UBS Group AG (NYSE:UBS) Q1 2025 Earnings Call Transcript

UBS Group AG (NYSE:UBS) Q1 2025 Earnings Call Transcript April 30, 2025

UBS Group AG beats earnings expectations. Reported EPS is $0.51, expectations were $0.42.

Operator: Ladies and gentlemen, good morning. Welcome to the UBS First Quarter 2025 Results. The conference must not be recorded for publication or broadcast. [Operator Instructions]. At this time, it’s my pleasure to hand over to Sarah Mackey, UBS Investor Relations. Please go ahead, madam.

Sarah Mackey: Good morning, and welcome, everyone. Before we start, I would like to draw your attention to our cautionary statement slide at the back of today’s results presentation. Please also refer to the risk factors included in our annual report, together with additional disclosures in our SEC filings. On Slide 2, you can see our agenda for today. It’s now my pleasure to hand over to Sergio Ermotti, Group CEO.

Sergio Ermotti: Thank you, Sarah, and good morning, everyone. Our strong results in the first quarter demonstrate once again our ability to deliver for stakeholders in different market conditions. The quarter was characterized by a substantial shift in investor sentiment and growth expectations alongside periods of significant market volatility. This damped the positive seasonal effect that we typically experienced at the start of the year and tempered the bullish outlook the market had coming out of 2024 and into the first few weeks of January. Against this backdrop, these results reflect the power and scale of our diversified global franchise, our unwavering commitments to clients, disciplined cost management and the substantial progress made in integrating Credit Suisse.

All this is underpinned by a balance sheet for all seasons. First quarter net profit reached $1.7 billion, and our underlying return on CET1 capital stood at 11.3%, supported by positive operating leverage in our core businesses. Net new inflows onto our asset gathering platform were robust, including $32 billion in net new assets in Global Wealth Management and $7 billion net new money in asset management. Although we haven’t seen a major strategic shift in asset allocation, the breadth and depth of our advice and global capabilities help clients protect their wealth and navigate the market volatility. We saw significant demand for mandate solutions, structured products, and alternatives including new offerings within our unified global alternatives units where total assets reached nearly $300 billion.

For our clients in Switzerland, we kept delivering on our commitment to be a reliable partner. During the quarter, we granted or renewed CHF 40 billion of loans. In the Investment Bank, we continue to execute on our capital light strategy. Investments we made in our areas of strategic importance allowed us to win further market share. Global markets achieved its best quarter on record. In Global Banking, we outperformed the M&A and ECM despite a challenging market backdrop. I’m also pleased to see that we are building on our already healthy pipeline. As the second quarter kicked off the unveiling of significant changes to tariffs on trading partners by the U.S. administration, increased uncertainty and market volatility, while in some days, trading volumes exceeded their COVID era peak by around 30%.

I’m especially pleased by the way, our colleagues were able to intensify their engagement with institutional and private clients during this period. The investments we have made to reinforce our infrastructure are paying off with our operations proving stable and resilient as we facilitate client activity across asset classes. Looking ahead, the economic path forward is particularly unpredictable, and the range of possible outcomes is wide. The prospect of higher tariffs on global trade presents a material risk to global growth and inflation. While we are encouraged that negotiations are ongoing, a prolonged period of discussions and speculation will come at a cost. Uncertainty is likely to affect sentiment and lead businesses and investors to delay important decisions on strategy, capital allocation, and investments.

In this environment, we expect financial markets to remain sensitive to new developments, both positive and negative, which are likely to lead to further spikes in volatility. In light of this, we are unwavering in serving our clients, executing on our growth strategy and following through on our integration plans. And that, over the course of this — of the first quarter, we finalized our preparations to meet — to migrate more than 1 million clients in Switzerland on to UBS platforms and continued to integrate 95 petabytes of data. We moved a small pilot group of clients at the start of April, and we are on track to complete the first main wave of migrations by the end of the second quarter. We are pleased with our progress in non-core and legacy as we continue to reduce the complexity of our operations through book closures and decommissioning of applications.

Moreover, our active wind down efforts have proven so effective that we have been able to upgrade our credit and market risk-weighted assets ambitions for 2025 and 2026. Our CET1 ratio capital stands in line with our guidance at 14.3%. This combined with a substantial derisking of the acquisition and our highly capital-generative strategy gives us confidence in our ability to deliver on our 2025 capital return objectives. This remain contingent on maintaining a CET1 capital ratio of around 14% and the absence of material immediate changes to the current capital regime. Our capital strength also supports our ability to deploy investments that reinforce our leadership across the globe and position UBS for the future. We are working to further enhance our client offering and capabilities to improve profitability in the Americas.

At the same time, we are building on our status as the #1 wealth manager in APAC by scaling our offering in the fastest growing markets across the region, while reinforcing our leadership position in EMEA and Switzerland. As highlighted in February, technology investments are a key enabler for growth. We are encouraged by our development and adoption of generative AI solutions as we empower our colleagues with tools to improve productivity and deliver tailored solutions to clients. In closing, we are pleased with our strong performance this quarter and continue to operate from a position of strength, but we are not complacent as we are only around two-third of the way to restoring UBS’ pre-acquisition levels of profitability. In that sense, the next phase of the integration is especially important to harvesting the full benefits of the acquisition for our clients and shareholders and delivering on our long-term ambitions.

In the meantime, we are staying focused on what we can control, serving our clients, delivering on our financial targets and continuing to act as an engine of economic growth in the communities we serve. With that, I hand over to Todd.

Todd Tuckner: Thank you, Sergio, and good morning, everyone. Throughout my remarks, I’ll refer to underlying results in U.S. dollars and make year-over-year comparisons unless stated otherwise. During the first quarter of 2025, our core businesses grew their combined pretax profitability by 15% on strong positive operating leverage. Overall, our group profit before tax was $2.6 billion, down 1% year-on-year. Group revenues were broadly flat at $12 billion and up 6% across our core franchises. Operating expenses were also stable at $9.2 billion as we continue to successfully reduce our non-production related costs across the group, offsetting higher financial adviser and variable compensation accruals in the quarter. Our EPS was $0.51, and we delivered an 11.3% return on CET1 capital and a cost/income ratio of 77.4%.

As illustrated on Slide 6, this quarter’s underlying performance demonstrates the strength of our franchise and diversified business model, particularly in challenging and complex markets. By supporting clients in ways that differentiate UBS, while maintaining a sharp focus on cost and resource efficiency, each of global wealth management, asset management and the investment bank achieved double-digit pretax growth, absorbing net interest income headwinds that, in particular, weighed on our Personal and Corporate Banking business. Our non-core and legacy unit delivered a strong first quarter, although short of the exceptional results of last year’s 1Q. On a reported basis, our pretax profit of $2.1 billion included $700 million of revenue adjustments from acquisition-related effects and $1.1 billion of integration expenses.

Our effective tax rate in the quarter was 20%. For 2Q, we expect a tax rate of around zero due to a capital-neutral tax credit from further legal entity streamlining in the U.S. and from other planning measures related to the integration. We continue to expect our full-year 2025 effective tax rate to be around 20% with a second half tax rate of around 30%, influenced by NCL’s reported pretax performance. Turning to our cost update on Slide 7. In the first three months of 2025, we achieved an additional $900 million in gross run rate cost saves bringing the cumulative total, since the end of 2022 to $8.4 billion or around 65% of our total gross cost save ambition. By quarter end, we had nominally decreased our overall cost base by around 10% from our 2022 baseline.

Yet looking through variable compensation and litigation and neutralizing for currency effects, we delivered an even greater net reduction in underlying expenses exceeding 20%. As a result, more than 50% of our cumulative gross cost saves have translated into net saves that benefit our run rate. The overall employee count fell sequentially by 2% to 126,000 and by around 20% from our 2022 baseline. As I’ve highlighted in the past, one of the keys to meeting our target cost/income ratio by the end of 2026 is shutting down legacy Credit Suisse technology applications and infrastructure. To-date, we’ve retired over a third each of these applications, computer servers and data centers that are targeted in our plans for decommission. These actions have generated more than $700 million in technology cost saves with non-core and legacy balance sheet reduction, a key driver of this progress.

We expect that most of the remaining $4.5 billion in gross saves required to achieve our $13 billion target, will come from reductions in technology, staffing and vendor costs. As an example of what’s to come in the technology context is a run rate cost save of $800 million related to Credit Suisse’s legacy applications in the Swiss booking center, which will decommission after the completion of the client account migration in 2026. Turning to Slide 8. As of the end of the first quarter, our balance sheet for all seasons consisted of $1.5 trillion in total assets with around $615 billion in loan balances, $745 billion in deposits and a loan-to-deposit ratio of 80%. The strength of our balance sheet is not just an essential component of our strategy, but a competitive advantage and source of confidence for our clients, especially during times of uncertainty.

A fundamental driver of our balance sheet strength is our credit book. 93% of our lending positions are collateralized with 57% of the total balance consisting of mortgages, where the average LTV is 50%. At the end of March, our lending book reflected credit impaired exposures of 1%, unchanged from the prior quarter. The cost of risk decreased to 7 basis points as we recorded group credit loss expenses of $100 million, reflecting $121 million of net charges on credit impaired positions and $21 million of net releases across our performing portfolio. The net releases were due to our recalibration of the expected credit loss scenarios and rebalancing of the factor weights. On to liquidity and funding. In the quarter, we made strong progress on our 2025 funding plan, already having completed our AT1 issuances intended in 2025 in addition to having issued $3 billion in Holdco debt.

I would highlight that our funding stability is underscored by the balanced currency mix across our assets and diversified sources of long-term funding and deposits. Our average LCR was 181% and remained around this level throughout April’s volatile markets. Turning to capital on Slide 9. Our CET1 capital ratio at the end of March was 14.3%. As a result of our continued progress with the integration, coupled with strong financial performance in the first quarter, it is now our intention to execute on all of our 2025 capital return ambitions announced in February. Consequently, our CET1 capital not only accounts for the $500 million in shares repurchased during the first three months of the year, but it also reflects the accrual of the remaining $2.5 billion share buyback we intend to execute through the rest of 2025, of which $500 million in the second quarter.

Risk-weighted assets fell by $15 billion sequentially, driven by lower asset size and the implementation of the final Basel III standards, which ultimately resulted in a net reduction of $9 billion in RWA. This revised amount reflects further infrastructure and data quality improvements finalized during the quarter as well as the effects of additional mitigation and derisking actions we took across various credit, counterparty and market risk categories. After receiving regulatory approval, the final operational risk-weighted asset level also came in around $2 billion lower than our February estimate. Netted within the overall reduction, FRTB led to an increase of $6 billion, mainly related to the investment bank. At the same time, despite the offsetting effects of mitigating actions, our leverage ratio denominator was $42 billion higher sequentially, resulting in a CET1 leverage ratio of 4.4%.

The uplift in LRD was driven by an increase of $29 billion from derivatives exposures now calculated under the revised Basel III standardized approach for counterparty credit risk. With FX accounting for a $27 billion increase in the quarter, these factors more than offset asset size reductions of $13 billion. A word on parent capital and group equity double leverage. As of the end of March, our parent bank’s stand-alone CET1 capital ratio on a fully applied basis is expected to be 12.9% within our target range. The sequential reduction reflects an accrual for dividends intended to be paid in 2026. Over the next few quarters, the parent bank’s dividend paying capacity is expected to be supported by both dividends and capital repatriations from subsidiaries.

In addition, earlier this month, as expected, UBS AG paid a $6.5 billion ordinary dividend to our holding company, taking into account capital returns to shareholders completed or anticipated during the first half of the year, we expect the group’s equity double leverage ratio to improve to around 110% by the time we publish our group stand-alone accounts at the end of the second quarter. These actions are consistent with our intention to restore the group’s equity double leverage ratio towards preacquisition levels over the next several quarters. Turning to our business divisions and starting with Global Wealth Management on Slide 10. GWM’s pretax profit was $1.5 billion, up 21% year-over-year as revenue growth outpaced expenses by 5 percentage points.

This translated to a year-over-year improvement in GWM’s cost income ratio of over 3 percentage points to 75%. In Asia, with our integration efforts now largely complete, we’re well positioned to deliver our full range of capabilities to our clients. Notably, our APAC franchise drove excellent PBT growth of 36% on 14 points of positive operating draws and a pretax margin of over 40%. In the Americas, where we’re executing on our growth plans, we delivered PBT growth of more than 40% and a pretax margin of 12%. In addition, each of our Switzerland and EMEA regions grew profits by 7% in the quarter. You can find additional regional details, including a breakdown of revenue lines, credit loss expenses, net new deposits and customer deposit balances as well as comparatives across our four wealth regions, in our newly enhanced disclosure in the quarterly report and on Page 22 in the appendix to this presentation.

On to flows. GWM invested assets increased by 1% sequentially with favorable currency effects and positive asset flows offsetting negative market performance. Net new assets in the quarter reached $32 billion, representing a 3% annualized growth rate with growth in all regions, led by the Americas, where strong same-store performance supported NNA of $20 billion. Our flow performance again this quarter reflects the actions I’ve highlighted in the past regarding balance sheet optimization that support higher pretax margins and returns on attributed equity, but at times come at the expense of net new assets. For example, we again successfully managed the roll-off of preferential fixed-term deposits associated with our 2023 win-back campaign. Of the $54 billion in deposits maturing in 1Q, as in prior periods, we converted around 85% into more profitable liquidity and investment solutions, but some less profitable flows left the platform.

You can see the clear improvement we’ve achieved in enhancing profitability from these balance sheet actions in GWM’s revenue over RWA ratio, which has grown 2 points year-over-year and has reattained preacquisition levels. Further evidence of clients seeking our market-leading advice and solutions and helping drive sustainable revenue growth is underscored by our net new fee generating asset performance of $27 billion in the quarter, a 6% annualized growth rate. We saw continued momentum in discretionary mandates, including SMAs in the U.S. and our signature My Way solution delivered through our Swiss and international platforms. My Way mandates have grown to $20 billion, up almost 80% from the prior year quarter. NNFGA growth was especially strong in our APAC franchise at an annualized growth rate of 10% with mandate penetration at its highest level on record.

Looking ahead to the second quarter, while maturing fixed-term deposits are becoming a less material headwind to flows, seasonal U.S. tax-related outflows in the high single-digit billion range, elevated as a result of last year’s strong market performance are expected to weigh on GWM’s 2Q net new assets. I would also highlight that we saw a modest pickup in lending across the wealth business with client releveraging supported by a lower rate environment. Net new loans were $2.2 billion, driven by Lombard lending in APAC. Turning to revenues. GWM’s top line increased by 6%, driven by elevated client engagement, increased solution take-up by clients seeking diversification across geographies and asset classes and higher average asset levels.

Recurring net fee income increased by 8% to $3.3 billion from positive market performance and over $70 billion in net new fee generating assets over the past 12 months. Margins continued to hold up sequentially and are expected to remain around these levels, especially as recently migrated clients and those remaining on the Credit Suisse platform, now have access to the full breadth of our CIO value chain led capabilities and solutions. Transaction-based income increased by 15% to $1.4 billion in a market environment where our franchises enduring advantages set us apart. Without a major shift in asset allocation during the quarter, clients nevertheless actively reposition portfolios, benefiting from our investments in capabilities, solutions and unified teams.

This drove double-digit growth across structured products and cash equities with wealth planning and life insurance up by more than 50%. Alternatives were up 40%, fueled by the joint unified global alternatives initiative with asset management. Regionally, we saw a continuation of transactional growth, spanning the wealth franchise, led by APAC and the Americas, where transactional revenues increased by 28% and 16%, respectively. Net interest income of $1.5 billion was down 4% year-over-year and 7% quarter-over-quarter with the sequential trend reflecting a lower day count and headwinds from declining rates in Swiss Franc and Euro partially offset by ongoing balance sheet optimization efforts. Of the sequential decline, 1 percentage point reflects a change to our client segmentation approach between GWM and P&C that we implemented in February but was not included in our guidance.

This change led to a shift of some affluent clients from GWM to P&C, including loan balances of $8 billion. Despite the modest effect on NII, we ultimately decided to not restate our accounts for this transfer given the immaterial impact to the P&L of both divisions overall. Now to our NII outlook. For the second quarter of 2025, we expect GWM’s net interest income to decrease sequentially by a low single-digit percentage despite day count helping primarily from lower Swiss Franc and Euro rates after the March cuts. We also expect a seasonal decline in client deposits following April tax payments in the U.S. Although there could be upside, should clients maintain a more defensive posture amid ongoing market uncertainty, driving higher sweep and account balances.

For full year 2025, we continue to expect GWM’s net interest income to decrease by a low single-digit percentage compared to 2024. Underlying operating expenses were up by 1% with lower personnel and support costs offset by higher variable compensation tied to revenues. Looking through variable compensation, litigation and currency effects, costs were down 5% year-over-year. Turning to Personal and Corporate Banking on Slide 11, where my comments will refer to Swiss Francs. P&C delivered first quarter pretax profit of $597 million, down 23% as lower interest rates led to an 18% reduction in net interest income. Recurring net fee income increased by 3%, driven by record volumes of investment products in Personal Banking, supported by strong sales momentum, including a 12% annualized growth rate in net new investment flows in the first quarter.

Transaction-based revenues decreased by 2% as strong performance in Personal Banking were more than offset by the effect of lower corporate finance activity amid softer economic conditions. Sequentially, NII decreased by 7% largely reflecting the effects of the SNB’s 50 basis point rate cut announced in December and a lower day count, partly offset by the effect of the client segmentation shift between GWM and P&C that I mentioned earlier, which provided a 1 percentage point quarter-on-quarter uplift to P&C. To mitigate the effects of lower rates, we adjusted deposit pricing on select products and continued optimizing our banking book. Looking to the second quarter, we see a sequential decrease in the low single-digit percentage range for P&C’s NII in Swiss Francs, which translates to a sequential mid-single-digit percentage increase in U.S. dollar terms based on current FX rates.

The outlook is driven by last month’s SNB 25 basis point rate cut despite day count helping and the latest change to the SNB’s threshold factor for remunerating site deposits. For full year 2025, we continue to expect an NII decline of around 10% versus 2024 in Swiss Francs, translating to a more modest reduction on a U.S. dollar basis. Credit loss expense was $48 million, an 8 basis point cost of risk on an average loan portfolio of $245 billion. This included Stage 3 charges of $54 million, again, predominantly from Credit Suisse exposures. Reflecting on developing macroeconomic events, we currently assess that exposures to our more tariff exposed corporate clients within our Swiss credit book are well contained. On this basis, for full-year 2025, we continue to expect P&C’s CLE to be around $350 million.

This said, we’re closely monitoring U.S. trade policy developments and their first and second order impacts on our Swiss loan exposures, thereby intending to update our credit loss expectations and allowances as and when appropriate. P&C’s operating expenses in the quarter were $1.1 billion, down 4%. Moving to Slide 12. Asset Management drove a pretax profit of $208 million, up 15% year-on-year, with disciplined cost management more than compensating for lower revenues. Net management fees declined by 4% as the effect of higher average invested assets was more than offset by margin compression from clients having rotated into lower-margin products over recent periods. This said, we’re gaining traction in delivering differentiated and higher margin products, including in our Credit Investments Group and in UGA, which saw strong net new commitments in the quarter and invested asset growth of 13% compared to a year ago.

Performance fees were $30 million, in line with the prior year and with higher revenues from our credit capabilities. Net new money was positive $7 billion, with strong flows in money market and active fixed income as well as sustained demand for SMAs, which saw inflows of $4.5 billion this quarter. Operating expenses were 10% lower as asset management retools for growth by continuing to make strong progress in streamlining its infrastructure and operating model. On to Slide 13 and the Investment Bank. In the IB, we delivered pretax profit of $696 million, up 72% and a return on attributed equity of 16%, all while absorbing incremental RWA from the implementation of the final Basel III FRTB rules. Revenues increased by 24% to $3 billion driven by global markets, which posted its best quarter on record.

Banking revenues decreased by 4% to $564 million, broadly in line with the fee pool. While the market environment weighed on our banking results across products and regions and despite growing economic uncertainty, our pipeline continues to build. We remain top 10 in announced M&A and saw continued momentum in our mandated deal book. In advisory, top line growth was 17%, while capital markets revenues declined by 13%, mainly due to softer sponsor activity. In the Americas, the mix within the LCM fee pool shifted towards corporates and away from sponsors, where we are more concentrated. In ECM, although the 1% revenue decrease outperformed the fee pool, we remain focused on our pipeline build, which is expected to yield meaningful returns over the medium term.

Regionally, APAC grew its overall banking revenues by over 70% compared to the prior year quarter and delivered its best first quarter on record in M&A. Revenues in markets increased by 32% to $2.5 billion. Against the market backdrop of elevated activity and volatility in equities and FX, where our IB is more concentrated, we capitalized on the enhanced capabilities acquired with Credit Suisse and our multi-year investments in technology. We saw increases across all regions, with the Americas, APAC and Switzerland, each delivering their best quarterly performance on record. Equities revenues reached a new high, driven by equity derivatives with increases across all regions and supported by cash equities and prime brokerage. FRC increased by 27%, primarily driven by FX.

Operating expenses rose by 14% largely reflecting increases in personnel expenses. On Slide 14, non-core and legacy’s pretax loss was $200 million with $284 million in revenues. Funding costs of around $130 million were more than offset by revenues from physician exits, particularly in structured products. This included the expected gain of around $100 million from closing the sale of Credit Suisse’s U.S. mortgage servicing company announced last year, which also eliminates run rate costs of around $100 million per annum. Operating expenses were down 38% year-on-year and 12% sequentially as NCL continues to make excellent progress in driving out costs. For the remainder of the year, we expect NCL to generate an underlying pretax loss, excluding litigation of around $1.7 billion, including revenues of around negative $300 million mainly from funding costs.

Revenues from carry, continued exits and remaining fair value positions are expected to net around zero, and underlying operating expenses should average around $450 million per quarter. While the current environment may slow the pace of exits, it is unlikely to materially affect the financial performance of our NCL portfolio. As examples, hedges in the macro book and the nature of our now much smaller credit book render the valuation of both portfolios less susceptible to market volatility. Now on to Slide 15. Since the second quarter of 2023, non-core legacy has freed up almost $7 billion of capital, reduced its cost base by over 60% and closed 74% of 14,000 books they started with. As of the end of March, risk-weighted assets in NCL were $7 billion lower than in the prior quarter as physician exits across securitized products, credit and macro more than offset the inflationary effects of the final Basel III standards.

Again, this quarter, the skillful expertise of the NCL team has kept us well ahead of our derisking schedule. Given this accelerated progress, we’re upgrading our ambitions and now aim to drive NCL’s credit and market risk RWA below $8 billion by the end of 2025 and to around $4 billion by the end of 2026. While we expect the reduction in balance sheet to continue to contribute to NCL’s cost performance, as I’ve highlighted in the past, further savings from technology, real estate and resolving ongoing litigation matters will take longer to achieve. This underpins our 2026 exit rate cost guidance I offered last quarter. With that, let’s open for questions.

Q&A Session

Operator: We will now begin the question-and-answer session for analysts and investors. [Operator Instructions]. The first question comes from Jeremy Sigee from BNP. Please go ahead.

Jeremy Sigee: Good morning. Thanks very much. Firstly, just a basic one. The fact that you’re accruing the whole of the 2025 share buyback suggest that you intend to do that almost regardless of what the draft rules look like when they’re published in June. Is that a fair interpretation? And then my second question is a bit broader. Could you talk about how your wealth management clients in different regions are reacting in April post the tariffs in the U.S.? Are they doing more with the bank or less with the bank, what are their risk appetite? If you could talk about that, that would be great. Thank you.

Sergio Ermotti: Thank you, Jeremy. No it’s not a fair representation, considering what I say. That’s our language hasn’t changed. We said very clearly that we are accruing based on what we know and we see today based on our strong performance, based on our strong capital position. But of course, all of this is subject to us continuing to develop well in terms of financial targets, the integration. And as we pointed out, any material an immediate change in the regulatory regime. So in respect of the activity in April. I can only say that, of course, we had a — as I mentioned in my remarks, we saw a huge spike in client activity and volatility in the first couple of weeks in the first few days of April, so even achieving a 30% increase compared to the peak of COVID times, which is quite exceptional.

But it’s fair to say that if you look at the last 10 days or so, there is a fatigue coming in. You see it also in financial margin. I think that markets are stabilizing around current levels across many asset classes. And it’s much more of a wait-and-see attitude and so in that sense, it’s a more normalized environment.

Jeremy Sigee: Thank you.

Operator: The next question comes from Giulia Miotto from Morgan Stanley. Please go ahead.

Giulia Miotto: Yes, hi. Good morning. Thank you for taking my question. So the first one, I was surprised to hear that there is re-leveraging in Asia. That’s quite a positive development. And I was wondering if that has carried through also in April? Or was it only a Q1 phenomenon and then got the shutdown by the tariff discussion. And then the second question instead, of course, I have to ask on capital. May is the next catalyst there or at least we will learn something there? And is there any development that you can share with us in terms of what to expect, what will go under government ordinance, what would be put to parliament? Yes, any updated thoughts would be helpful. Thank you.

Sergio Ermotti: We pick up the second one, and Todd will pick up the first question. There are no developments other than the updated timeline for the announcement of the proposal that are now seen are going to now come in during the first week of June. So we don’t know what’s the content of this proposal in terms of, also if there is any split between ordinance or legislative process. So we are in a wait and see, and we will see like everybody in five to six weeks’ time.

Todd Tuckner: Giulia, I’d say it’s helpful to step back and look at the bigger picture here on the lending question. I mean, clearly, for GWM, one of our strategic imperatives is to grow lending, albeit selectively and profitably and as a driver of enhanced relationship revenues for clients. So we’re pleased with the developments that we saw in 1Q. I mean, we can’t speculate on where things are going to move given the current environment for sure. But we’re pleased with the 1Q performance and that still remains a strategic focus for us.

Giulia Miotto: Thank you.

Operator: The next question comes from Kian Abouhossein from JPMorgan. Please go ahead.

Kian Abouhossein: Yes, thanks for taking my questions. I wanted to come back to U.S. Wealth Management. If you could maybe run, you clearly have done some strategic changes around the U.S. Wealth Management business, both on compensation, but also incentives, et cetera. And if I look on a year-end basis versus now, you have reductions in advisers. I just wanted to see where should we think adviser numbers to go to in U.S. wells? And how should we think around the net new flows, but also impact in that respect because you made some statements in the last quarter there could be a deterioration, but also in terms of improvement in pretax margin. So a bit more of a holistic approach around the changes that you’ve done and the impact?

And then secondly, just coming back to the Federal Council report. Can we just take a step back and just give your current views around your positioning against other banks, but also potential offsets that you can think about in order to offset some kind of additional capital requirement even in big picture terms, if you could talk about that.

Todd Tuckner: Hi, Kian. So on the wealth one, let’s zoom out a bit and just reiterate that we’re executing at pace on our plans and our strategy. Clearly, quarter-on-quarter, we could see volatility. But this said, we’re looking at our ambition to achieve, as you know, a structural midterm — mid-teen pretax margin, and we look at that as a two to three year journey. On your — as we zoom in the question on really our platforms and advisers, first, I’d say our platform is stable. There’s been broad support for our strategy, which is intended to better align adviser incentives with the strategic goals of the firm, that’s evidenced by the very strong same-store net new money. We’ve seen perhaps the strongest net new money we’ve seen over many quarters in the first quarter.

In terms of the headcount, I would just say that our recruiting pipeline is robust. There is some attrition that one can expect. And in fact, we’re observing across the industry given the market dynamics of 2024 versus the beginning of ’25 in the outlook that would create some movement across the industry in terms of advisor repositioning, but nothing I would highlight in our own platform.

Sergio Ermotti: Kian, before I answer the question, can you specify what you mean by positioning versus other banks?

Kian Abouhossein: Yes, Sergio, I left it open on purpose just to see leaving the floor open to some extent, see what you can tell us and your thoughts about it, because it is clearly a very open question. It’s a very difficult for us to look soon…

Sergio Ermotti: The call is scheduled to end at 10:00 a.m. — 11:15 a.m. So I’m not — no, sorry, at 10:30 a.m. So I’m not so sure I have so much time to go through that. So — but — so the issue is very clear that when I look at the regulatory framework in Switzerland is one of the most demanding and particularly after we fully implemented Basel III, I think that in terms of relative game, we are comfortable, and so we have a strong and demanding regime that capital and strength is one of our key pillars. Having said that, we all know that there is a point in time in which too much is not necessarily positive. And therefore, that’s an only consideration, I can say, when we speak about relative terms. So because at the end of the day, as we always say, we are not only competing in terms of return on capital, but we are also competing for capital.

And therefore, having an attractive sustainable business that also delivers appropriate returns is a key element on judging and balancing any regulatory regime. That’s what I can say. So in respect of a set of measures, the set of measures can only be decided and analyzed when you know what is the outcome. And so we will need to assess exactly what the proposal is, in terms of impact and timing.

Kian Abouhossein: And so just very quickly, do you expect enough clarity to assess with that report?

Sergio Ermotti: I hope, I don’t expect.

Kian Abouhossein: Okay. Thank you.

Operator: The next question comes from Stefan Stalmann from Autonomous. Please go ahead.

Stefan Stalmann: Yes, good morning. Thank you very much for taking my questions. I have two on capital, please. The first one on the parent bank, the fully loaded CET1 ratio was I think, down by about 60 basis points during the quarter. Was there anything particular to highlight that happened during the quarter? And the second one, a bit more, let’s say, strategic, the risk density given the group has actually come down quite a bit now a bit below 31%. And I think the hope was always in a way that Basel IV would kind of lift this risk density towards 35%, where it doesn’t matter anymore whether leverage or risk weighted assets drives your capital requirements. But now at 31%, it looks like you’re quite deeply constrained by leverage, not risk-weighted assets going forward. Do you expect this to change at all from what you can see? And if not does it have any impact on the way that you run your capital management going forward?

Todd Tuckner: Thanks, Stefan, for those questions. Appreciate you bringing those up. So on — first, on the capital, the parent bank quarter-on-quarter reduction, as I mentioned in my comments, comes from the accrual of a dividend that we expect to pay in ’26 in relation to 2025 overall earnings of the parent bank. So it’s a dividend accrual that effectively drove the capital ratio within our guidance. On the second one, it’s a very good spot on your point about risk density coming in. I would say you’re also right, we’re, I would say, more constrained by leverage than risk weighting. But remember that we set our CET1 capital ratio on a risk-weighted basis as our key target. So in that sense, that becomes for us, binding unless truly leverage becomes binding.

But to answer your question about what you can do about it or what the cause was or is, I would say that you see how we’ve been able to really drive down RWA because of the technical nature of it and the way we’ve been able to manage down work — also work to get approvals on models, on methodology, on data quality, on all the issues, coverage of external ratings, all the things that have helped us drive down. I think the leverage ratio, unfortunately is just more simple, less fertile ground for optimization. And so you saw as I commented that we had the SACCR increase whereas on RWA, we had a more fertile ground to optimize. So I think your observation is correct. But I don’t see at this time given we intend to operate with a CET1 capital ratio of around 14%, which for us is binding even though you’re right, leverage is we have less cushion on the leverage side than we do on the risk-weighted side going — nothing is changing as we move forward.

That’s the way we’re thinking about it.

Operator: The next question comes from Benjamin Goy from Deutsche Bank. Please go ahead.

Benjamin Goy: Two questions, please from my side. The first one on your India partnership. Maybe you can a bit more broader on the onshore offshore dynamics we should expect in emerging markets going forward in a large market like India, you have to do a partnership? And then secondly, markets are now pricing and again negative rates in Switzerland. Just wondering short term, any impacts or below 0, there’s as not much of an incremental negative impact, the longer-term question is the 50% cost-to-income ratio target in the U.S. Swiss business was, I assume or based on policies rate outlook, how do you intend to achieve that more on the cost side? Thank you.

Todd Tuckner: Great, hi, Benjamin. Let me address the second question. So on your observation regarding the market pricing and negative rates, as we indicate in our interest rate sensitivity and as I’ve commented before, we certainly see convexity in the movement of rates either down or up in the sense that whether rates move in negative territory or move up, that would be accretive to our net interest income in our P&C business. So in that sense, to the extent that is priced in and to the extent that actually happens, we see upside in our NII. You asked about the expectation on the cost/income ratio targets that we have by the end of 2026. I would say it’s — we’re — we continue to execute against that expectation. That is our expectation at this stage, not changing that given interest rate expectations at this point in time.

Sergio Ermotti: So on India, I think that we see a secular trend developing for the Indian market domestically and — but also at the same time, we see also an opportunity for India residents booking business outside. And looking at our current setup, we had — and we decided that the best way to pursue the next phase of growth and growth opportunities in India for us was to partner with the only fully independent asset gatherer in India. And so through that — through the combination of us buying a stake but also bringing our current business into 360, we can now leverage for the future. So we see very good prospects across the board in terms of not only sharing our best practice globally, but also learning on the domestic markets, and we’ll take it from there. So I think that we are very optimistic about the long-term potential growth in India.

Benjamin Goy: Thank you.

Operator: The next question comes from Goel Amit from Mediobanca. Please go ahead.

Amit Goel: Hi, thank you. And then maybe just more of a follow-up question, but just the remarks earlier about the equity double leverage and kind of looking to get down to 110% at Q2? And then continue to bring it back to pre-acquisition levels in the quarters after. I’m still kind of curious why — what drives the pace of that? And kind of what’s the cost or what’s the consequence if you were to stay at 110% because let’s say, if the group were to have less leverage at the parent bank level. What would stop the group having a bit more leverage at the group? And what would be the consequence or what is the benefit of bringing that down from 110% to, say, 105% or 100%. And so that’s the question there. And then just on the PCB business.

Again, I appreciate the response on different rates, for example, if they were to go negative, et cetera, the convexity. Just wondering what you’re thinking about volumes there given the exchange rate movement? Any color would be helpful. Thank you.

Todd Tuckner: Thanks, Amit. So on the first your question in terms of the consequence of a higher one or the benefit of a low one. For sure, the way we look at it is a lower one, which is to say, our pre-acquisition levels, the way we’ve historically operated. One is more prudent. It’s in line with our strategy and third, it just offers far more flexibility. So if you operate at a higher level and then you hit any stress, then your — you’ve effectively sold your buffer. And so that’s the reason why it’s prudent to operate the levels that Sergio and I have been highlighting over the last quarter or two since I raised the topic last quarter. In terms of P&C volumes, as we look forward, I would say at this point, the outlook on lending is flattish for now in terms of volumes in ways that if that is a mitigant for sure, the balance sheet optimization that they’ve done that the business has done on the asset side has driven profitability, return on attributed equity, revenue over RWA accretion — appreciation.

So I would say that’s the main focus on the lending side. Deposit outlook is also relatively flattish, maybe some short-term moderate down a bit in a very competitive market and we’re not chasing where we’re seeing competitors buying deposits at much higher rates to protect their loan books. So our deposit outlook is stable, I would say. But again there, we have adjusted deposit pricing on select products to help. But at the end of the day, as I’ve said before, certainly the biggest help would be rates either moving down or up from a sort of a 0 perimeter as that would really be the most accretive from an NII perspective in the P&C business.

Amit Goel: Thank you.

Operator: The next question comes from Andrew Coombs from Citi. Please go ahead.

Andrew Coombs: All right. Good morning. I have two follow-ups, please, one on capital and one on GWM NII. On capital coming your way back to Jeremy’s first question. You’ve taken a change in approach, you’ve fully accrued of the buyback rather than taking the capital impact as and when you execute. Can I just ask what was the rationale for doing this? And is this something you envisage doing going forward as well? Second question on GWM NII. And I think at the full year results, you talked about Q1 being down low to mid-single digits sequentially, you’ve ended up down 7%. And you said that there was 1 percentage point of that was due to the resegmentation. But nonetheless, it look a little bit worse in your original guidance.

So perhaps you could explain why it came in slightly worse than you initially expected? And then more broadly, your full year guidance for GWM NII is unchanged, that was previously predicated on the second half being flattish versus the first half. Are you now assuming a slight recovery in the second half?

Sergio Ermotti: So thank you, Andrew. So on capital, again, I think that — the main driver here is to also manage our ratio in respect of our guidance and by doing the accruals we basically take it closer to our — around 14%. But most importantly, I think that the real factor that has changed is that we move from having an ambition to having an intention to. I mean this is all still subject to the conditions we always said in terms of financial performance and also no material and immediate change in the regulatory framework. But it’s clear that now we have — because of the results and the progress we are making in the integration and everything that we can control, we feel comfortable that this is the way to go. So you can always expect that as soon as we feel that there is a change between ambition and intention also from an accounting and standpoint of view, we will accrue in a prudent manner, which we believe is also more prudent that kind of reserve that’s in order to then execute on capital return plans.

And Andrew, on the second question, yes, the reason I gave some color on the segmentation change is just to explain a bit of the delta. But with that explain you kind of get into the mid-single-digit range, which is where we guided into 1Q sequentially from 4Q. In terms of the outlook going forward, you’re right. I mean I’m reaffirming the full year NII guidance for GWM, I see the loan outlook to be again, dependent on the rate environment, but the loan outlook to be positive also dependent on the macroeconomic environment, but that right now until we see any drastic change loan outlook has been accretive on the NII in terms of the rest of the year for GWM. And also the deposit outlook is helping as well, again, subject to macroeconomic developments, but we also see some of the preferential FTD headwinds tapering.

And so ultimately, this is contributing as well to deposit margins increasing. So for those reasons, I’ve kept the guidance stable for the full year. And as I said, offered the explain to sort of move into the Q1 guidance range.

Andrew Coombs: Great, thank you.

Operator: The next question comes from Chris Hallam from Goldman Sachs. Please go ahead.

Chris Hallam: Yes, good morning everybody. Thank you for taking my questions. You mentioned in the prepared remarks the LCM pool shifted towards corporates and away from sponsors. Any insights you can share on your discussions with the sponsor community more broadly how you expect them to act in the coming quarters based on the operating backdrop we see today? And maybe at what point would you consider reassessing the banking revenue ambition for 2026, I guess, in light of the slower activity levels year-to-date? And then second, I just want to come back on this risk of an immediate and material change to the regulatory regime. So I appreciate the process is maybe less clear than it was. The range of outcomes has probably widened.

But for risk of immediacy also increased, it feels as though if anything, stuff been pushed right a little bit. And obviously, there hopefully would be still some kind of fade in period, we would assume. So just any thoughts on that? Thank you.

Sergio Ermotti: Well, look, I think that generally speaking, it’s on a year-on-year basis, the drop in the sponsor-related activity was more important. But I would say that in general, sponsors are also like everybody on a wait-and-see attitude. A lot of transactions are on hold. They are not necessarily being canceled. Of course, if you look at to some extent, the new levels of funding and spreads and credit markets may put some transaction at in question. But generally speaking, the sense is that people are waiting to see if the situation clarifies in the next couple of months and then they’re going to go into executing on plans for either add-on acquisitions or disposals, IPOs. So I think that the most important issue that we see right now is that the pipeline of potential transaction is still healthy and building up.

So we don’t see a stop on that. So coming to your question, I think that’s when we would change our outlook for over the cycle and ambitions on the top line is going to be when — if we have a material change in the market conditions and in the prospect for the growth of banking businesses in the industry. Our intention to be a relative winner out of it by gaining share of wallet remains unchanged. So if we have to change our revenue assumptions, we’re definitely not going to change our market share ambitions to improve and monetize on the investments we did on the platform in the last 24 months. In respect of the second one, I mean, look, it’s just a — we are not in control of this process. We don’t know what’s coming out. And so we can’t rule out anything in terms of the materiality of the change and the timing.

Therefore, it’s — you have to interpret this language more as a prudent way to highlight that we are — that’s a possibility. That doesn’t necessarily reflect what we expect or don’t expect.

Chris Hallam: Okay, thanks Sergio.

Operator: The next question comes from Piers Brown from HSBC. Please go ahead.

Piers Brown: Yes, good morning. I’ve got two. One on FRC, so up 27% year-on-year. It’s a much stronger print than a lot of your peers. And I’m just wondering, is that business mix related? You’ve mentioned the strength of FX or do you feel that you’re still winning back market share in that business? And then the second question, sorry to come back on capital again, but you did say in the fourth quarter that you have further subsidiary repatriations potentially in the pipeline. I think you mentioned $5 billion from CSI and maybe something more coming out of the IHC. Can you give an update on progress on both of those fronts? Thanks.

Todd Tuckner: Hey Piers, so on the first question, the pickup in FRC year-on-year was driven by FX, where we’re strong concentrated. We had — it was a difficult quarter, I think for those that are more in rates and credit. And where, as you know under concentrated there, so we didn’t have that impact. So we benefited from where we were well indexed in the FRC segment. From — on the capital question in terms of an update, yes, you recall correctly that there remains additional capital to be repatriated out of some of the foreign subs, in particular, the U.K. one and a bit more as well in the U.S. We’re going through the normal process with the regulators to approve the release of the capital, which is to say that we continue to work down the portfolios, largely noncore and legacy portfolios in those entities.

And as we continue to make progress and that capital is indeed excess, including from the supervisory standpoint under their conservative lens, they’ll give us the — still signal the okay, and then we’ll repatriate that over the course of the next several quarters.

Piers Brown: Sounds great, thank you.

Sergio Ermotti: All right. Thank you. So there are no more questions. So thank you for calling in and for your questions and the IR team is at your disposal for any follow-ups. So have a nice day. Thank you.

Operator: Ladies and gentlemen, the webcast and Q&A session for analysts and investors is over. You may disconnect your lines. We will now take a short break and continue with a media Q&A session at 10:45 CEST. Thank you.