Although the timing will differ, we still expect total integration-related costs to be broadly offset in our pre-tax P&L by the recognition of PPA-related pull-to-par revenue effects, including the portion now in the NCL marks, as described earlier. Turning to NCL costs on slide 33. We expect around half of the Group’s planned $13 billion in gross saves and a considerable majority of net saves to be achieved as a function of running down NCL’s book, as well as eliminating its broader cost stack related to Credit Suisse’s complex legal entity structure and its historical GSIB status. This includes expenses associated with governing, operating and maintaining Credit Suisse’s many regulated legal entities and branches. As I have highlighted, the mergers of our largest group entities later this year are expected to enable further workforce consolidation and management delayering.
For reference, our target legal entity structure is presented in the appendix. Additionally, with complete exits of larger books of business in NCL, we expect to drive cost saves by reducing staff aligned to the unit and eliminating expensive-to-maintain technology applications and infrastructure. In this respect, we expect the trajectory of cost saves in NCL to accelerate in the second half of this year and to hasten further over the course of the following two years, depending on the timing of larger scale exits of physician books. Ultimately, our objective is to limit the cost drag from NCL to a level substantially below $1 billion as we exit 2026, a drop of over 85% when compared to its 2022 cost base. Since the formation of NCL after the Credit Suisse acquisition, we’ve also taken steps to reduce the risk that any remaining costs are left stranded once we stop reporting NCL as a separate segment expected in 2027.
We completed most of this work ahead of NCL’s formation when we reviewed the way in which Credit Suisse’s corporate center costs were allocated among the divisions. As part of our planning process, we identified an additional $300 million of such costs that we’ll reallocate to the core business divisions where they are more appropriately managed. This change will form part of the plan restatements that I described earlier. For 2024, we expect NCL to incur underlying operating expenses of around $4 billion, generating a pre-tax loss of also around $4 billion in light of the zero-revenue guidance I offered earlier. Moving to our balance sheet on slide 34. Maintaining a balance sheet for all seasons is key to everything we do. It gives us the ability to withstand financial shocks and the flexibility to support our clients in all climates.
It’s especially critical during this complex integration process. As highlighted earlier during the fourth quarter review, we’re maintaining appropriately prudent capital and liquidity levels, while executing the restructuring of Credit Suisse and preparing for new regulatory requirements. This is also the case for our key operating subsidiaries. With these considerations in mind, I’ll now cover how we think about capital, liquidity and funding across the Group as we look out over the planning horizon. First, capital. At the end of 4Q, the Group maintained a going concern capital ratio of 17%, over 200 basis points above the current Swiss requirements, comprised of 14.5% in CET1 capital and 2.5% in additional Tier 1 capital. Between 2026 and 2030, our going concern capital requirement is expected to increase by around 180 basis points to 16.7%, as the effects of the currently larger balance sheet and greater market share from the Credit Suisse acquisition are phased in.
To improve efficiency of our capital stack, we intend to fund this increase by cost-effectively building out the permissible AT1 bucket over time, bringing the going concern capital ratio to around 18%, while broadly maintaining our CET1 capital ratio at around 14%. In this respect, following last year’s successful raises, we expect to issue up to $2 billion in AT1 in 2024. A word on going concern capital at our parent bank, UBS AG, on a pro forma, post-merger basis. The main takeaway here is that we expect a healthy buffer over regulatory requirements on a fully applied basis and even without the substantial regulatory concession historically applied to Credit Suisse AG’s investments and subsidiaries. Any increases in UBS AG’s going concern capital requirements from greater market share and a larger balance sheet will be funded in much the same way I described for the Group and by being disciplined in right-sizing UBS AG and its subsidiaries.
In terms of gone concern capital, I would highlight that for now, UBS AG’s standalone requirement serves as the binding constraint for the Group. As such, we consider the Group’s current substantial TLAC buffers to be appropriate, and accordingly, we intend to replace maturing TLAC at similar tenors. Over time, as we reduce the leverage in our businesses, we expect to see the level of HoldCo start to tick down with some potential to tighten average spreads in the back book. On to liquidity and funding. Beyond our approach to TLAC and AT1, our strategic objective in the context of liquidity and funding is to balance efficiency with resiliency and safety. In this respect, we maintain liquidity levels among the highest in the industry, satisfying the more stringent Swiss liquidity requirements that took effect last month.
At the same time, we’ve begun executing on a funding plan that drives significant funding cost deficiencies over the next three years, principally from reducing the size of our balance sheet. Specifically, we expect to reduce LRD by over $100 billion at constant FX via the wind-down of NCL and from resource optimization across our core business divisions, driving down funding needs. We also aim to narrow the structural funding gap of the Swiss entity inherited from Credit Suisse, increasing the self-sufficiency of the post-merger Swiss banking subsidiary. In this respect, deposits remain a key source of funding. We’ll continue to focus on winning them back with emphasis on stability reflected in tenors, products and counterparty selection.
In addition to applying discipline on deposit pricing, we expect to take actions to optimize our funding mix and drive down costs, including reducing our levels of OpCo by making further use of Swiss-covered bonds and tapping an expanded variety of funding markets. Overall, as a result of lower funding needs, diversified and more stable funding sources, tighter issue and spreads relative to 2023 levels, and disciplined deposit pricing, we believe we can realize funding cost saves of up to $1 billion by 2026 on top of the saves achieved last year. This is reflected in our long-term NII guidance that I described earlier. Let me now walk you through our RWA expectations over the next three years. In NCL, we expect the runoff of its book to drive a decrease in risk-weighted assets of $45 billion by the end of 2026, bringing us to around 5% of the Group’s total RWAs before any further post-integration de-risking.
In our core businesses, we expect Basel III to increase RWA by around $15 billion beginning in 2025, primarily from FRTB, credit risk and CVA changes in the final standard. The core businesses are also expected to absorb around $10 billion of additional RWA, net of $14 billion from converting Credit Suisse’s risk models to the appropriate UBS standard. I would also highlight that we expect the resource optimization work we’re undertaking to result in RWA reduction of around $15 billion in the core businesses. Importantly, this impact can vary depending on the availability of revenue growth opportunities driving accretive returns. All told, over the next three years, Group RWA is expected to drop from its current levels by $35 billion at constant FX, freeing up around $5 billion in CET1 capital.
Turning to tax on slide 37, as mentioned, we expect to operate with a relatively high effective tax rate in 2024, mainly due to losses generated by various Credit Suisse entities, primarily in Switzerland, the U.S. and the U.K., that cannot at present offset profits in their counterpart UBS entities in the same jurisdictions. The legal entity mergers planned for later this year will resolve a considerable level of this inefficiency, driving down our effective tax rate to around 40% by the end of 2024. Further optimization of our legal entity structure, combined with improved profitability and opportunities for tax planning, are expected to drive the effective tax rate to below 30% by the end of 2025, and finally, to our normal levels of around 23% in 2026.
In terms of deferred tax assets, our year end 2023 balance sheet reflects recognition of around $3 billion in net tax loss DTAs, mainly relating to the U.S. Of those, we expect to amortize around $0.5 billion against profits and convert around $2 billion into temporary difference DTAs by the end of 2025, seeking to maintain a balance equal to the eligible cap of 10% of our CET1 capital. The remaining level of recognized net tax loss DTAs of $0.5 billion, absent further planning considerations, is expected to remain relatively stable over the near-term. It is worth highlighting that the more modest level of tax loss DTAs expected over the next couple of years limits the impact of one of the key differentiators between tangible equity and CET1, signaling their convergence.
Finally, let me briefly touch on how we plan to communicate our progress across the integration timeline. As you would expect, demonstrating the headway we’re making in our cost reduction plans is and will remain of paramount importance. We intend to regularly report on developments and to track our performance versus the OpEx and integration cost trajectories I described earlier, even when we switch back to focusing on year-over-year comparisons by 3Q 2024. NCL risk reduction will continue to feature in our quarterly performance reporting and we’ll periodically check in on where we stand in terms of key integration milestones, including the legal entity mergers, systems migration of client accounts and infrastructure decommissioning, as well as improving overall efficiency in the utilization of our financial resources.
With that, I hand back to Sergio for his closing remarks before we move to Q&A.
Sergio Ermotti: Thank you, Todd. To recap, we are pleased with the progress we have made so far. As you can see and you heard, we have detailed plans to achieve our ambitions. We are in full execution mode. While our progress over the next three years will not be measured in a straight line, our strategy is clear. With enhanced scale and capabilities across our leading client franchises and improved resource discipline, we will drive sustainable long-term growth and higher returns. We are confident that by the end of 2026 and beyond, this will allow us to deliver significant value for all of our stakeholders. Particularly, our clients will benefit from even — an even stronger product and service capabilities. Our people will have a better platform to grow their careers, and our shareholders will benefit from higher capital returns.
Last but not least, we will remain a reliable economic partner, employer and taxpayer in the communities where we operate. With that, let’s get started with questions.
A – Sarah Mackey: Thank you, Sergio. I think that our first question is from Kian Abouhossein from JPMorgan. Kian, good morning. We can see you on screen. Please do go ahead with your questions.
