Credit Suisse Group AG
Q2 2013 Earnings Call Transcript

Published: 25 Jul 2013

[Operator:]

Good morning. This is the conference operator. Welcome, and thank you for joining the Credit Suisse Group Second Quarter 2013 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Brady Dougan, Chief Executive Officer of Credit Suisse Group. Please go ahead, Mr. Dougan.

[Brady W. Dougan:]

Welcome, everybody. Thanks for joining us for our Second Quarter Earnings Call. I'm joined by David Mathers, our CFO, who will deliver the results portion of today's discussion. Before I begin, please take note of the cautionary statement. Moving to Slide 4. We delivered solid results in the second quarter and for the first half of the year. Our business model is performing well, and we continue to make progress against our costs, capital and balance sheet targets. With an underlying after-tax return on equity of 13% for the first 6 months of the year and 10% for the quarter, we are currently generating one of the highest after-tax returns on equity in our peer group, with a very strong capital base and fully operating under Basel III. Our results demonstrate consistency and resilience even in the face of the more volatile market environment that we saw on the latter part of the quarter. This resilience further validates the effectiveness of our repositioned Basel III-compliant business model. As I mentioned on the First Quarter Call, and I think it's worth highlighting again, Switzerland was an early mover in defining its regulatory framework and rules, which required us to accelerate the transformation of our business. As a result, we were one of the first global banks to reach full Basel III compliance. We are now able to spend the majority of our time and effort focused on advancing our client franchise rather than implementing changes to our business model. By contrast, many industry players continue to face numerous regulatory debates and are only now forced to make hard strategic decisions based on proposals that continue to evolve. Before turning it over to David, I'll briefly review our financial performance and update you on the substantial progress we've made towards strategic targets. On all measures, we are delivering ahead of where we planned to be at this stage. First, on a reported basis, Credit Suisse Group delivered net income of CHF 2.3 billion for the first 6 months of 2013 and CHF 1 billion for the second quarter. On an underlying basis, we reported an after-tax return on equity of 13% for the first half of the year and 10% for the quarter. All while operating other the Basel III framework. Turning to our divisional performance. In Private Banking & Wealth Management, we see solid profitability in the second quarter with pretax income of CHF 1 billion, excluding the U.K. withholding tax charge. Year-over-year, we saw higher revenues in the second quarter driven by improved client activity and a pickup in transaction fees. We also continue to show progress on the transformation of the division, and we are delivering on our previously announced expense initiatives. Excluding the U.K. withholding tax charge, our underlying operating expenses are down both year-over-year and sequentially, primarily driven by lower compensation expenses, resulting in an improved cost-to-income ratio of 69% for the second quarter. Looking at gross margin. Despite a continued low interest rate environment and further growth in the "ultra high net worth" client segment, our gross margin in the Wealth Management Clients business improved to 111 basis points from 109 basis points last quarter. This improvement was primarily driven by higher client activity and fee-based revenues. Wealth Management Clients delivered net new assets of CHF 7.5 billion, with solid inflows driven by strength in emerging markets. Investment Banking also delivered a solid result in the second quarter with reported revenues of CHF 3.4 billion and pretax income of CHF 754 million. We achieved an 18% return on Basel III allocated capital for the first half of the year, which is double the 9% we reported in the first half of 2012, supporting our group through-the-cycle ROE target of above 15%. These improved returns reflect continued market share momentum, a reduced cost base and lower capital usage. Results also reflected a balanced contribution across fixed income, equities and underwriting and advisory. The second quarter environment was characterized by a strong April and May, followed by more challenging conditions in the latter part of the quarter due to market volatility resulting from rising interest rates. The resilient performance of the investment bank in this environment demonstrates our -- the strength of our diversified business model and our significantly improved capital and operating efficiency. Second, we continued to over-deliver on our cost, capital and balance sheet targets. We further executed on our expense initiatives in the second quarter, achieving CHF 2.7 billion of annualized run rate cost savings versus the first half of 2011. Given our progress, we are on track to achieve our previously announced targets of CHF 3.2 billion of expense reductions by year-end 2013 and CHF 4.4 billion by the end of 2015. Next is balance sheet and leverage. Since the third quarter of 2012, we reduced our Swiss total exposure by CHF 147 billion, and we expect to reduce by a further CHF 70 billion by the end of the year. With these reductions, we are on track to achieve our Swiss total exposure target with a projected Swiss phase-in leverage ratio of around 4.5% by the end of the year, which is based on consensus net income and assumes the agreed-upon exchange of tier 1 hybrids into BCNs in October 2013. And finally, capital. We further strengthened our capital base, improving our pro forma look-through Swiss core capital ratio from 9.8% at the end of the first quarter to 10.6% at the end of the second quarter, exceeding our 10% target for the middle of the year. Note that this ratio includes an accrual for a resumed cash dividend for 2013 assumed to be paid in 2014. In summary, we achieved solid second quarter results, which demonstrates the continued performance and resilience of our business model and the significant progress we've made delivering on our cost, capital and balance sheet targets. Further, we achieve these results in spite of the more volatile market environment in June. The transition to higher interest rates led, in the latter part of the second quarter, to increased market volatility and reduced client activity, and this market volatility continued in July, although more recently we've seen signs of stabilization in our major markets. In the longer term, the transition to higher rates will benefit our business, both our global Private Banking & Wealth Management franchise; and our client-focused, capital-efficient investment bank. And with that, I'll turn it over to David, who will review the results in more detail. David?

[David R. Mathers:]

Thank you, Brady. Good morning. I'll start on Slide 6, with an overview of the financial results. In the second quarter, we achieved revenues of CHF 6.9 billion, pretax income of CHF 1.5 billion and net income of CHF 1 billion. Diluted earnings per share were CHF 0.52; the cost-to-income ratio, 77%; and the after-tax return on equity, 10%. Net new asset inflows stood at CHF 7.6 billion for the quarter and improved significantly compared to the CHF 4.4 billion that we achieved in the second quarter of 2012. For the 6-month period, underlying pretax income was CHF 3.6 billion, equivalent to an after-tax return on equity of 13%. Let's turn to Slide 7. The Private Banking & Wealth Management division reported solid profitability in the second quarter, driven by improved revenues and stable operating expenses. Adjusting for the U.K. withholding tax charge that we've previously disclosed, the division achieved a pretax income of just over CHF 1 billion, with a cost-to-income ratio of 69%. Note that in the comparable quarter in 2012, the reported pretax income benefited from gains of CHF 107 billion from business disposals that we completed in that quarter. This pretax income of CHF 1 billion compared to an underlying pretax income of CHF 870 million in the second quarter of last year. And this improved performance is primarily driven by a rise in revenues to CHF 3.4 billion, reflecting improved client activity and consequently, higher transaction and performance-based revenues. So let's turn to Slide 8 to discuss net new assets. We saw strong inflows of CHF 12 billion in the second quarter. But against this, we had outflows of CHF 2.2 billion from Western Europe and CHF 1 billion from certain Asset Management businesses that we've decided to exit. After eliminating CHF 1.2 billion to adjust for double-counting of assets managed by Asset Management on behalf of Wealth Management Clients, we reported net new assets of CHF 7.6 billion. Our asset inflows in Wealth Management Clients were driven by our operations in emerging markets where we saw over 10% annualized growth from across all our major regions. We also saw a continued strong momentum in Switzerland with CHF 3.4 billion of inflows in the quarter. And we continue to grow the "ultra high net worth" client segment which delivered CHF 4.2 billion of inflows in the second quarter. In the Americas, strong inflows in Latin America were offset by outflows in United States, reflecting both seasonal weakness and outflows from a small number of large customers. Within Asset Management, we achieved solid inflows of CHF 2.5 billion, driven by growth in alternative investments. And finally, of note, we saw modest outflows in Corporate & Institutional Clients. And this is primarily related to certain clients rebalancing their asset allocation away from index products and into cash and, therefore, into custody deposits in this division. So let's turn to the next slide. Slide 9 looks at the total expenses at the Private Banking & Wealth Management division and outlines the progress we've made on our efficiency targets. During the second quarter, we continued to deliver on our cost targets, and compared to the second quarter of 2012, we achieved CHF 106 million of run rate savings. This was primarily driven by the continued rationalization of front office and support areas, as well as streamlining our offshore affluent client coverage model. I'd note that our expense savings are partly offset by incremental costs directly linked to the higher level of client activity and transactions, as well as incremental costs associated with a number of recent regulatory initiatives, including FATCA, the costs relating to the U.S. issue and certain other cross-border issues. After taking these into consideration and again excluding the U.K. withholding tax charge, our operating expenses declined by CHF 20 million compared to second quarter of last year. Overall, we remain on track to achieve the additional CHF 750 million of run rate savings by year-end 2015. And looking to the second half of this year, we expect to generate an additional CHF 150 million through the impact of the previously announced divestitures within Asset Management, as well as exits from a few small wealth management businesses; the continued streamlining of the Swiss client coverage model that we announced earlier this year; and not least, our exit from a number of small non-core markets within the Wealth Management Client area. Let's look now at the financial results in more detail, starting with Wealth Management Clients on Slide 10. The business delivered improved profitability compared to the second quarter of 2012, albeit this was offset by the CHF 100 million charge relating to the U.K. withholding tax agreement. Adjusting for this charge, pretax income was CHF 629 million compared to CHF 551 million in the same period last year. And this improvement was driven by higher transaction and fee-based revenues and broadly stable operating expenses. And as a result, the income -- cost-to-income ratio improved to 72.0% Now let's look at the wealth management revenue trends in more detail on Slide 11. If you look at this chart, you can see that our gross margin of 111 basis points in the second quarter was an improvement from a 109 basis points last quarter. And if we look at the 3 factors driving the improvement in gross margin compared to the first quarter, first, we have seen a pickup in transaction-based revenues, both in absolute terms and as a percentage of average assets under management. This reflects improving market conditions and increased client activity. Second, we've also seen a pickup in our absolute recurring revenues, reflecting the increase in average assets under management. And the gross margin on these assets at the recurring level remain stable. Third, our net interest income has stabilized at high level compared to the first quarter. Although, as we warned 3 months ago, net interest income is still lower compared to the same quarter last year. We did achieve some success in offsetting the adverse impact from low interest rates by a number of measures to protect our margin, including increasing loan volumes. If we look forward, at our net interest income, we would expect the second half to be roughly stable with that in the first half, which cumulatively is in line with the guidance we gave for 2013 against 2012. Let's now turn to Corporate & Institutional Clients on Slide 12. We continue to see a strong contribution from Corporate & Institutional Clients in the second quarter. Despite the low interest rate environment, pretax income was stable at CHF 244 million in the quarter compared to the second quarter of 2012. Both revenues and operating expenses were down year-on-year, and the cost-to-income ratio improved modestly to 59 -- 49%. We posted high provisions for credit losses during the second quarter. That was driven by a small number of isolated cases. Overall, however, our provisions remain low and reflects strong risk management and a continued high quality of the loan portfolio in this business. Let's turn now to Asset Management on Slide 13. The business posted underlying revenues of CHF 556 million, up 11% from the second quarter of last year. And this increase is primarily driven by higher carried interest on private equity realizations, as well as higher asset management fees. Now please note that, on a reported basis, revenues in the second quarter of last year, 2012, included gains of CHF 66 million from the sale of part of our stake in Aberdeen Asset Management. As a result of stronger underlying revenues in the second quarter, Asset Management's pretax income increased to CHF 143 million, up 93% from the second quarter of last year. The business reported net new assets of CHF 1.5 billion in the second quarter, and that included CHF 2.7 billion of inflows from areas in our alternatives business, offset by CHF 1 billion of outflows from businesses that we've decided to exit. So let's turn to Slide 14. I'd like to take a brief moment just to provide an overview of the transformation of our Private Banking & Wealth Management division. Our initiatives are divided into 3 groups

[Brady W. Dougan:]

Yes, with that, basically, we will be ready to open up to questions now. So operator, do you want to open up the lines?

[Operator:]

[Operator Instructions] Your first question comes from the line of Matt Spick of Deutsche Bank.

[Matt Spick:]

I just had a couple of questions on the investment bank. The first was on the fixed income result, which was maybe a little light versus some peers. And you did comment that your rates revenues stayed low and I guess, some peers maybe took advantage of the increase in rates volatility. As you cut capital type business, on your Slide 19, do you expect that bubble to move down as well as leftwards? And I was also wondering, as you perhaps cut back on capital in the rates business, whether that would be a part of the reduced add-ons under your leveraged ratio, for example, rates derivatives under the current exposure methodology. And I had a second sort of leverage-ratio-related question to credit protection written. Could you make a general comment about credit protection written and how you hedge that? Is it mostly on a portfolio basis, or is it mostly by foreclosed out of positions? And do you think there's scope to change that over the next few years?

[Brady W. Dougan:]

Thanks, Matt. Maybe I'll -- let me take the first part of your question, and maybe David can pick up the second. I think, in general, we're actually very happy with the results in the second quarter in the investment bank. I think, particularly, as you know, we're very focused on the return profile and particularly given the fairly full transition to Basel III that we've made. I mean, a 12% return in the investment bank overall, we think that's actually a very strong return particularly given conditions in the quarter. So -- and obviously, the majority of our capital is still in the fixed income business, so I think that indicates that the businesses is actually doing pretty well. I think that, as you said, I mean, David, I think, went through a little bit of the detail in terms of the performance of the different businesses. Structured products and credit were quite strong. We saw more of an impact on the emerging markets business. FX [ph] commodities were pretty good. Certainly, the rates business was impacted. For us, I think also, we saw that across the industry. I think, as you said -- I think what's developing is that, I think, the rates business actually is increasingly being impacted by a lot of the regulatory changes that are coming through, with a lot of the focus on leverage, et cetera. And I think there is -- I think it's actually something we're going to see in the industry as a whole as we're going to see more of an impact on the rates business. But I think, as you mentioned, we certainly see that business -- probably, we see less capital in that business for us, but frankly, we think the industry-wide conditions are going to be such that it doesn't necessarily mean that we will lose market share there. And in fact, I think we're going to see a pretty big change in the industry as a whole, which I think ultimately should be a relative benefit to us so. And we continue in various different parts of the business and on fixed -- in fixed income to do -- to be, obviously, very strong, including even the rates business. Some of our client franchises are strong there and there is some recent -- some of the Greenwich data recently showed us as pretty strong. So I'm actually -- I think our view is that we're probably ahead of the curve in terms of having addressed some of the issues on the regulatory side, which probably has differentially impacted the business for now, but we think, ultimately, that could actually move in our favor. But there is no doubt that, as you said, the impact of -- as we do continue to transform that business, that is going to clearly contribute to the reduction in balance sheet and -- that we are looking to make. So certainly, we'll have a positive impact on the leverage ratio. The other thing I just mention is, as you say, I think, actually, we stacked up pretty well versus the year-ago quarter, not quite as well versus the first quarter but we had a very strong first quarter. So I think that also contributed too, a little bit. So, David?

[David R. Mathers:]

Yes, I think you also ask about the relative moves on -- in the bubble. I mean, I think, clearly, as you reduce capital in the rates business, and you'll see on Page 33, that number came down by a couple of billion in the quarter, we'll also be reducing the expense base there as well. So we would expect that bubble to actually move to the right rather than to the left, going forward. And I think -- and clearly, part of that basically will also be the -- we will see some benefit from the move to central clearing, which will enable us to actually use our capital rather more efficiently under the Basel III rules then in the past. On the specific point around credit protection written and I think you're probably referring to the -- some of the draft rules which were published by the BCBS under their consultation paper, a consultation which is open through the 20 of September. I think we've obviously looked at that. And I think, clearly, what that showed is they are confirmed in the final document, which they may or may not be, but assuming they are, will require, I think, a much closer matching of your CDS position in terms of single name and also duration, which we think is perfectly manageable within our existing targets and plans. So I wouldn't expect -- I think it will require a slightly more specific management to your hedging approach. And I'm sure we and I'm sure other banks, given that these Basel III leverage ratios are now going to be applied across the industry in '15, as well as obviously we've been under compliance since the beginning of this year, that we'll be making those adjustments.

[Operator:]

Your next question comes from Kinner Lakhani of Citi.

[Kinner R. Lakhani:]

Just wanted to start by clarifying the CHF 150 million on Slide 9 of the presentation, the CHF 150 million of savings related to Private Banking & Wealth Management. Is this meant to be a quarterly number, or is this an annualized run rate? Then I just wanted to follow up in terms of the pipeline of loans within the wealth management division

[Brady W. Dougan:]

Maybe -- thanks, Kinner. Maybe I can start with the third, and then David could maybe address the first 2. On the FHFA, as you say, obviously it's an issue that a number of banks have obviously, as you -- as -- obviously, the process has begun and some banks have announced if there are some -- there have been some settlements there. I think, obviously, the specifics for each institution will be quite different. And what we look at is obviously the quality of the portfolio and the quality of the performance on the portfolio, which is obviously an important aspect of it. And we feel like, in our mortgage business, we actually cut back originations quite substantially in 2006. We feel like we were very rigorous around due diligence processes, et cetera. So we think that is reflected, actually, in better performance of the portfolios. But obviously, these are issues that will be worked through. Clearly, in terms of the FHA and other matters, we clearly, obviously, review those on a quarterly basis and make sure that we're, from an accounting point of view, providing what is adequate against that. And -- but -- and we'll see, with regard to sort of timing and process around that, how it develops. But I think -- again, I think, from our point of view, we clearly feel we're adequately positioned and we'll see how that -- we'll see how the process moves forward in terms of time table and result. David, do you want to --

[David R. Mathers:]

So just on the PB cost number. What we mean by that is, I mean, obviously, we measure our cost savings. Again, the annualized targets we're making, I think we've said we want to be at CHF 750 million. So I think what you'd expect is by the end of the year -- that when you look at that table we have later in the deck showing the total savings, that we'll have moved that down from CHF 750 million to CHF 600 million. So I guess that thinking -- that's how I think about that. I think that means it's an annualized saving. You may know incidentally that the headcount within the Private Banking & Wealth Management division actually did drop, I think by about 600 heads in the reported numbers you see in the account. So I think that does kind of show some of the progress we're making towards these cost goals.

[Brady W. Dougan:]

And then there was the issue of the wealth -- of the -- I mean, on the [indiscernible] loans -- yes, loans within the wealth management business. I mean, clearly, that continues to be a big focus for us. It's an area that we are -- we continue to view as a big opportunity and one that we are -- where we see a lot of upside in. I would say -- in the second quarter; I wouldn't say that we saw any significant increase in those numbers. But overall, it's certainly an area that we see a lot of opportunity in, really, in our franchise globally.

[Operator:]

Your next question comes from Kian Abouhossein of JPMorgan.

[Kian Abouhossein:]

I've got a few questions. The first one is related to Basel III to the June document, the consultation document. Assuming that this is the final ruling, let's assume this is what's going to come, how would you get there? Is it more through alternative capital? Or do you think you also would have to do additional asset reduction beyond what you announced to get to your Swiss rules? That's the first question. The second question is related to dividends. Clearly, we have FHFA, we have other regulatory issues which are coming, leverage, et cetera, et cetera, securitization and so on. What is your thinking about dividend, considering there's still a lot of uncertainty of how much capital you actually need to have to operate without knowing exactly your final risk-weighted assets, leverage numbers and litigation? Can you talk a little bit about your thinking? Should we think more conservatively about the dividend, or once you're at the 10, you will really see a material increase going forward as you go beyond the Basel III 10 as we know it today under the current regime? And then the third one is on IB cost base. The IB cost base is flat quarter-on-quarter, and I'm just wondering if you can talk a little bit about cost flexibility? Why is it not coming down when revenues are coming down?

[Brady W. Dougan:]

Thank you. Let me -- maybe I can take the second portion first on dividends, and then maybe David can address the other 2 pieces of that. I think on dividends in general, as you know, we -- so we've been fairly clear about what we said, we hope to get to the 10% Swiss core capital ratio sometime in the middle of this year. Obviously, we were pleased with the result of exceeding that pretty materially as of the end of the second quarter. We think that puts us in a strong place from a capital point of view. We had always said that, having reset, that we would be expecting to make material distributions to shareholders. None of that has changed. Is there some uncertainty? I guess there is. I think actually -- and I think in our business model, there's a lot less uncertainty than you see in the industry as a whole. I mean we basically are operating under Basel III now, as you say. Will there be continuing -- some continuing adjustments? Yes. But I think our general view is we're in very good shape against that. And no doubt, obviously, there are other issues out there but we do feel, in general, that we're obviously adequately provisioned against those matters. So I think our view is that we feel -- I think that we remain consistent in our guidance around where we thought we'd get to from a capital point of view and what the implications of that were from a dividend point of view. So I don't see anything really changing in that respect.

[David R. Mathers:]

I think just in terms of the BCBS and leverage ratio documents. I mean, I think there's probably a couple of things here, really. Firstly, there was the BCBS consultation documents you referred to before, which actually laid out some of the definition sets which, I think one of the previous questioners raised. And then secondly, there's the requirement, the ratio you actually have to be at which I don't think's really changed, that essentially the borrower will say, "You have to be at 3% Tier 1 on a leverage ratio on that denominator." Now the first rules are very much in parallel with that. What they actually require is that you're at 2.4% on a CET1 ratio in 2019; the Swiss records then require that you have a further 0.7% of high-strike BCNs. And then on top of that, you then have this requirement for the low-trigger buffer beyond that. Now the amount the low-trigger buffer, as I said during the presentation, depends on the FINMA's view, the resolvability of the major bank and its importance to the Swiss domestic economy. At the moment, that's set at 4.41% of our RWA. So you may remember, that's the -- from the 6% you may remember from 3 years ago when the rules came out. So the Swiss rules essentially say, 2.4% plus 0.7%, then plus the low-trigger, gets you to about 4.2% at that point. Now clearly, where we are at the moment, and we included, obviously, both of the summary slide in the main deck, but also there's a slide in the appendix, which gets into the components of that. By the end of the year, with that 70 billion reductions, then we would expect to be at about 2.2% on a CET1. We then have Claudius which actually counts as Tier 1 instrument and would in United States for that matter, which actually gets you to about 2.5%, and then you have the high-trigger BCN. Now just to be clear on that point, you may recall that in February of 2011, we entered into a forward exchange agreement with both Olayan and the QAH to exchange their Tier 1 hybrids into Tier 1 BCNs. Some of that's converted already, but a remaining $3.8 billion will convert in October of this year, and that's a forward-struck agreement. And so by the end of October, our high-trigger BCN buffer will actually go up to 0.7%, so that puts us about 3.2%, again that requirement under the Swiss rules to be around the 3.1%. Now just to be very detailed on that, I think you may know that about $2.7 billion of those capital [ph] were issued in a Tier 2 to 4, so that's compliance with Swiss rule, but that would basically bring you down to around a 3%, plus, minus for the -- against the Basel [ph] rule. So hopefully, that's answered those questions. But I guess, the clear takeaway is that one; we will be at or very close to at the Swiss loss-absorbing capital leverage ratio, the 3.1% requirement by the end of this year. Two, clearly, we will look to issue low-trigger buffer capital notes up to around CHF 12 billion to actually meet that additional CHF 1 billion well ahead of the 2019 acquirement, which will push our leverage ratio up to about 4.2% in total. And clearly, the third point is that, that will obviously enable us to actually meet the Basel III requirement as well.

[Kian Abouhossein:]

It assumes -- it assumes Claudius is part of Basel III?

[David R. Mathers:]

It does, and it's a Tier 1 instrument. So I think if you look at the U.S. rules, you'd see how that's being treated. I think -- we haven't really mentioned Claudius, I mean I think, as Brady talked about in terms of the dividend outlook, I think we are keen, as we said before, now we pass the 10% Swiss capital target we set out 1 year ago to make material distributions to our shareholders, so I think paying a cash dividend is important to us. I think you know that we'd also like to redeem the first tranche of Claudius which redemption for was due right at the end of this year, so either later this year or beginning of next year. I clearly doesn't rule out that essentially we may choose to issue some of our buffer capital notes in the Tier 1 format to maintain the Tier 1 balance. But to be honest, we're not under any particular pressure in that context. I think your final question was really around the IB cost numbers. We did make progress in the second quarter but it was offset by -- we had litigation provisions, again, similar level to what we saw in the first quarter. So -- same again, but we also saw some pick-up in commission expenses because of a -- I think both seasonally but also somewhat stronger equity performance. And so that probably ran against the underlying cost measures we'd achieved. I mean we're not that far away at $1.7 billion from the CHF 1.8 billion we set for the investment bank, but that's still a goal we're very much committed to. But clearly, in terms of the bulk of the work, it's now shifting on more to the infrastructure in the Private Banking, Wealth Management divisions.

[Operator:]

Your next question comes from Daniele Brupbacher of UBS.

[Daniele Brupbacher:]

A bit of a technical question first. I mean, on Page 70 and 67, just on the OCI movement, I found it quite interesting to see that it hasn't really changed much, particularly compared to some of the U.S. peers, who saw a drop of anywhere between 3 billion or 4 billion or so during the quarter, which probably wasn't a surprise given the yield that the rate changes. How should I read this? Did you just trade well over you're really short-term positions because obviously, short-term rates haven't moved much? Just kind of how should I look at this? And then also, Note 6 NII. NII, very strong trading -- very low, rather, in the quarter. Should I just add up these 2 positions because, obviously, trading assets NII is very strong, I guess, in the quarter? Just kind of how I should read this? Is it sort of also probably related to some dividend income in the trading book or what is the reason behind that? And then sorry, just another technical question, IAS 19R, given the performance in the quarter, can you probably quantify the impact of this move on the Tier 1 ratio? And lastly, probably just on cost cutting, I mean the run rate has increased from 2.5% to 2.7%, it's probably a bit lower than what some people would have expected, any specific reasons? I mean you talked about it obviously, but are there any delays somewhere? Just some more color there would be helpful.

[David R. Mathers:]

Okay. Let's take in those questions in order. So looking at OCI, there weren't any particular materially moves in the quarter. We -- I think you can see, there's about 136 million in the second quarter, most of which actually is in respect to FX moves. As you know, we run some hedging against our dollar balance sheet within our equity base, not particularly material, because the currencies didn't actually change too much by quarter-end in that sense, so that's all it really is. So why didn't you see the big impact you've seen in some of the U.S. banks? I mean essentially because we have minimal available for sale treasury portfolios. We obviously do own substantial portfolios. There is government bonds, various scrips and U.S. treasuries as well. And those are nearly all marked at fair value and are hedged, essentially. We don't really have an open FX acquisition, which I think is what you may have seen in some of the U.S. peers. And I think its -- and perhaps, that's what's the essence, a little bit different, I mean the number is extremely small. And therefore, we saw no material impact from that. Not good trading per se but hedging on a fair value basis, so that's how we actually run that portfolio. Your next question then, I think, was around the details on Page 80 and 81, I think in the accounts relating to the accounting disclosures for trading revenues and net interest income? So Notes 6 and 8, is that correct?

[Daniele Brupbacher:]

Yes. Notes 6, yes. Yes.

[David R. Mathers:]

Yes. I mean, there's obviously been some moves there. I mean I think as ever, I'm afraid, we've made this caveat before, the strict accounting disclosures about how you actually break down each of the products doesn't really relate that closely to businesses. So for example, that interest rate product loss there, that's what you're seeing, it's part of the trade, not the full trade because you're seeing hedging activity come through there. And then as you say, the net interest income number was actually up from CHF 2.4 billion to CHF 3.7 billion. A lot of these -- what you're really seeing is different components. The trade actually broken out in the financial accounts, so it doesn't really reflect a big loss in interest rates, per se. I think you can see from the slide, I mean, our revenues actually in the rates business per se were actually stable but at low levels between the second and the first quarter, which is disappointing, but is stable, basically. It's not hedging any particular one-off losses, I'm afraid. But I think it's the usual problem just in terms of these accounting notes, just in terms of -- what you're actually seeing here is actually seeing here is actually legs of trades and hedges. On IAS 19, now we're at U.S. GAAP reported, but I think IAS 19 refers to that pension fund treatment?

[Daniele Brupbacher:]

Yes.

[David R. Mathers:]

Yes, it was quite a good quarter, but I mean on our projections it hasn't really made much difference to our pension accounting so far in the year. Clearly if that continues through the year, we'd obviously be reassessing it, but nothing particularly material.

[Daniele Brupbacher:]

So small positive impact is a fair assumption?

[David R. Mathers:]

Yes, I mean, not particularly material, really. Was that all of your points, Daniele, did I miss anything?

[Daniele Brupbacher:]

I think -- just the 2.5% to 2.7% cost run rate, is that -- any way to read this? Somehow driven by delays, or something? I mean you talked about it obviously, but is there any specific issues you could highlight? Just some more color there would be helpful.

[David R. Mathers:]

Not really. We're kind of exactly staying on track. I mean I think you can see, the big move this quarter is really on the infrastructure programs. I mean I think if you think about this in terms of phasing, clearly the IB moved first, and you saw the steps that we're actually taking in the second half of 2011, really coming through into these numbers. And that's now the most advanced component, still some more to do, still a considerable focus for us. But I mean we've actually done quite a lot to substantially improve the cost income ratio for that division over the course of the last 2 years. Infrastructure then is very much been the second leg of that. The cost programs there, very much in full flight, I think I've talked about those before in terms of what we're actually doing across the different shared service divisions, particularly in terms of actually integrating our lease and our costs and our operation functions, and in some of the technology functions. In the private banking division, the program there is still building. As I've referred to before, I think you can see the reduction in headcounts in that division this quarter which was notwithstanding by the way, a significant number of campus hires that actually came into that number. Progress there, though, was clearly offset by the incremental regulatory costs we referred to, $23 million. And also, some of the mix of business did result in increase in revenue-related expenses which actually offset that. I think that's why, we want to be very clear; we're talking about CHF 750 million savings for the private management division. The extra CHF 150 million is something you'll see in the second half, Daniele.

[Operator:]

Your next question comes from the line of Huw Van Steenis of Morgan Stanley.

[Huw Van Steenis:]

Just 2 small ones. First, going back to Ken's question on the costs in the investment bank, should we think that now, with all the regulatory change, we now have a much more fixed cost model and, therefore, actually, there's a 2.6% less, less -- maybe a little bit of savings is now really the ongoing run rate? And then number two, it would be very helpful in terms of regulatory development, any update in terms of the farm bank organization rules in the states or at least, how you're anticipating potential rule changes there.

[David R. Mathers:]

I think in terms of the cost in the IB, I mean I think, clearly, in the short-term, the move to -- required by regulator, I think come across all banks to great deferral does result in less comp-related flexibility in any short period. Clearly, in the long-term, then you still have very substantial comp flexibility. But the fact you're actually generally -- deferral amortization is a larger part of your compensation cost does reduce that flexibility. There are, though, of course, other costs which are variable. I mean litigation divisions, relatively high for the last 2 quarters. And commission expenses will go up and down in terms of flow. We are actually doing things to actually reduce that. So certain things there. At the other point, of course is, when we talk about the CHF 1.7 billion or CHF 1.8 billion target for the direct expense investment bank, we're talking about the direct expenses. Now if you think about that, both the infrastructure number that you see on Page 26, the CHF 1.7 billion, CHF 1.65 million total we have there, about 55% of those savings actually come through and are allocated to the buyback. 45% goes -- sorry, to the investment bank. 55% goes to the investment bank, 45% goes to the private bank. So the reported numbers will benefit from those infrastructure savings in both divisions and you'll see that coming through. So I think, therefore -- perhaps you have to answer the question reasonably before you [indiscernible].

[Brady W. Dougan:]

Yes, just on the -- sorry, on the issues in the U.S. I mean, obviously, those -- the kind of rules continue to be discussed and will be -- and will presumably become closer to finalization. I think in general, we feel like we've been in a better position against some of these issues given that we already have a subsidiary structure there that's already capitalized, et cetera. Obviously, there may be some questions around locating some funding there that could be small incremental costs, but that may be one outcome of it. It's still, obviously, hard to know exactly where it's going to land. But I think in general, we feel like we are in a manageable position versus that is not going to require any major changes, but it's somewhat depends upon where it comes out. But based on where we sort of see it going, sort of range of potential outcomes, we feel like we're in pretty good shape against that. But, David, I don't know if you want to add any.

[David R. Mathers:]

Yes, I think that's definitely the case. I mean, I think we often get asked around the liquidity requirements under the IFC rules. I think I've sort of given that view over the last quarter in some of the meetings. At the moment it looks like reserving more liquidity in the U.S. entities could result in higher interest costs between sort of $30 million and $50 million in terms of our funding costs in the United States. So not nothing and clearly undesirable but not that material in terms of our total interest bill.

[Operator:]

Your next question comes from Fiona Swaffield of RBC.

[Fiona Swaffield:]

I just have 3 areas. The first was the compensation ratio in Q2. I know we've talked about costs in the investment bank but, specifically, that obviously moved up quite significantly and the comp was pretty static in spite of lower revenues. I wondered if you could talk more about that. The second issue was the issue of clients in the Wealth Management division. Are you seeing any increased risk appetite? I know you talked about transactions, but about more structured products, or anything? Is that why the recurring fee is going up? I mean our clients, as a percentage of cash or deposits, where are we now on kind of their equity appetite, et cetera?

[Brady W. Dougan:]

I think on the second question, maybe I'll take that, and David can take your first. But yes, I think in general, the Private Banking client base tends to move more gradually, I'd say. But I think certainly during the second quarter, as you can see in the results as well, I think our client base became more opportunistic around -- and that increased the transactional volume, increased, as you say, some of the managed product, we're encouraged by that. Obviously, some of the volatility that we saw in June will -- could obviously have an impact on that. But again, it doesn't tend to mirror through immediately. But I think in general, I think costs -- I think cash portions of portfolios are down to around 30% now, and so -- which is down from where it was 1 year ago. So in general, I think we're seeing encouraging signs that clients are becoming more opportunistic. But again, how that develops through the rest of the year, we'll see. David?

[David R. Mathers:]

So just in terms of comp revenue rates. I mean I think as we said before, our accounting policy is to accrue relatively evenly through the year. So roughly, at 25% a quarter. So the ratio is really more a result, not something we actually target to. So in the first quarter, as you say is just under 38% and in the second quarter, for the investment bank that is, it's around 43%. Clearly, if you compare to the same period last year, the ratio was 51% in the second quarter of last year. So it's fallen from 51% in the second quarter '12, 43% this year. So -- and that's -- it's more sort of mathematical result of how we look at it. For the group, obviously, the comps revenue ratio was actually around 42% in the second quarter, up from 41%. But again, basically, slightly less last year as well, actually, Fiona.

[Fiona Swaffield:]

Sorry, could I just add on the third question, I've got to ask, and that was the 12 billion you're talking about on the low trigger? How should we look at kind of an incremental interest costs because I'm assuming there is some kind of offset from other instruments you could retire on the near [ph] material?

[David R. Mathers:]

Yes. So this is a comment on the pricing, I mean, clearly will depend on the exact structure timing and the curve when we actually issue, so probably leave you to make a view on that one. I think as we said before, what we will see over the course, to some extent this year, but to a greater extent, next year, is that the funding costs for the bank will actually drop quite steeply. Now that reflects 2 factors. Firstly the the roll-off of a significant portion of senior debt that was actually issued in 2009, 2010, high spreads that we locate today. Secondly, the retirement of a number of instruments we've already retired but now dropping through into a low interest bill. And thirdly, clearly, if we do regime half the tranche for Claudius, that's actually 7 7/8 as the coupon is a relatively expensive Tier 1 instrument, that would also benefit this as well. So I think last quarter, we were asked what do we think interest costs would actually drop next year and I think, notwithstanding largely issuance, I think we would still expect to see the interest cost of the bank to be significantly down in 2014 compared to 2013.

[Operator:]

Your next question comes from Jeremy Sigee of Barclays.

[Jeremy Sigee:]

Just a couple of quick follow-ups actually. So firstly, have you -- did you say that the dividend accrual is $0.75 cash or is that a fair assumption? And then second question, I just wanted to come back on to the deleveraging that you're targeting in the investment bank, the CHF 909 million, coming down to CHF 840 billion, could you just be a bit more specific about which areas you're shrinking? I mean is it all the repo book in the rates business for example? And also on what P&L give-up we should expect with that? Is there any material P&L impact or is it all fairly low-yielding stuff that you're going to shed?

[David R. Mathers:]

Okay. So I mean, on the dividend, I mean I think we can't really add to what we said already. We have not disclosed the accrual rates so far this year. I think, suffice to say it, I think -- we do think making material distributions to our shareholders is important. And once it exceeds 10%, that's part of our strategy. And we, therefore, accrued for cash dividends in the first 2 quarters this year against that. As for the sizing and dimension, I think what I can really say is obviously for the last couple of years, we paid $0.75 in either cash, cash risk scrip alternative or scrip in cash mix. So I guess, that's kind of history. But I don't think I can really add to our comments beyond that in terms of where we go for the full year. Clearly, whatever we do get to, it has to be agreed with our board and whether they choose to recommend it to the shareholders next spring, basically. But we've certainly not given a specific number beyond what we said, we've said already about this. I think the next question then was on the impact of the balance sheet reduction. I think it's certainly clear that a substantial portion of the load has actually come from reducing the rates balance sheet and, particularly, the repay usage within that. But we have also brought down some of the balance sheet usage within the prime service business. And I think it's fair to say given the importance of both of those businesses to our balance sheet, both on and in total exposure terms, that that's probably not surprising there, the bulk of the balance sheet usage. So I think we will see further reductions there. But I think -- to be clear, having reduced the total exposure by CHF 150 billion; this is a fairly wide-ranging effort, looking at low ROA assets across the entire bank to actually reduce those positions. Now clearly, I mean these are not negative or 0 ROE assets, so I think there is some revenue impact from those balance sheet reductions. But I think there's certainly scope to optimize our balance sheet, to reallocate it to our more important clients. And I think, certainly, this program is revealing the scope for better optimization, allocation, balance sheet between clients to actually mitigate that. But there definitely is some impact, Jeremy, in terms of balance sheet reduction exercise.

[Operator:]

Your next question comes from the line of Michael Helsby of Merrill Lynch.

[Michael Helsby:]

Two questions for me, actually. You note a very strong DCM performance was driven by the leverage loans. Can you just tell us how much of the DCM revenue comes from that area, from high yield? And can you also comment on the pipeline that you've got in that business? I'm just very conscious that issuance is falling off a cliff at the back end of the quarter and into July in high yield -- in investment grade actually. And second question -- actually, you've just touched on it, but if I look at Slide 19 and I'm just looking at your bubble chart in the IB, I think if I was to recast that for total assets on a Basel III basis, then I'm assuming that rates and PB or prime services would expand very, very dramatically. Can you just give us a sense of that CHF 909 million in percentage terms, how much is actually tied up within the rates and the prime services business? And if you'd give any commentary on how much the rates revenue is, I appreciate you give us a macro split, but given the FX and rates are moving in different directions. If you could split that FX and rates number for us, that would be very, very helpful.

[Brady W. Dougan:]

Just on your first question, Michael, thanks for those questions. Yes, I think as you said, clearly, the fixed income, new issue calendar dropped off sharply in June, not surprisingly. But it's also -- actually; it's come back pretty quickly as well. So I mean we actually have a fairly strong pipeline on the fixed income side, in high-yield as well. So it's actually returned fairly quickly so again, whether market conditions will allow us to execute all that, and on what timetable, we'll see, but it's actually been a -- the pipeline is refilled actually, fairly quickly there. So that's a positive. I think your question about how much of the DCM is high-yield. I think we would estimate probably greater than 75% was high-yield. So it's, obviously, the majority. In terms of the other questions, do you want to --

[David R. Mathers:]

Yes. I think, we've not really given a break-down of the macro into its components before, and I don't think we're going to start now in terms of that. I'm sorry, I mean, clearly, our rates business is larger and more important than our FX business although, obviously, cyclically, there's more FX activities than there is rates at the moment. But in the long run, you expect rates to dominate in terms of the size and resources we have against it. I think you're asking really a theoretical questions which, at the moment, the bubble chart obviously is based on 10% of RWAs and how would that look differently if we were to actually give that, I guess on the basis of some percentage, of the total exposure number. Again, I don't think we're going to break down the total exposure number now by business today, I'm afraid. I think it's certainly true, if you look to Page 33, the number probably would go up a little bit in terms of allocated equity from -- you could take 10%, the numbers on 33%, to some percentage of the rates number. And I think that comes back to the comments that Brady made before about some of the strategic and regulatory challenges to the rates business from the Basel III rules which, I think, will be clearly partially mitigated as the industry moves towards central clearing, and all this risks will actually go off balance sheet at that point. Prime services, I think that would also be true. If we were to allocate 3% sale, 2.4% of the total exposure balance sheet, most of it to prime services, that would result in a higher equity content than 10% of 13%. However, of course], the return in that business were also very high already. So I think it would be it's a much less challenged business in an economic sense. I think that's probably about as far as I can go in terms of our disclosure at the moment.

[Operator:]

Your next question comes from Jon Peace at Nomura.

[Jon Peace:]

I have 2 questions, please, about some of the guidance you've given in Wealth Management. The last quarter, I think you told us that you expected gross margins to stabilize at around 110 basis points. And given the pickup in client activity you referenced, would you be a bit more optimistic about that outlook now in the medium-term? And then the second question also on Wealth Management, is that you've given us guidance of net new money of 3% to 4% over 2013 to 2015 because of the European outflows, and then 6% in the longer-term. But as you're creeping towards the higher end of that range this quarter, again, do you feel a bit more confident that you may get to a higher run rate a little bit sooner?

[David R. Mathers:]

I think on the first point, in terms of gross margin, just to be clear, I think when we spoke at the end of the first quarter, I think I warned that because of the impact of lower net interest income within the Wealth Management business relating for the reduced interest income we get from our replication portfolio for our surplus deposits, that I would expect that to have an adverse impact on gross margins of, I think, 2 basis points to 3 basis points which, if you work it out, comes out to roundabout $250 million in terms of a lower interest receivable for the division. Now clearly, I didn't -- did caveat that saying that, that would, obviously, be dependent on how successful we are in terms of building particularly loan volumes to actually boost our net interest income. And to a lesser extent, because I think we've done as much as we can to basically protect the actual margins we get on that. I think it's certainly true; we have been a little bit more successful in the second quarter, actually boosting that, which is why the net interest income actually went up second quarter against first quarter. But I don't think I want to go beyond that, which is why I'm kind of implying that our guess for the -- or our view, basically for net interest income is probably for the full year, roughly in line with twice the first half, give or take basically. It's -- secondly true, it's clear that the higher transaction activity has actually boosted gross margins this quarter and, clearly, that's something we very much like to see continue. I think on net new assets, I'm difficult to add -- very pleased with the 10% growth in emerging markets, that's good. Probably, a little bit disappointed that the Western European outflow, the CHF 2.2 billion is sort of bang in the middle of the CHF 6 billion to CHF 10 billion per annum range we actually gave at the end of the fourth quarter.

[Operator:]

Your next question comes from Christopher Wheeler of Mediobanca.

[Christopher Wheeler:]

A couple of questions on Wealth Management first. Just looking at the, obviously, performance that was fairly good, the 26.9 I think it was pretax margin, excluding the 100 million charge. Can you perhaps give us a clue as to what that might -- what the drag [ph] on that perhaps is if the business in the U.S., because that's what, 21% of your assets. And I think last time we spoke on this, David, it probably wasn't making any money in a polite way. So can you give us a flavor for that? And perhaps, looking at the 65% cost income ratio, what exactly do you build into that for what you're trying to do in that U.S. business and try to get it to perform more strongly, or do something else with it? The other question in Wealth Management is on the gross margin. Again, a good performance. And I think the impressive thing is it's a good mix of the improvement across the gross margin. Could you just talk a little bit about how that performed regionally on your 4 main reported regions in terms of what occurred in the quarter? And then finally, can we just put to bed the Claudius issue? We've sort of talked about it being allowable in the United States in redeeming parts of it, et cetera, et cetera. I just want to clear my mind, I thought everything I've read in the SMB reports, in your reports, was that it would not count under Swiss rules of leverage after 2018. Am I missing something there?

[David R. Mathers:]

Just to take in order, I mean I think we've been clear that we do in fact lose money in the U.S. business. Not that much, but we do lose money in the U.S. business. So clearly, to turn that business around would be high positive to our gross margin. I think if we think about our target of a 65% cost income ratio -- sorry, pretax margin, think about our target of 65% cost income ratio, that is clearly part of our plan, together with the other cost savings we have, the CHF 750 million total, to make sure we actually achieve that 65% cost income ratio and it's sustainably achieved. I think in terms of --

[Christopher Wheeler:]

So is it fair to say that there's a sort of a -- that we can say there's probably, at least, 5% drag at the moment on what you're producing in terms of pretax margin, is that sort of in the ballpark?

[David R. Mathers:]

I'm not sure I think that way, I mean the loss is pretty great -- it's in the 50 million to 60 million, let's be clear about that. I think --

[Brady W. Dougan:]

It's quite marginal.

[David R. Mathers:]

It's marginal. Useful to turn around and, clearly, part of our strategy there is to make that business profitable. I think in terms of disclosure by region, we haven't -- I think we've given some numbers historically. The trends haven't really changed, I would probably nearly note that within Asia Pacific, we've seen a particular pickup in transactions and particularly, in 1 bank activity. So single, low currency collaboration, there that's been a really strong driver balance. So I think that's been positive. I think Switzerland, broadly stable, recurring up a bit. But not -- no, I can't really add too much. I don't think we said any noted deviations from what we've given before in terms of the regional mix. And then on the Claudius issue, it is indeed complicated. I think what we said is essentially is that under the FINMA rule, Claudius accounts until they actually is redeemed, which will probably be in 2015 and, obviously, we've got the first tranche this year and that is, in fact, how the Swiss leverage ratio is actually fine. I think we're merely saying that as a Tier 1 instrument, this would probably count under the U.S. definitions we've seen so far, not enormously relevant for us, but as a contextual amount of measure. You're right, the SMB SSR report does a CET1 plus high-struck buffer capital notes and that's where there's difference. But Claudius definitely counts for the Swiss core capital requirements and to for the leverage ratios until its redeemed, or I think 2017 in terms of its end state. And I think we've been rather clear about this, in terms of our priorities, we do want to resume cash dividends -- material cash dividends to our shareholders. It would make a lot of sense for us to actually redeem the first tranche for Claudius either later this year or in 2014, given that it does have a 7 7/8% coupon basically, and it is not formally a buffer capital note.

[Operator:]

Your next question comes from the line Jernej Omahen of Goldman Sachs.

[Jernej Omahen:]

I just have 2 questions left, please. The first one is on this federal housing issue, so the FHFA. I was just wondering what the notional exposure is, i.e., what's the notional value of these instruments that the litigation relates to. The last number we've got is CHF 14.1 billion, and I'm wondering whether that's still an accurate figure. I think it's from the end of last year, if I'm not mistaken. And the second question I have is on Page 25 which is, again, just on the leverage calculations. And David, it's probably my fault, but I got a little bit lost with all the numbers and the different ratios. Can you just clarify one thing, the 1.258 billion risk capture measure that you show here as the denominator used for Swiss leverage exposure, what is that number? What is the comparable figure for the purposes of Basel III leverage calculation as it stands today? Because I understand it that you suggested that the Swiss leverage ratio is based on proposed Basel III rules, but I think, obviously, there's been substantial alterations since the Swiss leverage calculations were laid out last year. And maybe just finally, a very short question. On the disclosure of standardized risk-weighted assets, since that volume is picking up on that front particularly in the U.S. but also, a reminder, I guess, from the Swiss central bank with their national report that they would like banks to disclose this, how do you think about that?

[Brady W. Dougan:]

I think on your first question on the FHFA, yes, I think the notional amount of bonds that were sold by us over the entire history was, I think, around the CHF 14 billion number that you mentioned. More than half of those have been completely redeemed and paid off. And I think, as you say, I'm not sure notional is that relevant? I would -- I think it's more relevant maybe what the actual loss is so for instance our portfolio -- the actual losses like to date, are around CHF 100 million plus or minus on that. So I think, obviously, the quality of the portfolio was also something that's going to be important. But as we say, that's obviously got further to play out. David, on the leverage calculation.

[David R. Mathers:]

So the leverage calculation, the number you see there is CHF 1.258 billion, CHF 920 million which is on balance sheet, CHF 338 million was the various add-ons. The question really is, does the BCBS consultation paper make a substantial difference to that. And obviously, you get back this question around CDS nesting and how that's actually treated. I think our assessment of that is that it will not materially change, the current number on the basis of the consultation documents being proposed to date. Clearly, we'll see what comes in the final document which, I guess, could be more aggressive or less aggressive when that comes out, I guess, later in the year or early next year. But I mean, I think, to be clear, that the FINMA has always wanted a Basel III type regime, and that's the basis in which they've actually asked the Swiss banks to actually report there leverage ratio number so far this year.

[Cormac Leech:]

All right. So the 2.7% figure that you mentioned is essentially also in your view a Basel III leverage ratio figures bought i.e. today?

[David R. Mathers:]

Yes. I think that's pretty fair. Yes, I mean, I -- what I'll simply say is that the Swiss leverage is a mostly close approximation to the Basel rules as they're understood today. And clearly, rules can change. I think on the standardization of RWA, I think I'd really -- all I'd say is -- this concept stand more a little less understood, some standard models are close to risk, some are very outdated. I think what we would like to see is greater standardization of and harmonization of models and parameters across the industry because I think that would be a logical step forward in terms of that, and we'll see if that's the way this goes.

[Brady W. Dougan:]

Sorry, operator, I think we're going to have to close the call now. I think we have actually a couple remaining questions, so I apologize to those of you who were in queue to ask, but we do have to move on to -- we have a media call that we have to go to. I greatly apologize for that. But just to quickly summarize, the results for the second quarter in the first half demonstrate that our transform business model is performing well. We're making continued progress towards our cost capital balance sheet and leverage targets. And despite a more volatile operating environment we achieved resilient results across our businesses, delivered against our strategic targets and generated 1 of the highest ROEs in our peer group. Finally, over to long-term, our business model is well positioned to benefit from a rising interest rate environment and to continue to deliver superior returns to shareholders. So thank you all very much for your time and your attention.

[Operator:]

That does conclude today's conference. An email will be sent out shortly advising how to access the replay of this conference. Thank you for joining today's call, you may all disconnect.