Flora Bocahut : Thank you.
Operator: The next question is from Jeremy Sigee from BNP. Please go ahead.
Jeremy Sigee : Good morning. Thank you. I’d like to ask two questions about non-core, if I could. The first one on the RWA outlook, you had a great start already reducing that balance down quite effectively. The runoff you show in the slide is effectively the natural runoff with no action, but clearly you are taking action. So is it reasonable for us to expect that rather than being down 50%, it could be down 75% or 100% within that sort of three-year time frame? It seems that you’re on a more aggressive trajectory than that passive runoff that you are showing in the slide. And then the second question is also about non-core, about the P&L. So you’re annualizing in this quarter around $1 billion positive revenues and $5 billion of costs.
I just wonder, is that a representative starting point for us to sort of model non-core going forward? And linked to that, how much could that change in 2024? Could we see – will we still see positive revenues in 2024 in non-core? And how much could we expect the costs to reduce in 2024 in non-core?
Sergio Ermotti : I think that – Todd, let me start with taking the one on – we are giving as I mentioned last time, we just give you a flavor for the natural decay in order for you to understand that what would be the leftover in case we do nothing. And as you pointed out, we have been pretty active. Having said that, I don’t think it’s reasonable to assume that we’re going to take down 100% or 75% to 100% per se, because it all depends on at what terms we will do it. The very critical topic here is that we have to do it in a that creates value and not just headlines. So, we can get rid of probably many of those positions, but destroying a lot of value. And this will be in conflict with capital accretion and the ability for us to return capital to shareholders.
So, I think that it’s very clear what is the framework we are using. And I think objecting number one around non-core is not necessarily just to accelerate the wind down of assets, but it’s to take down cost. That’s the much more critical element of freeing up capacity and resources.
Todd Tuckner : And Jeremy, on the P&L question, for sure, on the revenue side I would not annualize the current quarter’s revenues. The revenues are a function of the market through which we would exit these positions. It depends on the nature of the positions we’re talking about. It depends on market conditions will be opportunistic, and everything Sergio just said that actually informs the dynamic about the speed, the timing, the intensity of when we get out of positions is of course what governs in that respect. So, I would put no sort of target or certain extrapolation, certainly no extrapolation to the current quarter’s revenues in NCL as saying, well, that’s a run rate. On the cost side, I would argue that’s different because there you’re looking at on the underlying OpEx. You’re looking at this point, the run rate costs to support the rundown of the business.
So, as that business runs down, you would expect that the costs associated, the underlying OpEx supporting the portfolio will also run down. Now, that may not be linear and I wouldn’t expect it to be linear, but it ought to be in some way, shape or form correlated with the size of the balance sheet as it starts to diminish over time.
Jeremy Sigee : Okay. Thank you.
Operator: The next question is from Andrew Lim from Société Générale. Please go ahead.
Andrew Lim: Hi, morning. Thanks for taking my questions. So, just turning to tax, obviously we saw some nice RWA reduction, but it was negated by the high tax charge. But at the same time, you’re talking about mergers of the divisional structure to enable you to reduce the effective tax rate. I was wondering if you could give us more specificity on when we can expect that to happen and would that be a gradual process for the reduction in the tax, effective tax rate, or would that be actually a step down, change there? And then my second question is, you’ve done a good job on costs. Well done there. The exit run rates for the end of the year, I was wondering if you could update us on that.
Todd Tuckner : Thanks, Andrew. So, on the tax question, in terms of timing, as I mentioned in my remarks, certainly the elevated tax rate is a function of the fact that the expenses that are weighing on our pre-tax at the moment, in particular, the integration-related expenses are being incurred in jurisdictions where we’re not able to offset, even within the jurisdictions, necessarily offset profits and losses in different entities, just given where they fall out. So, there could be expenses or losses in one entity that’s not tax group with an entity that is generating taxable profits, and that’s indeed what’s happening really across the globe, because the Credit Suisse entities, in particular, as you’ll appreciate, under Credit Suisse AG, which is not yet merged with UBS AG, those are separate chains of entities.
So, therefore, anything happening on the CS AG side that you would otherwise ideally shelter with profits of the UBS side isn’t happening until we start the mergers. Now, once we do that, your question was, is it a step or it’s gradual? We’ll see both. I mean, certainly, we’ll see some immediate benefits by bringing together certain entities. Others are going to be harder work and harder planning to unlock some additional tax value and get the rate to a lower level. So, you’ll see, once the mergers take place over the course of ‘24, you’ll see some step down, but you’ll also as I said, gradually see the rate come back in. In terms of the update for year-end, we did say that as of the third quarter, we see the run rate saves in excess of $3 billion and expect to make further progress.
We’re undertaking actions at present. We haven’t quantified that, but you can expect that there will be further progress in the fourth quarter before we exit 2023.
Andrew Lim: That’s great. Thank you.
Operator: The next question is from Amit Goel from Barclays. Please go ahead.
