That’s my question. And then, thirdly, might I quickly ask on the domestic side, certainly for some businesses, you will have a significant market share and I wonder if there’s any maybe regulatory risk that, that market share might be looked at and you’d be forced to bring it down to a level, which is more palatable to the regulators? Thank you.
Sergio Ermotti: Yeah. Because you asked three questions instead of two. I’ll take the last one. On the market share one, as you know, we got regulatory approvals to basically not be subject to any competitive constraints and that was done just to secure and be able to communicate and to be able to place. Although, it was already crystal clear as it is today, that there is no market share topics for the combined unit in Switzerland. I mean, if you go across the Board, cantonal banks are larger on any dimensions of relevant Personal and Commercial Banking business in Switzerland. When you measure in terms of branches, we are combined the third largest player. So now this is very relevant, but because some people may argue well, the cantonal banks are combined versus you being on unit.
Well, the fact, the true of the matter is that we compete in those cantons with the local cantonal banks, it’s extremely relevant to make that difference. Therefore, we will, of course, contribute what the competitive authorities have to say about it and put our views into that. But I don’t really expect that on a fact based discussions, we will be subject to any limitation or meaningful limitations in respect of our activities going forward.
Todd Tuckner: Andrew, let me just unpack your first and second. I think they’re related. So on the first, as we highlighted earlier, we took around $15 billion of fair value marks on financial assets and liabilities, $12.5 billion where we indicated would pull to par, because they relate to accrual accounted positions, another roughly $2.5 billion related to fair value positions where we had marks — further markdown in light of sort of liquidity model risk, other type issues. On the piece that pulls to par, just keep in mind that, $4 billion of that $12.5 billion relates to Non-core and Legacy. So that’s important to know and about $8.5 billion more in our core businesses. On the core business piece, generally speaking, we see three years to four years that we should unwind between 70% and 80%.
There will be a longer tail, especially on some fixed rate loans that will go longer than that. So we’ll see pull to par effects that extend beyond the three-year to four-year timeframe, but most of it will accrete to income over the shorter timeframe, as I mentioned. To the NCL point, though, since we have roughly $4 billion of the pull to par in NCL and roughly $2 billion in the fair value marks. So you have $5 billion to $6 billion of fair value adjustments in NCL. And I think to go to your second question, that’s important to understand, just given that we think that the positions are appropriately marked, and from here, we will continue to consider all of our optionality in terms of running down the portfolio, as Sergio mentioned earlier, in the most capital and cost efficient way.
But we think the positions are being carried at appropriate levels presently.
Andrew Lim: That’s great. That’s really helpful. Thanks.
Operator: The next question is from Adam Terelak from Mediobanca. Please go ahead.
Adam Terelak: Good morning. Thanks for taking the questions. I want you to get under the hood a little bit more in Wealth Management. Firstly, on the CS business acquired, clearly, there were some business exits to worry about from — that you see Non-core in kind of the Wealth Management unit. Can you give us a sense of what the revenue attached to that might look like, but also any detail on AT1 cost savings that’s come through the NII in that division as well? And then, secondly, the competitive environment, I noticed in your GWM business, UBS standalone costs are up on lower revenues. I just want to know kind of what the cost is to retain managers at this point, whether you’re seeing kind of a competitive landscape on the RM side or the adviser side, but also in your deposit side, what sort of campaigns have you been running to re-attract deposits and how easy or difficult has that been in the current rate and deposit environment? Thank you.
Todd Tuckner: Thanks, Adam. On the second one, I would just say, in terms of GWM costs. So there’s a very significant positive operating leverage outside of the U.S. So that’s important to note. This is in the GWM, sorry, in the UBS subgroup GWM, very significant positive operating leverage. We were investing for growth in that business, but that business as well has been — saw a strong NII performance and had strong PBT growth, as I highlighted in my comments earlier. As I also highlighted, it’s more on the GWM overall side, just the fact that we’ve seen a lot of cash sorting and rotation on NII in the Americas and that sort of pulled the Americas revenue down reasonably significantly, say, quarter-on-quarter, year-on-year.
And as a result, we see that negative operating leverage, but we’re continuing to invest in that business across the Board and so some of that as well contributes to the higher costs. On your deposit campaign question, I would say that, like any bank, we are value deposits. We value deposits in the win-back context in Wealth Management. We also do value deposits to fund our business loan growth, et cetera. So there’s nothing I’ve seen that I would call out there in terms of deposit betas that have moved in a direction I would consider to be anything other than what we see across peers. In terms of the acquired, you were asking business exits and the revenue attached. At this point, we have, in terms of what’s being expected to move into Non-core and Legacy that was highlighted on one of the earlier slides.
The revenue attached with that business is less than $100 million on an annualized basis in terms of net revenues in terms of what’s moving across, and that’s, of course, not risk adjusted for — and so that needs to be considered. In terms of AT1 cost savings that hit through the business from what had been, say, anything there has really just been captured in the Credit Suisse Corporate Center as an offset potentially to the inflated costs. So I would expect that, that will normalize now as the businesses come together.
Adam Terelak: So all funding it seems that in the Corporate Center indeed?
Todd Tuckner: Can you repeat? I wasn’t clear, sorry.
Adam Terelak: So any funding noise, AT1 versus liquidity facility was also in the Corporate Center rather than in U.S.?
Todd Tuckner: That was our understanding from Credit Suisse’s practice pre-acquisition. Yes.
Adam Terelak: Okay. Thank you.
Operator: Next question is from Andrew Coombs from Citi. Please go ahead.
Andrew Coombs: Yeah. Good morning. It’s Andrew Coombs from Citi and thanks for taking my questions. Two, if I may. First, I want to come back to a follow-up on the PPA pull to par effect, but in relationship to the restructuring charges. You made the comment that out to the period at the end of 2026, I think, restructuring charges will be largely but not wholly offset by the PPA pull to par effect. And then in your later comments, you talked about $12.5 billion of pull to par effect, of which $4.5 million would be Non-core and that most of that will be recognized in the three-year to four-year timeframe. So can we assume restructuring charges of the magnitude of 12.5% and can you give us a feel for the timing of those relative to the PPA pull to par?
And then the second question is on slide 29, you provide a useful quarterly trajectory going from minus 0.3% in Q2 when you talk about breakeven in Q3. But you also flagged $750 million of savings, $550 million of funding cost savings. There’s a $650 million arguably one-off ECL charge on the non-credit impaired CS portfolio this quarter. So just trying to understand, they’re going from minus 0.3% to zero percent, even with all of those additional benefits Q-on-Q, what’s the offset? I guess there’ll be some seasonality on revenue, a bit of a decline in NII, but any more color there?
Todd Tuckner: So — hi, Andrew. In terms of the — yeah, in terms of — I’ll take the second point first, in terms of the story on the underlying profitability. Yeah, I mean, just to be very clear that, the cost saves that we expect to see by the end of 2023 of $3 billion, which we think you can price into 2024. Some of that has been realized, but as I would — the way I would think about it is there is work that’s ongoing and we expect that the $3 — the greater than $3 billion number is something that we’ll see at the end of the year hitting through. I would continue to reemphasize the funding cost point that was in 2Q that will benefit 3Q and fully in 4Q that helps and then the stabilization of as flows and all that will sort of hit through as we go on an underlying basis.
And as I said, we expect to break even in the third quarter coming out of sort of $3– roughly $300 million plus improvement and then to be positive in 4Q for the reasons that I mentioned. In terms of the restructuring, you asked about, we’ll come back in further details in terms of how much restructuring specifically they’ll be. We’re giving a perspective that we expect the number to be broadly offset by the pull to par effect. But at this point in time, we’re going to need to detail that out through the business planning process and come back, as we have said, in — with our fourth quarter earnings.
