So I think those are two examples where we need to do work to ensure the holistic client coverage is brought to bear in a given situation or we’re looking at up-pricing opportunities in particular cases.
Sergio Ermotti: Yeah. Jeremy, in respect of share buyback in 2025, I think, it’s a little bit early to discuss that, but I would say that, first of all, the integration, the Swiss topic is a 2024 matter. So by mid-2024 or during 2024 latest, we know exactly how we manage the integration of the parent company, the U.S. entities and the Swiss operation. That will — so in 2025, it’s unlikely to play a role in our capital return policies. The 14% is a good assumption, and what we mean by around 14%, means 13.8% to 14.2%, not 14.5%. When we have excess capital well above the 14%, it’s because we are creating the buffer to do share buyback, to offset temporary timing differences between cost to achieve in our integration journey and the savings we realize, and have the necessary buffer to also phase in the reduction of our tax rate.
So in a sense, nothing really changes, but we do indeed expect also the underlying profitability to improve and therefore potentially giving us more flexibility. But this is something that we will focus on in exactly 12 months’ time and we will communicate our plans for 2025.
Jeremy Sigee: That’s great. Thanks very much.
Sarah Mackey: Thank you. And our next caller is Andy Coombs calling from Citigroup. Andy, please do go ahead.
Andy Coombs: Good morning. Thank you for taking my questions. So the first one would just be going back to some of the maths that I think Kian outlined at the start and just trying to understand your decision-making process. So if you look at slide 20, I think, you say, the 9% revenue to RWA post-Basel IV. So you’re essentially suggesting an exit run rate of $46 billion in revenues, 7% cost income, $32 billion of costs and that’s a couple of billion below the full year 2026 consensus revenues and full year 2026 costs. I appreciate we’re comparing exit versus full year there. But with that in mind, could you elaborate on where you’ve identified the additional cost opportunities, given that you were previously at $10 billion, you’re now at $13 billion.
And you’re on the tape as saying, we are sacrificing some topline growth in order to enhance returns. So also where you’ve made the decision to perhaps come out some product areas where there was a revenue opportunity. That’s the first broad question. Second question is on capital return. Again, trying to run the numbers, $510 billion RWAs, 14% quarter one, need to be on that basis, $71.5 billion in quarter one capital, you’re at $78 billion today. So already a lot of excess capital there. Then there’s the retained earnings coming through. So just trying to understand, are there any other moving parts aside from the amortization of the FINMA waiver between tangible equity and quarter one capital over the next three years to four years?
Thank you.
Sergio Ermotti: So I let Todd take the questions and only noting that you may have got the revenues wrong, but you may address this issue.
Todd Tuckner: Okay. Yeah. So, Andy, hi. I will just go on the cost side, because I think I addressed the revenue side anyway in response to Kian. I would — I’d also — it’s also important to point out just quickly on that slide that as we say in there, it’s pre-impact from the Basel III final and model update. So that, also will impact on the return of RWA. In terms of the additional cost opportunities that we found, as you asked. I mean, first, I would say, we’re just confirming what we said last year about greater than $10 billion and saying we had to go do the work to validate all the details. And so, the $13 billion that we’ve come out with, neither Sergio nor I think that that’s going further. It was for us always the neighborhood of where, we thought the plan, the detailed bottom-up plans would get us, and ultimately, when we were communicating greater than $10 billion, that was an informed estimate, of course, because we had done a fair bit of work.
But, of course, all the work that we’ve done over the last three months validating that, that number. So that’s sort of the first thing. It’s just important to emphasize that it’s not as if we’ve gone deeper. But in terms — so on that basis, I would just say that, the $13 billion remains, for us on a gross basis, critical. As I said, half is going to be personnel-related. Half is — the other half will be consistent, comprised of things like mainly tech, but also real estate, also third-party costs. So, again, it’s a validation of what we’ve done, and also, as I highlighted, going through the trajectories, giving you a sense of when we think these will hit through. And just quickly on the — you asked about, sacrificing topline growth.
I think the point that both Sergio and I have made is just, of course, when you do a financial resource optimization work and we’ve done this before, naturally to reduce the balance sheet means at times, well, you’re going to be sacrificing revenues as assets come down, and so it all comes down to the accretion of return on CET1 ultimately and how we think about this in terms of trade-offs. So that’s how I would respond to that. And then I think you were saying any other differences. If I took your point on CET1 and tangible equity, was that the point that you were making? The differences, I think, you were saying, Andy.
Andy Coombs: It’s exactly not, just going to get over the capital build actually.
Todd Tuckner: Yeah. So I was just pointing out in terms of convergence, as I highlighted, historically, one of the big differentiators between CET1, which we think, by the way, is the right model anyway, because that’s the basis for being able to buy back shares and pay dividends. So we think measuring return on CET1 capital is right. But we know there’s always interest in that CET1 versus TE. So what I was just suggesting was that our — as our tax loss DTAs, which were one of the big differentiators, are amortizing down and being converted into temp difference DTAs, which are CET1 accretive, that that becomes much less of a delta, and therefore, signals a move towards convergence.
Sergio Ermotti: Yeah. Maybe let me just add quickly to your comment on driving optimization of the balance sheet and return on risk-weighted assets. You mentioned, if we are planning to exit products, I have to say that, never say never, because in the next two years or three years, you never know how developments work out. But at this stage, everything that we don’t deem as a product that we want to have is part of non-core. So it’s all about repricing the existing core relationships and businesses. It’s not about exiting businesses. I mean, I’m talking about meaningful businesses, of course, right? So I don’t expect. It’s really –and that’s the reason why it’s not an immediate effect, because we have to manage the relationship.
We have to manage the discussion with clients in a way that they understand risk-reward for us, for them. They understand the value of the advice we give to clients, the services and products we give. We also have to make sure that, where applicable, we stop having discounts, and so this is, over time, of course, going to help to close the gap.
Andy Coombs: That’s great. Perhaps I could just follow-up on the opening remark. I think you said my revenue calculation was wrong on slide 20. The $510 billion, I think, is post- Basel IV and in the footnote, you said it’s 9% post-Basel IV finalization model update. So should we be taking 510 times the 9% or 510 times the 10% on the slide, just to be clear?
Todd Tuckner: Well, it would be 510 times the 9%, since that would be the return inclusive of the…
Andy Coombs: Okay.
Todd Tuckner: So that’s apples-and-apples.
Andy Coombs: Brilliant. Thank you.
Todd Tuckner: Sure.
Sarah Mackey: Thanks, Andy. And our next caller is Anke Reingen from RBC. Good morning, Anke. We can see you, so please do go ahead.
Anke Reingen: Yeah. Thank you very much for taking my question. The first one is on the path from the 15% to the 18%. I mean, your previous target was 15% [Technical Difficulty].
Sarah Mackey: Anke, we’re so sorry. We’ve got an internet connection.
Anke Reingen: The question is a Q4 question. Can you maybe…
Sarah Mackey: I’m so sorry, Anke. We’ve had a — there’s an internet connection. Maybe, yes.
Sergio Ermotti: Yeah.
Sarah Mackey: You have to see if that helps with the bandwidth. Sorry, if you wouldn’t mind starting again.
Anke Reingen: Yeah. I’m sorry. Hopefully, that works. If you can talk about the path from the 15% to the 18% in 2028, a return on quarter one capital, given you had 15% to 18% before. So, how conservative is the timing, as well as the 18% compared to your previous range and how much is that self-help versus market? And the second question is a Q4 question, your net fee generating assets were negative in Q4. If you can maybe elaborate a bit on what’s been driving this? Thank you.
Sergio Ermotti: No. Anke, I take this one. I think — and you take the second one, Todd. I guess on the exit rate, we are trying to model what the potential will be and outline that we can definitely converge back into a level of value creation that is in the middle range. Since maybe it’s also appropriate to remember that if we wanted to really reiterate the old story, we would have talked about 15% to 18%, and what we are saying is that we believe the exit rate is 18%. So I believe that the combined story over time will deliver a better, more stable, less volatile return, and those returns will be in the mid of that range from above 15% around 18%. So, I would say that, the nuances of the changes are the one I just mentioned.
