So now it’s our turn to be proactive and we will not spare any efforts to regain back any lost assets. So in terms of the Swiss, as anything — is anything changing? I mean it’s very important to reiterate that nothing changes in the way we run our Swiss businesses until they are fully integrated, right? So from a client standpoint of view, like — and in service and risk and capital allocation, nothing changes. And even after we merged our commitment, as I said in my remarks, is that we will continue to sustain the combined lending book. Of course, there are exceptional risk situations, but our principle is very clear. One and one makes two. We want to keep our market share in Switzerland. Switzerland is strategic, absolutely strategic for the Group and we will not want to lose any of the market share we have today.
Chris Hallam: Great. Thank you very much.
Operator: The next question is from Kian Abouhossein from JPMorgan. Please go ahead.
Kian Abouhossein: Yeah. Good morning, Sergio and Todd. Thanks for taking my question. First question is on risk-weighted assets, you have around $557 billion, $145 billion operational risk-weighted assets. And I’m just wondering how we should think about the exit run rate in 2026 in terms of total risk-weighted attract, as well as in terms of operational risk-weighted assets, if I may? And then second question is related to the Non-core. Could you talk a little bit about the P&L effect of the Non-core ex any four active write-downs or sales, so to say, leading to potential write-downs. I’m just trying to understand the P&L in terms of run rate of the Non-core and Legacy bank, if I may? Thank you.
Todd Tuckner: Hi, Kian. In terms of the op risk RWA, we will come back next quarter after doing a fair bit of additional modeling in terms of the op risk RWA of the combined bank. We’ve started to have initial views on that and initial discussions with our regulators and that informed the $10 billion reduction that I spoke about in my comments. And then in terms of the trajectory and how we think about the $557 billion towards 2026, you’ll have more color on that in terms — after we complete the business planning process and 3YSP and come back early next year as mentioned. In terms of the — you asked about the P&L and the run rate in Non-core. So what I would say on that is, so first off, it’s — the thing that’s most important is to take costs out and to focus very significantly on the cost takeout, because there’s a significant level of overhead and costs that aren’t associated with the wind-down of the portfolio.
So the way to think about it is that, we have emphasized so far today that we have to take costs out and effectively the cost that sit in parts of Credit Suisse that don’t work. And so those costs, whether they be personnel costs or whether they be technology costs or real estate costs, they move into Non-core and Legacy if they don’t support the core businesses and they have to be run down extremely quickly. And so I would say, first and foremost, it’s a cost — the way to think about it is the cost rundown over the integration time line. Then there’s the asset run down and we talked about the trajectory from a natural rundown perspective, and of course, as Sergio mentioned, that will be strategically and actively looking at that. And of course, we — from that perspective, we have taken some PPA adjustments in excess of $5 billion relating to Non-core and Legacy.
I think that’s a useful way to think about to the fact that some of that pull to par and some of that will be fair value positions. And we will manage that book on the most capital-efficient way that we can and dispose of positions as appropriate. And also keeping — and yeah, just considering funding costs and the cost of operations, technology, people, et cetera.
Kian Abouhossein: Okay. Thank you. If I may just very briefly, on the risk-weighted assets, if I have to take a very simplistic view and I just assume, yeah, I know the runoff, I can make some assumption about Basel IV and then up risk, clearly, very difficult to predict. If I want to be conservative, one would assume that, ultimately, the risk-weighted assets conservatively should not grow if at all, would materially decline?
Sergio Ermotti: Kian, it’s — we can’t really comment right now. We are modeling. We are really going through the details of the plan. We need to really also go through the exercise, I’m sure you appreciate, when we put together legal entities, the optimization of all that, it’s a fairly complex operation. So it’s — I wouldn’t go into a territory of projecting risk-weighted assets going forward. Because, one, there are two elements — well, three elements. The starting point is a good starting point. We know that we can make some adjustments in the next three months to four months. Op risk was one of the subject. But then you need to go through, first of all, what are the efficiencies we take out as we run down assets?
Yes. What are the efficiency on optimizing legal entity operations? And then what is the growth? Because remember, we are going to grow as well and we have to attach also that prospect into the equation. I wouldn’t go into too much of a risk-weighted asset projection until you see what we tell you in Q3 and Q4 — for the Q4 results.
Kian Abouhossein: Very helpful. Thank you.
Operator: The next question is from Flora Bocahut from Jefferies. Please go ahead.
Flora Bocahut: Yes. Good morning. Thank you for taking my questions. I’d like to go back actually to some of the elements you have discussed on this call already, especially the NCL. Maybe trying to help us understand how much of the RoCET1improvement towards 2026 is going to be driven by this unit, considering only the natural runoff here, trying to help us assess already at this stage what — how loss making it is today and how loss making it would end up being in 2026, if you only consider the natural runoff? And then the other question I wanted to raise is on the cost saves. Just to make sure I understand correctly. So you basically have already a target of $3 billion cost saves on an annualized run rate at the end of this year, but this is compared to the end of 2022, I think. So how much of the annualized $3 billion do you kind of already have in the Q2 accounts, please? Thank you.
Todd Tuckner: Thanks, Flora. So in terms of take the — just maybe address the second point first. In terms of the cost saves in the — in terms of what we’re projecting by the end of the year at $3 billion in terms of what we see already in the second quarter. We haven’t disclosed that specific number. But I think from just the headcount reductions that I mentioned in my remarks, you could probably consider that there’s somewhere more than, around half has already started to hit through and what we’re already seeing in our underlying results. In terms of the RoCET1 and how to think about NCL as we go through the process. I mean, for sure, NCL is going to be something that weighs down on our RoCET1 naturally, just given the fact that we have significant — at least over the 2024 to 2026 period.
If you just look at the natural profile rundown, which is effectively a basis for how we started thinking about the RoCET1, not the only way we started to model it, but for sure, one of the ways that we were thinking about it. here’s a drag by definition in the sense that by the end of 2026, you could see in the slide, the natural profile has roughly half going away. Now we can model different scenarios as can you, but we’re not going to discuss how we’re thinking about it, and obviously, some of that is still very much unknown. In terms of the cost take out, we would expect to be taking out the lion’s share of the costs in Non-core and Legacy by the time the integration is materially complete. By definition, we would do that. There will be — we expect some residual carry that we’ll have to take on or continue to run down beyond 2026.
So there is some, if you will, negative burn that is associated with NCL in our modeling.
Flora Bocahut: Okay. This is helpful. Thank you.
Operator: The next question is from Stefan Stalmann from Autonomous Research. Please go ahead.
Stefan Stalmann: Yes. Good morning and thank you very much for the presentation. I have two numbers questions, please. So the first one is on capitalized software. You have taken these roughly $1.8 billion of software impairments in the PPA. Can you give us a rough sense of how the — how much of a remaining amount of capitalized software remains in your Group accounts that relates to CS and is there a risk of further impairments given that you want to retain only about 10% of these systems? And the second question relates to your capital requirements. So you showed it still at 10.6% CET1 over risk-weighted assets. If we were to apply the current capital metrics that is outlined in Swiss Banking Law, what would be the capital requirement if there was no FINMA transitional forbearance, please? Thank you very much.
Todd Tuckner:
.: So effectively what we have done is taken two-thirds down and have one-third left on a shorter economic useful life that aligns with how we think about; A, the time it’s going to take just to fully decommission everything; and B, leaving what we think we still get value from at the end. So all that has been sort of factored into the PPA. So I don’t see necessarily further impairments. But because we now have just what’s left about $1 billion that will have a shorter economic useful life that aligns to how we’re thinking about the restructuring.
Sergio Ermotti: Yeah. Stefan on…
