globally active wealth and asset manager. Compared to 2018, Asset Management generated an additional $46,600,000 and Wealth Management an additional $71,000,000 of operating income in 2019, mainly driven by the increased asset base. Financial Products share of operating income declined in 2019 due to tougher markets with lower volumes and tighter margins. In the Corporate Center, operating income increased slightly due to the special dividends distributed by the 6 Group AG. The continued shift toward Asset and Wealth Management is also shown by the significant contribution from fee and commission income, which accounts for 68 percent of operating income. Commission income grew by 9% to 8 $159,200,000 in 20.19, driven by a 14% increase in advisory and management fees. The environment continues to be influenced by the growing trends toward all included mandates in Wealth Management as well as the impacts of regulatory changes. Trading income grew by 5% to $310,800,000 in 20 19 compared to the previous year. Managing the bank's balance sheet while maintaining a conservative risk profile is especially challenging in an environment of continued extremely low rates. As a result of our active and systematic treasury management, a slight increase in loans to clients and the one off dividends distributed by SIX Group of CHF 6,900,000 net interest income rose by 18% to CHF 84,400,000. Dollars Excluding this one off income, net interest income increased by 8%. Other income increased from 5 $100,000 to $7,500,000 reflecting the sale of debt instruments in financial investments. Looking at the development of pre tax profit on Slide 10, you can see that it reached $276,200,000 in 20.18. In connection with the integration of Nordenstein and Laroche, we incurred one off costs of $20,300,000 dollars Adjusted for these integration costs, pretax profit was $296,500,000 in 20.18. In 2019, we achieved a pretax profit of $306,700,000 adjusted for the integration cost of $11,100,000 related to Nordenstein Laroche and of CHF 700,000 related to the U. S. Private client portfolio of Lombard ODA as well as the positive impact of the special dividend paid by CHF 6 of $6,900,000 our adjusted pretax profit was $311,600,000 dollars On a reported basis, pretax profit was up 11%, and on an adjusted basis, it rose 5%. The cost income ratio on an adjusted basis was 75.1%, slightly higher than in the prior year due to ongoing investments in international markets and innovative platforms. Despite the difficult market environment, we are continuing to invest in all our businesses, while of course pursuing an entrepreneurial approach to cost management. Group net profit shown on Page 11 was $265,100,000 up 14% or 4% on an adjusted basis. 1 offs included the impacts mentioned on the previous slide, plus a one off tax benefit. This reduced the tax charge, excuse me, by 5% to CHF 41,600,000. Dollars This tax relief of $10,300,000 is due to the change in tax law in the Canton of Zurich. This resulted in a lower tax rate of 13.6% compared to 15.9% in the previous year. Excluding all these impacts, the tax rate would have been around 17%. The tax rate we expect going forward is in the range of 17 to 18%. Earnings per share rose by 13% to CHF 4.49. The return on equity reached 14.2% in 2019 and was thus above our 2020 target of 14%. Let us turn to Page 12. The CET1 ratio at the end of December 2019 was 13.5%, 1.2 percentage points above the CET1 ratio at the end of 2018. The total capital ratio was 19.9%, up from 18 0.9%. These numbers are not fully comparable since Vontobel adopted a new IFRS Standard 16 on leases at the start of 2019. Excluding this impact, our CET1 ratio would have been 13.8% and the total capital ratio of 20.4%. Both ratios significantly exceed the minimum requirements defined by FINMA, which are a total capital ratio 12% and a CET1 ratio for Category 3 banks, including Van Tobel of 7.8%. Vontobel will maintain its solid capital position that significantly exceeds regulatory minimum requirements. Asset Management generated strong net new money of $11,000,000,000 in 20 19, corresponding to net new money growth of 10.8%. We are thus well above our 4% to 6% target range for net new money growth and clearly above the market average. This figure has to be viewed in the context of an asset management industry that once again experienced very weak flows in 2019. Inflows at Vontovo were broadly diversified across fixed income, multi asset and the sustainable equities boutique. A proportion of inflows originated from our investment business with Raiffeisen. The good quality of our products and our strong distribution platform were the key drivers of our net new money growth. Assets under management at the end of December 2019 were $121,600,000,000 an increase of 17% compared to the end of 2018, despite reclassification and divestments totaling $5,100,000,000 The increase in assets under management was strongly supported by good performance of 11%. Advice client assets increased by 17 percent to 137,700,000,000 dollars Let us turn to Slide 14. The current gross margin in Asset Management of 45 basis points reflects the broad diversification of our products across equities, fixed income and multi asset and quantitative strategies for institutional and fund clients. The increase in the margin in 2019 is the result of a slight shift to higher margin products and increase in performance fees and the effect of the reclassification of assets into other advice client assets. The latter accounted for 1.4 basis points of the increase. As a result of the systematic execution of our growth strategy, we delivered a 10% increase in operating income in 2019 compared to the previous year. With the ongoing investments, operating expenses also grew at 10%. This resulted in a cost to income ratio of 61.2 percent, which is within our 2020 target range and the pre tax profit $198,300,000 With its substantial profit contribution, Asset Management was once again the main earnings driver at Vontobel. Let us turn to combined Wealth Management on Slide 15. These activities encompass Wealth Management as well as our business with external asset managers. Building on its existing activities, combined Wealth Management acquired €500,000,000 of net new money in 2019. This corresponds to a €800,000,000 growth in net new money rate, clearly below our target for 2020. In addition to generally slow growth in the industry in 2019, we witnessed outflows in our Bartle branch, but they were more than offset by inflows in other locations. We remain convinced that our underlying structural growth path is intact, and we are committed to our 4% to 6% net new money target in 2020. Assets under management in combined wealth management grew to a new record of $75,300,000,000 in 20.19, driven by strong investment performance of 12.8%. Additionally, the acquisition of the U. S.-based private clients portfolio of Lombard ODA added $700,000,000 or 1.1%. Advise client assets reached $76,500,000,000 at the end of 2019, an increase of 14%. The systematic client focus and ongoing enhancement of our advisory process in combined wealth management are not only reflected by the continued growth in advised client assets. The strong process progress in this business is also demonstrated by the stabilization of our gross margin as well as our strong operating efficiency and profitability, as you can see on Slide 16. Despite the risk aversion of many investors reflected by the high level of cash in the portfolio of private clients, the gross margin stabilized at 68 basis points. On the back of record client assets, we succeeded in increasing our operating income by 17%. Operating expense grew at a slightly lower rate of 15% despite investments in our digital platforms, for example, Vault and in Focus markets. This development reflect the cost synergies achieved with the acquisition of Nordenstein Laroche. Consequently, combined wealth management delivered an increase of 21% in pretax profit to €147,400,000 in 2019. This progress is also reflected by the good cost income ratio of 69.5 percent, in line with our ambitious 2020 targets. Slide 17 demonstrates the strong market presence of Vontobel Financial Products and the importance of our digital channels. Vontobel is one of the world's leading providers of structured investment products and leverage products with an overall market share of 12 0.5% in Europe. The largest share we have is in our Swiss home market with 32% measured in terms of the exchange traded volume in the target segments. In Hong Kong, our market share was 1.5% in 2019. The international expansion of our financial product is well advanced. In addition to our existing markets, we started market making in the Danish market segment of the new growth market in Stockholm in January 2019. On our digital platforms, we attracted $9,200,000,000 turnover, up 53% year on year. Now serving 89 banks and more than 550 external asset managers, the platform again attracted a higher volume than the fixed exchange segment for yield enhancement products. Operating income decreased by 7% in 2019, reflecting lower trading volumes in structured products and warrants, margin pressure and lower operating income in brokerage and corporate finance. The cost base did not immediately reflect the development of operating income. It was down 1% and will adjust over time as a result of our entrepreneurial approach to cost management. Consequently, pretax profit fell by 25% year on year to 47,200,000 dollars which you can see on the next page. Lower pretax profit in Financial Products was more than compensated by Asset Management and Combined Wealth Management, which both delivered a substantially enhanced profit. Our operational strength in combined wealth management and the acquisition of Notenstein and Laroche resulted in a strong improvement in pretax profit of 21 percent to $147,400,000 The positioning of asset management as a high conviction manager and the diversification strategy we introduced some time ago are continuing to prove successful. The pretax result in asset management rose 10% to 198,300,000 dollars Combined Wealth Management and Asset Management accounted for 88% of pretax profit, underpinning the credibility of our journey to become a pure play investment manager. This large proportion reflects Photon's successful positioning as a wealth investment manager. Financial products contributed 12% of group pretax profit excluding the Corporate Center. On December 9, we announced our new focused strategy. Zeno will discuss this again in the second part of the presentation, but I would already like to take the opportunity to mention a few numbers related to our divested sell side and transferred businesses as well as the immediate synergies we realized with a new focused strategy. Let me repeat what we said before. Our new focused strategy is not a cost exercise. We are redefining the way we work together in order to better position Vontobel for future growth. What should be expected on the revenue side without brokerage and corporate finance? In 2019, corporate finance generated $6,000,000 in revenues and brokerage generated €20,000,000 These revenues were offset by cost of €5,000,000 in Corporate Finance and €21,000,000 in brokerage, meaning that overall, these businesses were breaking even. Now with the divestment of the sell side business, we will no longer generate part of these revenues. The research team and the corporate finance team will be transferred to Wealth Management, where they will focus on buy side research and advising entrepreneurs and ultrahighnetworth individuals. Already in 2020, we expect these teams to generate roughly €14,000,000 of operating income with costs of €17,000,000 From here on, we expect the businesses to grow. The divestment of the sell side business will lead to around $2,000,000 of one off restructuring costs. However, with our new setup, we realized immediate synergies of $8,000,000 This included streamlining our structured products offering and creating synergies by bundling the services of the 3 divisions as part of our focused strategy. This has by now been implemented. Overall, this results in a positive impact of $3,000,000 That brings me to the end of my remarks. Before handing over to our CEO, Cenon Staup, I would quickly like to give you some key dates from our financial calendar. At the general meeting of shareholders at the end of March, we will give you a short trading update, and in June, we will present the new reporting structure with our 2019 figures. Off year results will be announced at the end of July, as usual. We will also present our new midterm targets at that time. In September, we will invite you to our Investor Day to give you more details on our strategy and targets. And in November, we will issue a short 9 month trading update before presenting the full year results again in February 2021. With that, I thank you for your attention and I hand back to Benno. Thanks. Thank you, Martin. Let's go back to our strategy update and outlook. Every sensible and credible growth strategy has to start with a client's problem that you need to solve and that you need to solve better than your competitors try to do it. So what is the client problem that we at Vontobel try to solve? It is a challenge of investors to protect and build their wealth through time. And we are convinced that the need for professional investment advice and investment solutions has never been bigger and will continue to grow over the next years. Why? First of all, the simple way of protecting and building wealth, which was called saving is dead as negative interest rates do not compound. As the tide of very loose monetary policies have lifted all the boats, expected returns of off the shelf passive products are very low. So the expected return of passive only does not satisfy the needs of investors. Nevertheless, the general public is still holding too much cash. According to public research, people across Europe with bankable assets of up to €1,000,000 still hold 80% of that in cash. And thirdly, as the group of 30 has very impressively reported by the end of last year, in its G30 country, there is a gap of $15,800,000,000,000 in pension fund assets in order to fulfill the existing promises. So the need for investment advice, for investment solutions is strong. At the same time, the way how clients are looking for advice, selecting partners, interacting with their providers and deciding on their journey is developing and is heavily changing. We were used to control physical journeys that we controlled. Now our clients control the digital journeys through which they interact with us. That's why we believe that we have to combine our strong investment pedigree with a technology skill set that allows us to produce this client centricity and the relevance of each and every client interaction. In order to answer to this challenge, we have adopted our way of working and how we set ourselves up. So we have combined all client them asset management needs, wealth management needs, or we partner with other intermediaries through platforms and services, or we reach out directly in a digital way through our to our end clients. These client units are then supported by centers of excellence. The most important ones, obviously Investments and Technology and Services. Within Investments, we now combine on a global basis 300 investors located in New York, London, Zurich, Hong Kong and Singapore that look after the $200,000,000,000 in assets under management their clients have entrusted to us. And Technology and Services provide the processes, the platforms, the technology, the data analytics in order to help and support the client units in delivering the best of what we have to offer to our clients. A key success factor of this journey is obviously the quality of our investment capabilities. So let's have a look. This chart shows very clearly that we have the privilege to have across asset classes from equity to fixed income to multi asset class, very strong relative outperformance and very strong relative positioning against the industry. We're also very proud about the fact that we have very long tenures with our teams, very long term stability as 5 of these funds even have track records going back to almost 30 years. We're also happy to report that also our wealth management investment offering is clearly claiming a 1st quartile position and that we have a lot of very successfully managed themes and investment opportunities offered to our wealth management clients. That quality of investment results translates into growth. So what you see here is how at the European level all 1500 competing fund distributors have performed in 2017, where everybody had a good year, 2018 where nobody had almost nobody had a good year, and in 2019, the industry was doing so so. We have been able to deliver substantial growth in each and every of this year and in each and every of these environments, Thanks to the quality and the breadth of our product platform. Thanks to our regional presence that we keep expanding both in Europe as well as in other theaters and thanks to increasing focus on global banks and distribution partners. Let me go more in detail in a few of our key capabilities that are of relevance to all our client units and to all our client groups. And now as by now everybody is talking ESG, I would like to give you some insights about the position of Fontabel in this very important topic of ESG. We have been starting ESG investing in ESG criterias more than 20 years ago. We are a signatory party to PRI since 2010. We are as a whole company and as a whole firm climate neutral since 2,009. And on a global basis, we have more than 40 investment professionals that live and breathe ESG. That has translated into more than 26 strategies across equity, fixed income and multi asset class that we put at the disposition of our investors that we expect and integrate the ESG criteria. It has made us number 3 in ESG investing in Switzerland, and we're very happy and proud that clients entrusted us €30,000,000,000 in ESG related assets to look after. Other very important trends and topics where we see constant demand and where we have established to be one of the leading providers of know how, of expertise, of products, of solutions is surely emerging markets. We all know that where the growth and the relative growth of global GDP is going. We are convinced that allocations to emerging markets will grow through time. Frontal today is one of the largest active emerging market managers across Europe. We are now running over €30,000,000,000 in emerging market related assets, again across all asset classes and composing equity and fixed income. I've already touched the ESG topic. Another important thing, obviously, fixed income in a world of negative interest rates where long only simply holding government bonds will not generate any recurring yield. Yield and income are obviously one of the most cautious resources on this earth. And therefore, the demand for clients for more sophisticated, more professional, risk based investment approaches into the fixed income world are only demanding. We now have very strong boutiques on the one side, We're very proud about and happy with the development of 24 based out of London and also with the fixed income teams based here in Zurich. And we posted a growth of 26% last year, now running SEK 45,000,000,000 in fixed income. I think it's also a testimony despite the strong growth in fixed income, we concentrate obviously on these most sophisticated, most demanding approaches to fixed income investing as we had this growth in fixed income while at the same time slightly increasing the margin in Asset Management from 42% to 45%. We are very convinced that these topics will continue to drive investor demand and investor need and we are very committed to be one of the key providers in solutions in emerging markets in ESG and in sophisticated fixed income solutions. How do these results compare against our existing 2020 targets? We meet most of them except the cost income ratio. We are aware of that, but we are also in line with our approach that we will continue to not sacrifice mid term growth potential for short term cost or profitability increases. We will continue to manage costs cautiously to manage costs in an entrepreneurial way, but our first priority is the viability of the company and the ability to deliver growth through time. How does this translate now into 2020? First of all, we have a strong base with assets under management and advised client assets that we had by year end. So we have assets under management of 199 and advised client assets of 226, which is an increase of 17%, which is obviously the base for our recurring fee income and for the revenue development going into 2020. We are convinced that the focused strategy we communicated on December 9th with going pure play buy side investment firm and understanding the investment capacity and the technology skills as our 2 main capabilities puts us in a good position to master the future successfully. In 2020, we will continue to drive our regional footprint in the asset management distribution side. We have announced the office in France, which is the 3rd largest, is among the top 3 fund markets in Europe. We will have boots on the ground in Japan in autumn this year and we continue to expand in the U. S. We will further foster our offering to serve global banks across all theaters from the U. S. To EMEA to Asia. Within Wealth Management, we are back as an employer of choice. We are back to higher relationship managers and we also are confident that the bundling of the capacities and of the skills of capital advisory and of bottom up research will help us to address different client segments. Within platforms and services, we think that our technology, our platforms and our products and investment skills put us in a prime position to be the leading partner to other wealth managers in Switzerland, Germany, Hong Kong and Singapore. And we continue to look for ways to serve the end client directly through digital channels in our digital investing endeavors. How has the 1st few weeks of the New Year been? We had a strong start into the New Year. We continue to see strong development of revenues based on asset development, and we continue to see strong continuing net new money inflows. Overall, we remain respectful to the environment in the New Year. We keep seeing the same challenges, more dampened global growth, though we are still expecting the world economy to continue to grow, but there are challenges to that. We have global political uncertainty. We will go through a number of elections in this year and obviously negative interest rates are here to stay. So we are respectful to this environment, but we are convinced that as a very focused quality led firm, we will continue to make a difference in these kind of environments. Thank you very much for your attention and Martin and I will be very happy to have your questions. For those in the room, please wait for the mic as we have quite a few people on the call that have no chance in understanding you otherwise. So we have first questions from the back, if you could quickly introduce yourself to also for the people on the call, please. Star one for questions. This is Daniel Regli from Octavian. Thank you for taking my questions and thank you for the presentation. My first question is regarding your cost income ratio target for 2020. Obviously, this is 3 percentage points below the 75.1 you had on an adjusted basis. If you could give me or give us a break through how you want to get there is to securely increased operating income, of course, excluding the closure of the brokerage impacts? Or is this also including some kind of cost savings? Then question 2 is on the Slide 10, I think it was, or 11, where you show the 2020 impact of your decision to close the brokerage. And there, I was just wondering what exactly is this about EUR 14,000,000 you expect from new businesses or transferred businesses from revenues. It's Page 19 sorry, Page 19. And maybe also again about this minus EUR 8,000,000 you see in focus and synergies. Maybe if you can explain me a little bit further how exactly you achieved this minus €8,000,000 on the cost side? And maybe 3rd, regarding the closure of the brokerage, can you give us an indication about the capital consumption of the business or how much capital is going to be released from this decision? 50%. You're quite substantially above your CET1 capital targets. Why have you decided to only propose a dividend payout of 50%? And then maybe 4th question, could you give us an indication about the outlook or the start into 2020 with regards to financial products in particular? What do you see there? What do you expect in terms of margins and turnover? What how should we look at 2020? Thank you. Good. Thank you for these questions. I hope you have enough time for other questions too, but that's fine. So I'm very happy to try to together with Martin to answer your questions and we are also very respectful to the changes that we implemented in brokerage and corporate finance and are aware that this is affecting people and also affecting part of our history and our DNA. Nevertheless, allow me one sentence before we go heavily into all your details. We are talking about 1% of our total revenues. And we all know that a little bit of volatility in global markets is more affecting the top and the bottom line than transactional revenues contributing 1% to the top line. Having said that, let's go into all the details. So costincome ratio, perhaps if I know we have not met yet that target. I would dare to remind that we only increased it a year ago. So we actually had a 75 target before. And then we expected the scaling opportunities of Notenstein Lars to come through and increase the target. Actually the scaling and the profitability uptake in Wealth Management is fully here. If you do the 3 year number comparison, Wealth Management changed from contributing SEK 80,000,000 pretax to SEK 150,000,000 pretax. So we realize that business case, but due especially also to lower turnover on the Feet side, we are not yet there where we want it to be. So you always have to work on both sides on the equation of the costincome ratio. So I happily admit that we concentrate on working on the revenue side. And as long as we see revenue growth and as long as we are convinced that the investments translate into growth, we will continue to do so. Nevertheless, I think we have also shown over the past that we are entrepreneurial, that we are cautious on cost management and on development of our cost base. And I would expect that our new way of working and our more bundled approach to resource allocation leads to more efficiency. So again, it is not a priority that tops mid term growth to reach the cost income ratio in 2020 through short term measures on the cost side. Then brokerage on Page 19, so it's a number of activities that stays with us and we're very happy that we can keep up that talent and that skill set. And for example, obviously, the former corporate finance teams has always done a number of advisory business that were not related to sell side capital business. So we keep these mandates and these clients and we continue with that business. And we keep also these revenues and businesses where we have implemented the research content in a buy side context. So as you may know, the research content is also implemented through investment certificates and other ways of having access to this source of alpha. And we will continue with that and that's our current best estimate that this will lead more or less to these revenues. And then on the cost side, this is really simply immediate effects from bundling resources, incentives of excellence. And second, also, as we have these ambitious growth targets, we know we have to concentrate on business cases that have the potential to deliver outstanding growth. So we refocus the number of business cases, very small ones where we would not see the midterm potential. That's already implemented and done and that led to a number of cost savings. Martin, can you comment on the capital consumption from brokerage? Neither corporate finance nor brokerage created any risk weighted assets in the market or in the credit risk side. So, the only thing that changes is really the EUR 12,000,000 decrease in operating income that will lead to 12% of these EUR 12,000,000 less operational risk. So that's an absolutely negligible figure regarding the BIS ratios. Good. Then I'm back with dividend payout. We were expecting this question obviously. Let me stress how we think about our dividend policy. A number of thoughts. We are convinced that the key driver for you as investors is reliability and robustness of our dividend stream. And we are very committed to that reliability and to that robustness. As you have seen from the historical track record, I think with 1 or 2 exceptions, they were never lowering dividends. And we are very committed to protect reached levels of dividends. I would also like to remind that this company has managed to pay a dividend in each and every year since it went public in 1986, including all the years of the global financial crisis. And we all know that if we put all of this into a discounted cash flow model, the fact that you can expect very reliably a sensible dividend in each and every year is the more important value driver than the question if it's short term $0.05 or $0.10 more. 2nd, we also would claim that we it is about the combination of the robustness of the dividend stream and our ability to put retained earnings to work. We do not see ourselves as a business that has no growth potential and that just has the privilege of being cash flow rich and we should give everything back. We can and do deploy capital we think at sensible compounding rates at 14% return on equity. So we think the combination of the growth we deliver through the retained earnings and to liability and to robustness of the dividend stream should make a sensible package to long term investors. And Outlook Financial Products, pretty strong developments in market shares in the 1st weeks and but that was to be expected as January 'nineteen was weak, but in terms of turnover and client driven business significantly beating January 'nineteen. Okay, then we move on to the next question to the front row. I also have a question regarding the restructuring. I would like to know if all the remaining about 20 employees have been transferred to the wealth management. And also, I would like to know if another question, if in the Wealth Management, which regions have been the most difficult and which regions have been easier or better? And also do you expect an improvement this year? Thank you. Yes. So on the first point, yes, all the changes and implementation steps that were related to the divestment of the pure sell side business are done. And for every employee and team member there is clarity about his or her role and how we move forward. 2nd point, perhaps one important thing, all the regions that were not affected by the integration works have delivered net new money growth in 2019. So we know that the underlying ability to generate net new money is here, not in all according to our own ambitions, but these ambitions are also respectfully high. There is no particular picture where I could say this region is more difficult because we have already fairly concentrated book of business, you know our focus markets and we had similar patterns across these, obviously with the exception of Switzerland where we had to digest the integration. So going forward, we are structurally confident. We think that and we should also not forget that in 2018 2017 we delivered sensible growth, so we know how to deliver these kind of results and we are back in implementing these measures in order to bring us robust organic growth. We have a question now from the call. Maybe quickly hand over to Citigroup coming in from the call. The first question from the phone comes from Samat Agrawal from Citigroup. Please go ahead. Hello. This is Samat Agrawal on behalf of Nicholas Herman. I have three questions. The first related to margins in Wealth Management. Given that you are already at 75% mandate penetration, What additional levers do you see to sustain margins at 68 basis points? The second question is related to net new money growth. And so you are targeting 4% to 6% net new money growth in 2020. How do you relate the decline in relationship managers with your net new money target? Some commentary about that would be very helpful. My third question relates to asset management costs. Particularly, if we if revenue environment deteriorates in 2020, how much cost flex is there in Asset Management division? Thank you. Thank you. Could you please reiterate the last sentence of your second question, the net new money growth in relation to relationship manager, I didn't quite get that. Okay. So that was the okay. So the second question, okay, the net new money growth question. So your relationship manage the number of relationship managers declined in 2H and it further declined from it also declined in the first half. I was expecting if you can give some color on how you would be able to deliver 4% to 6% net new money growth if we compare with decline in relationship managers? Yes. Okay. Thank you. Martin, could you then take the 3rd question on cost as we are I think we provide details of how much of the labor costs are flexible. So mandate penetration in Wealth Management, yes, that is already very high and we are actually proud about that. So what we have done is that we have been able to on the one side either discretionary or advisory based mandate so that people actually pay us for our core competencies, which is advising them and running money. We have also done that and I think there are details in the appendix. We have deliberately moved transactional revenues to recurring revenues. So if you could quickly show up Page 35 on the slides, you see what we have deliberately done. So we brought up recurring commission income from €37,000,000 to €42,000,000 which I think has a number of advantages. First, it brings the revenue pattern to a more recurring, stable level. It also aligns wealth management revenues even more heavily with asset management revenues. It's also an easier and easier to understand alignment of interest between clients and managers. And we happily accepted that the commission income was going down from 14 to 11 as we have shifted the pricing pattern to recurring fee levels. So one answer to that is that the pricing policy and the product policy we adopted is actually protective to the margin in and by itself as it has related revenues related revenues. We expect that as these levels of margin we think that or how do we look at the development of margins. We all were were advice, management, investment solutions and a sensible penetration with leverage and credit. And we think we have now reached a level that is more or less stable on the outlook as we have moved so much of the revenue pool to advice, to investment management, to products and to a sensible penetration of leverage, both obviously only on the Lombard business level. And therefore, we are confident that we see stable levels going forward. So net new money, yes, the numbers of RMs declined. That was due to the fact that we focused on integrating and digesting the combination of all the businesses and we stopped hiring at historic levels of new relationship managers. We are now back in this hiring process. We're happy with the number of people we can talk to. We are happy with the quality. We are happy with the retentions we can do. We are happy with the people we can hire. That's an important source of net new money, but we insist it should not be the only one. We clearly insist that our brand, our quality of products, our investment pedigree, our service, our client experience should and will be a source of net new money in and by itself. Wealth Management is not where historically brokerage was that the clients and the revenues moved with the people from institution to institution. We have deliberately built a wealth management platform where the RM is important, will remain important, but where the brand, the platform, the investment content is a key contributor as well in terms of attracting clients, in terms of improving share of wallet. So we see net new money growth as a combination. On the one side, yes, the pipeline that comes through net hires of relationship managers, but also as we like to call it true organic growth from a better positioning of our offering in the market. And then on asset management costs, Martin, I think we can give the number at group level. Yes. On Asset Management, we had $201,900,000 of personnel costs and $56,400,000 on general expense. We do not give a detailed drill down of the proportion of variable payments relative to general to personnel expense. It's roughly a third on a group level. Obviously, it's a bit more in the business divisions and it's a bit less in the corporate center. We hope this answers your questions. Otherwise, we are ready on with Investor Relations to go on the phone after this call in more detail as we did not understand you very well. I'm sorry. No, that's fine. Thank you. Thank you very much for the answers. Good. Perfect. Then we are back in the room with Mr. Halley. Thank you very much. Two questions. One for Wealth Management regarding the net new money growth, which was a little bit subdued due to the leaving of the gentlemen in Basel and the Gluor brothers. Could you tell us how much money they in order to come and take with them? How much money you lost due to that four partners left the bank? And secondly, Financial Products, if you compare the latest number with your goals that you reiterate, and you are quite light years away of them away due to the structural problems of the market. Are you still confident to meet them in 2020? Or will there be an adjustment in targets, for example, operating income? You have a gap of €15,000,000 seems to be quite very ambitious to meet that in 2020. Thank you. Yes. So first of all, net new money in Wealth Management, again, important from our point of view to look at the broader picture. So also when we look what we have seen so far in the market, the whole industry seems to see a subdued growth. We have delivered growth in all market areas where we are not digesting the integration. So we have no reason to doubt our underlying ability to deliver growth. The digest of a Notensteyn Laroche took us a little bit longer than we expected. It was also heavily related to the fact and the process of up onboarding all the clients to our product offering to one product platform, to one level of service and product. And then we had, as we all know, a very specific situation in Basel, but we do not give details on an hectic setback. We continue to march on. We have rebuilt the team already in Basel and we are committed to our service offering in that region of Switzerland. I commented on our firm level targets, and we are confident and committed to still compare us to our firm level target and we will try our best to reach that in 20 20. Let's see where then the isolated question of revenues in FP will grow, but at the firm level we commit to our 2020. And we have another question from UBS. Yes, good morning. It's Daniele Brupbacher from UBS. And sorry, again, on net new money, I would be just interested to hear your general views regarding sense and nonsense of net new money targets given that some of your peers decided to skip that. And yes, just how you think about it, how important is it really in terms of not just communication to the outside world, but how you steer the business internally? Sorry, and then probably more of a strategic question. I mean, if Fontoval is about protecting and growing your clients' wealth over time, which makes a lot of sense, Do you feel that your product shelf is there? Or do you see any gaps in terms of products? And in this context, really, I'd be interested to hear your views regarding using the balance sheet. I mean, your loan to deposit ratio is low. It's very low, 50% or so. And I see a lot of banks who can't resist the temptation to use the balance sheet more aggressively to use to generate revenues, and that's in Switzerland, obviously, certainly in Europe and around the world. Do you have this debate with the board internally, with your risk people, with Martin? How aggressively do you want to use the balance sheet to generate potentially additional revenues and offer products you currently probably don't offer? Just interest to hear your views, Tim. I'm happy to try to answer this question. I can already confirm that Maarten and I do have discussions on many topics. So net new money targets, that's a heated one. I mean, this industry and also actually people like you sitting in this room for the last 10 years have used to boil us all on net new money all over the place. We have, I would say, differentiated opinion on net new money. We always we have internally a very strong link then to net new revenues. So our internal MIS systems and rewards are heavily linked to the quality of net new money in terms of return on assets assets and the consistency with our strategy and our product range and our ambitions, we think this is important. And but once you have that, we also think it would not be we are not contemplating shedding net new money targets. Why not? Because at the end of the day, what is the ultimate proof point of the success of the firm in the marketplace? And I always come back to the same question. We have to solve the problems of the clients better than our competitors do. So through time, we should win more clients than we lose. So we have to face this ultimate test that through time, we should win clients. We should not win them through the wrong for the wrong reasons. So the most obviously, we all know the traps in our industry, it starts from KYC, goes over to customization and then to low margins and then continues with aggressive leverage. But if you win them for the right reasons, I think it's a fair test of your viability in the marketplace. So we will continue to use net new money targets, but we will continue also what we have always done to link them in our internal target discussion and our internal assessment also of people heavily with the quality and the rentability of the business they bring. Then protecting and growing assets and how do we feel about the product range, I think we never felt as good as today. Let's start with that because when you look back 5 years or even 10 years, we were much more heavily concentrated or even limited on our product side. We now can truly say that everything that is liquid asset classes, everything that is public markets, I think we can credibly claim that in all major asset classes and in all major buckets, we have strong, reliable, credible investment offerings from equity to fixed income to multi asset costs from developed markets to emerging markets. And we have not only discretionary bottom up, we also have a very strong quant offering. So we feel pretty well. Are there still a few white spots or are there a few emerging white spots? Yes, they are. We think we can address most of them through internal developments and by building the investment teams and the skills through time. So we are confident that we have what we need. Then on the balance sheet, glad that you confirmed that we are still very low in our lending penetration. So we have increased it over the years. We have to say that, and we deliberately wanted to do that. We also brought in a new offering for Swiss residents in mortgages. We will continue to remain conservative or cautious about working with our own balance sheet for many reasons. First, we think we are not predominantly a bank, we are predominantly a wealth and asset manager and an advisor, but the most important point is actually if you start to think from the client, is your own balance sheet actually the best source of financing for the client. Given the fact that bank balance sheets by the environment that we face, negative rates and capital requirements are actually reduced in their long term ability to be the best source of financing. So we believe that we will see a further deconstruction of the value chain in combining demand and supply in financing and we will prefer to work towards a direction where we can sit on the side of the on the same side of the table as our clients and say now what's the best way for you financing is our own balance sheet will always remain implied in this question and probably for most clients solve the significant part of it or a part of it, but most probably not everything. So we would prefer to work towards an open architecture so to say on the financing side as well because we think it's in the interest of our clients. So you should not expect a catch up from Fonthopel in aggressively pushing our own balance sheet. Any further questions? Perfect. Then we all thank you for your time, your attention and your interest in Contoval and we wish you a successful day. 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.