UBS Group AG (UBS) Q4 2013 Earnings Report, Transcript and Summary

Good morning. It's Martin Osinga here from Investor Relations. Welcome to our fourth quarter results presentation. This morning, our CEO, Sergio Ermotti, will take you through the highlights of our performance for the full year. Then our CFO and COO, Tom Naratil, will take you through the details of our fourth quarter results. We'll then take questions from analysts, and this will be followed immediately by a Q&A session for journalists. Before I hand you over to Sergio, I'd like to draw your attention to this slide, which contains our cautionary statement regarding forward-looking statements. Now I'll hand over to Sergio.

Thanks, Martin, and thank you all for joining us. For those who follow us regularly, Caroline Stewart is currently on maternity leave, looking after her new baby boy, George. The momentum that we generated during the first 9 months of the year continued into the fourth quarter. Our performance in Q4 was solid amid continued market volatility and lower client activity towards the end of the quarter. Our business divisions contributed to the strong fourth quarter despite some seasonal headwinds and one-off items. For the fourth quarter, we reported a net profit attributable to shareholders of CHF 917 million, diluted earnings per share of CHF 0.24 and net new money inflows of over CHF 10 billion into our Wealth Management businesses. As Tom will cover the fourth quarter results in detail, I'll focus on the full year. 2013 was one of the most important years in the 151-year history of UBS as it was the first full year in which we implemented our -- and executed our accelerated strategy. Thanks to the dedication of our employees, the trust and confidence of our clients and the support of our shareholders, we made excellent progress in transforming UBS. At this time last year, I say that I -- we would adapt our business to better serve clients, reduce risk, deliver more sustainable performance and enhance shareholder returns. I'm pleased to report that 2013 -- in 2013, we accomplished all of these goals. As we expected and indicated throughout the year, while 2013 was positive in terms of financial market performance, the year was not without challenges. Turbulent macroeconomic conditions and unresolved geopolitical and fiscal issues all impacted client confidence. In addition, divergence across regulatory frameworks created uncertainty for our industry. We also addressed and resolved various issues, which required and will continue to require substantial effort and resources. 2013 was a year of strong execution and noteworthy achievement. We were profitable in every business division and in every quarter. Our Wealth Management businesses, combined, delivered their best for pretax profit since the financial crisis and attracted strong net new money inflows. Wealth Management Americas achieved its ambition of $1 billion in adjusted pretax profit for the year, which is a record. Retail & Corporate maintained its market-leading position with robust growth. We transformed our Investment Bank and delivered risk-adjusted returns well above target, demonstrating that our model works in different market conditions. We greatly reduced execution risk and finished the year well ahead of our plan to run down Non-core and Legacy Portfolio. We continue to strengthen our industry-leading capital ratios as we substantially reduce risk-weighted assets, increase our capital base and significantly reduce our balance sheet. We increased our SRB leverage ratio to a level significantly above current requirements. We also continue to improve efficiency and reduce costs whilst setting plans on how to grow -- on how to achieve our target cost savings over the next 2 to 3 years. As announced in December, I've asked Tom Naratil to take on Chief Operating Officer responsibilities, where he will complete the transformation of our Corporate Center began by Ueli Koerner. As a result of this success and a clear expression of our confidence for the future, we will propose a 67% increase in our dividend to CHF 0.25 per share at the next AGM. Concluding a full year of strong execution, we further improved our industry-leading fully applied Basel III common equity tier 1 ratio to 12.8%, 300 basis points higher than at the end of last year. This includes the net effect of our exercise of the SNB StabFund option and the incremental operational risk-weighted asset addition. Let me reiterate that our stronger capital position is due primarily to our success in reducing risk-weighted assets, which we achieved mainly through risk reduction and not modeled enhancement. Over the last 12 months, we reduced risk-weighted assets by CHF 33 billion, or 13%, to CHF 225 billion, below our 2013 target of CHF 250 billion and equal to our 2015 target. In 2013, we reduced our balance sheet by CHF 250 billion, or 20%, which helped improved our phase-in SRB leverage ratio to 4.7%, again, significantly above current requirements. We also remain well above regulatory requirements for funding and liquidity ratios throughout the year. After a strong performance in the first half, our model also performed well in what was an even more challenging second half. Compared to -- compared with 2012, we grew adjusted profit by 44% to CHF 4.1 billion and delivered an adjusted return on equity of 8.3%. Our Wealth Management businesses, combined, generated CHF 3.3 billion in adjusted pretax profit, 25% higher than 2012. In Wealth Management profitability was driven by Asia Pacific, where, in particular, the partnership between Wealth Management and the Investment Bank is a key competitive advantage for us, delivering holistic solutions and attracting clients. With financial advisor, we generated, on average, $1 million in annual revenue. Our Wealth Management Americas team has built a business with $1 trillion invested assets. Our capital strength and our ability to provide global capabilities and insights to clients are significant competitive advantages, which our clients value. A clear example of this is the CHF 54 billion of net new money we attracted in 2013, 14% more than 2012. Since 2011, these businesses have attracted CHF 136 billion in total net new money. As the largest and fastest-growing, large-scale wealth manager in the world, we are well positioned to gain from improving macroeconomic conditions, a gradual recovery in net interest rates and any consequent improvement in clients' risk appetite. Our Retail & Corporate business in Switzerland delivered stable adjusted pretax profit despite considerable pressure on net interest margin. This business maintained its market-leading position, grew faster than GDP in Switzerland and remains an important source of new business for Wealth Management, Investment Bank and Global Asset Management. Global Asset Management delivered an 8% increase in adjusted pretax profit and an adjusted return on attributed equity of 33%. This business remains very attractive to us, especially in a world of increasing capital requirements. As announced previously, John Fraser has retired as the CEO of Global Asset Management, staying on as a Chairman. Let me take this opportunity to thank John for his dedication and commitment to UBS. Ueli Koerner, formerly our Chief Operating Officer, has taken the reins at Global Asset Management and will build on John's legacy. Our Investment Bank had an excellent year, delivering a strong performance with -- while efficiently operating with very strict limits, lower risk-weighted assets, a smaller balance sheet and fewer staff. Investment Bank produced CHF 2.5 billion in adjusted pretax profit and an adjusted return on attributed equity of 31%, significantly above our target of greater than 15%. We maintained strong leadership position globally in the key areas where we have decided to compete and serve our clients with best-in-class capabilities, and we participated in several high-profile deals, demonstrating that our intellectual capital, execution capabilities and global relationships can serve clients in deals of any size and complexity. This strong momentum underpins our confidence that we will deliver on our targets. For 2014, we do not expect our unadjusted return on equity to deviate significantly from 2013, primarily due to costs associated with litigation, regulatory and other matters, restructuring charges and from the impact of the Non-core and Legacy Portfolio exit and capital requirements. While we continue to target a group return on equity of greater than 15% in 2015, given elevated operational risk, risk-weighted assets, we may not achieve it until 2016. Despite this, our capital return objectives remain unchanged, and our strategies support an attractive capital returns program without compromising our ability to invest in our growth. The proposed dividend we announced this morning aligns with our commitment to progressive capital return as we advance towards our target of a 13% fully applied common equity tier 1 ratio, which we clearly expect to achieve this year. Thereafter, we intend to return at least half of our profits to shareholders in the form of a baseline dividend plus other forms of capital return. The performance year 2012, we announced -- sorry, for the performance year 2012, we announced substantial changes to our compensation framework based on the feedback we received during extensive engagement with shareholders. For 2013, we continue to engage with shareholders, who ask us to sustain the balance between value creation and the ability to attract and retain the right people to execute our strategy. In response, we have further enhanced our compensation framework to maintain the right balance between employees and shareholders' long-term interest. Consistent with our significantly improved performance on the delivery on our strategic objectives, the firm's total performance award pool for 2013 increased to CHF 3.2 billion. It's important to underline that when comparing with competitive data on an IFRS basis, the costs associated with variable compensation remained flat versus last year. Our variable compensation plans continue to require a substantial referral of performance awards. For 2013, nearly 40% of the performance award pool will be deferred for up to 5 years. Of that deferral, a significant portion is in our deferred contingent capital plan, which has a 5-year cliff vesting. Furthermore, 80% of performance awards for the group executive board and up to 71% for highly paid employees are at risk of forfeiture. While the early macroeconomic signs for 2014 point towards an improvement over the last year, we must remain vigilant because as we have seen in the last couple of weeks, leading indicators and forecasts are not always accurate. Against this backdrop, we expect clients, especially in the U.S. and Europe, to remain cautious, and we expect clients' risk appetite to increase only slowly. A year ago and throughout the year, I stated I was confident we could execute our strategy, and we did that well in 2013. We still have a lot to do, and we will not be complacent. We will continue to execute on our strategy in a disciplined manner in order to ensure the firm's long-term success and deliver sustainable returns to our shareholders. Thanks for your attention. And now let me hand over to Tom, who will cover the Q4 results.

[Operator Instructions]

Yes. I'm sorry, we had some technical problems. I will not repeat my remarks. We will post the script of my remarks so -- for your information. And let me hand over to Tom so that he will cover the Q4 results, and I'm sure we will have plenty of time in the Q&A session to go through more details. Thank you. Tom?

Okay. Thank you, Sergio. Good morning, everyone. As usual, my commentary will reference adjusted results unless otherwise stated. This quarter, we excluded an own credit loss of CHF 94 million, CHF 61 million in gains on sales of real estate, CHF 75 million in costs related to the buyback of UBS debt, and net restructuring charges of CHF 198 million. Our performance in Q4 was solid, delivering an IFRS net profit attributable to shareholders of CHF 917 million amid continued low client activity, partly due to seasonal factors. Our fully applied CET1 ratio improved nearly a full percentage point to 12.8% as the exercise of the StabFund option, reductions in market and credit RWA and the contribution from our fourth quarter net profits more than offset the impact of the incremental operational risk RWA. During the fourth quarter of 2013 and January of 2014, UBS and FINMA reviewed the temporary operational risk-related RWA add-on that became effective on 1 October, 2013. We mutually agree that effective at year end, a supplemental analysis would be used to calculate the incremental operational risk capital required to be held for litigation, regulatory and similar matters and other contingent liabilities. The incremental RWA calculated based upon the supplemental analysis has replaced the temporary operational risk RWA add-on. These RWA were CHF 22.5 billion at year end, approximately CHF 5 billion less than the incremental RWA determined under the previously disclosed 50% operational risk add-on. Further developments in and the ultimate elimination of the incremental RWA attributable to the supplemental analysis will depend on the provisions charged to earnings for litigation, regulatory and similar matters and other contingent liabilities, and on developments in these matters, including, but not limited to, settlements of and outcomes in the matters disclosed in the litigation note of our financial report. Our pretax profit increased to CHF 755 million. Operating income increased slightly, primarily on increased fee and commission income in the Investment Bank. We recorded CHF 79 million of expenses for litigation, regulatory and similar matters, down CHF 507 million quarter-on-quarter. This decrease was partially offset by increases in other expenses, mainly in other seasonal nonpersonnel expenses, including CHF 128 million for the annual U.K. bank levy. We continue to be exposed to a number of claims and regulatory matters, and we still expect related charges to remain at elevated levels through 2014. During the quarter, we completed our business planning process and the remeasurement of our deferred tax assets. This resulted in a CHF 589 million increase in DTAs relating primarily to our businesses in the U.S. and Switzerland as we factored in increased profit forecasts. This led to a net income tax benefit of CHF 470 million. We continue to have significant potential to recognize additional DTA on our balance sheet. We expect the next DTA remeasurement to occur upon completion of our next business planning process in the second half of 2014. Wealth Management earned a pretax profit of CHF 512 million and attracted the most net new money in a fourth quarter since 2007. Operating income increased slightly on higher recurring income, which was up 1% to over CHF 1.4 billion, the highest since the third quarter of 2010. Cost increased mainly due to higher expenses for variable compensation, increased IT costs and seasonally elevated marketing spend and professional fees. UBS is the largest wealth manager in Asia, and this region is a key source of growth for our business. Net new money improved strongly in APAC last quarter, aided by a number of larger inflows and renewed client interest in Lombard lending. In emerging markets, net new money was again muted. Net new money growth in Switzerland was positive in every quarter in 2013, reflecting trust in UBS by clients in our home market. In Europe, cross-border outflows outpaced onshore inflows. While we do not see the end of the cross-border outflows in the foreseeable future, we believe we can absorb them within our existing net new money growth rate target of 3% to 5% for the division. As in previous quarters, the net inflows were driven by ultra high net worth clients. This segment remains an important source of growth for both Wealth Management and the Investment Bank globally, especially in APAC. Gross margins remained stable across all regions as our clients remained cautious in the fourth quarter. For Wealth Management as a whole, gross margin was stable at 85 basis points despite a higher invested asset base. We continued to see month-to-month volatility in gross margin, with gross margins of 88 basis points in October, dropping to 81 in November and ending with 84 in December. With the margin contribution from net interest income and recurring revenues at or near what we believe to be trough levels, gross margins are highly levered to client-trading activity. Until interest margins expand and recurring fees increase, gross margins will remain under pressure during slow quarters. The ability to grow recurring revenue while experiencing outflows of high-margin cross-border assets is a result of our successful pricing and mandate initiatives. Over time, as these outflows eventually come to an end, these initiatives and the higher invested asset base should lead to better growth in recurring revenues. Transactional income was essentially flat due to slow client activity, partially caused by low FX volatility. There were also fewer trading days in the quarter. We continue to believe we can reach our gross margin target range of 95 to 105 basis points when we see a more sustainable recovery in markets, interest rates and client confidence. Client cash balances and advisory accounts remained elevated at quarter end at 28%. This is one of the reasons why we continue to view our target on a multiyear rather than a multi-quarter basis. Wealth Management Americas delivered a record performance, earning a pretax profit of $283 million and achieved its ambition of $1 billion for the full year. We saw record productivity levels in the quarter of more than $1 million for FA on an annualized basis, the highest level when compared with our peers. Recurring income increased to $1.4 billion, also a record, and transaction-based revenue rose from the prior quarter. The business improved its adjusted cost/income ratio to 84%, within our target range. Expenses increased on higher compensation as compensable revenues generated by FAs increased, and G&A expenses were also higher. WMA delivered its 14th consecutive quarter of positive net new money at $4.9 billion. Our banking products initiative is enjoying sustained success, and our lending balances, overall, increased 4% quarter-on-quarter. We're pleased with the progress this business has made in recent years. And with invested assets of $1 trillion, pretax profits of $1 billion and FA productivity around $1 million, we're also excited about its future. Retail & Corporate reported solid operating performance and an adjusted pretax profit of CHF 344 million. Operating income was down due to higher credit loss expenses and lower other income. Operating expenses increased by 9% on higher provisions for litigation, partly offset by a decrease in variable compensation expense. Our annualized net new business volume growth rate increased to 3.8%, mainly due to inflows from corporate clients and with that, the upper end of our target range. The net interest margin improved by 3 basis points to 1.57% as net interest income increased on higher treasury-related income and the average loan volume was essentially flat. We expect net interest margins to remain under pressure as long as deposit reinvestment rates remain low. We're the market leader in Switzerland, where we continue to invest in our online and mobile services. We observed significant growth in usage, again, last quarter, contributing to this business' already strong momentum. Global Asset Management delivered an improved pretax profit of CHF 143 million, driven by higher performance fees, which more than doubled in the fourth quarter. The cost/income ratio was just above 70%, which is the top end of our target range. Net new money, excluding money markets, was negative CHF 4.6 billion as net inflows and indexed equity, real estate, infrastructure and private equity were more than offset by net outflows from other asset classes, primarily from client service from Switzerland and the Americas. Continuing the strong momentum demonstrated over the first 9 months of the year, the Investment Bank again delivered solid results and improved efficiency in a quarter that saw combined challenge for market condition and the seasonal slowdown. The IB delivered a pretax profit of CHF 386 million, with a cost/income ratio within its target range. This translated into an adjusted return on attributed equity of 20%, which means that the IB delivered above its target of greater than 15% in every quarter, as well as a return on attributed equity of 31% for 2013. During the full year, the IB demonstrated its ability to operate profitably with disciplined resource usage and within its risk limits. Revenues from Corporate Client Solutions were CHF 706 million, an increase of 40% with strongly improved performance across all regions and products as we earned roles on a large number of notable deals in the quarter. Advisory fees were at their highest level of the year, in part reflecting the strong pipeline we built in previous quarters and the relationships we have with our clients. Equity capital markets revenues increased by 48% in Swiss franc terms, driven by robust client appetite for liquidity, strong investor demand for block trades and an active IPO market, particularly in APAC. Debt capital markets revenues increased by 12% in Swiss franc terms as primary products recovered from a weak third quarter. Financing solutions had clear results as a number of collateral swap deals were closed for European clients. Investor Client Services had a robust quarter, delivering revenues of CHF 1.2 billion. Equities delivered its best fourth quarter results since 2010 across all businesses and regions. Cash revenues were largely flat compared with the third quarter as client activity remained muted although client trading revenues increased. Derivatives revenues declined, impacted by a seasonal slowdown in market activity and weaker trading performance. Financing services improved on higher trading performance in equity finance and an increase in clearing and execution revenues, and we were named Best in Securities Finance in Asia by AsianInvestor. FX revenues were slightly down in the quarter due to light volumes. Revenues increased slightly in rates and credit as focus continued on client flow although many clients chose to remain on the sidelines due to market uncertainty. Average VaR remained low at CHF 11 million, and we had only 1 day in Q4 with negative revenue. Corporate Center - Core Functions reported a pretax loss of CHF 565 million. The result was mainly driven by negative treasury income of CHF 343 million, including the cost related to the early redemption or buyback of UBS debt of CHF 75 million and own credit losses of CHF 94 million. We're aware that treasury income can be difficult to understand, and therefore, this quarter we're providing more granularity on the drivers behind the results. For the full year, Group Treasury allocated CHF 921 million of revenues to our business divisions. The negative income retained within Corporate Center - Core Functions for the year was CHF 902 million. Some of this, namely CHF 510 million, is associated with central management of our unallocated funding pool and its negative carry. As a consequence of the acceleration of our strategy and the reduction of long-term assets in the Investment Bank, Group Treasury was assigned the task of managing down the associated structural funding costs as part of the risk management mandate. The retained cost of the unallocated funding pool of CHF 510 million for the year are expected to be reduced as liabilities mature or as we conduct debt management activities. As we plan to continue to reduce total outstanding long-term debt while reducing our funded balance sheet and with tighter spreads on long-term funding that is replaced, we expect these costs to be reduced slightly in 2014 and then to around CHF 100 million in 2015 and to a negligible amount in 2016. Accounting asymmetry and other adjustments had a significant effect on treasury results. Accounting asymmetry related to mark-to-market losses from cross-currency swaps and macro cash flow hedge ineffectiveness account for around half of the full year negative income of CHF 645 million, making them the most significant drivers. The volatility we experienced last year has been within our limits and is managed under our treasury risk management and control framework. We continuously monitor and hedge structural economic mismatches between the currencies in which our assets and liabilities are denominated despite potential accounting asymmetry. The cost for the debt buybacks we executed last year are not allocated, and future benefits will materialize within the unsecured funding pool in Group Treasury. Non-core and Legacy Portfolio saw a pretax loss of CHF 422 million. Revenues in Non-core included a negative debit valuation adjustment of CHF 68 million, as well as losses in rates falling following unwind and novation activity. Revenues in Legacy Portfolio were negative CHF 36 million, mainly due to an interest charge relating to tax obligations of the SNB StabFund. Expenses decreased significantly to CHF 293 million, primarily due to lower charges for litigation, regulatory and similar matters. Non-core assets decreased by CHF 40 billion in the fourth quarter and by over 50% year-on-year. RWA funded assets, PRV and the Swiss SRB leverage ratio denominator are all down substantially. OTC RWAs declined by 25% in the fourth quarter, and we've updated our chart with the anticipated natural rundown schedule. We continue to see interest from other banks and dealers to engage in trade compressions, reflecting the industry's focus on leverage ratio requirements. We've clearly surpassed our RWA reduction objectives for Non-core this year, and we'll continue to aggressively reduce our remaining exposures while maximizing value for shareholders. Legacy Portfolio RWAs increased CHF 1 billion to CHF 31 billion, while RWA decreased between 10% to 50% in nearly all categories in the fourth quarter. This was more than offset by a substantial increase in operational risk RWA, which now makes up 43% of RWAs for the Legacy Portfolio. This increase primarily reflects the effect of the supplemental operational risk analysis I've mentioned. We exercised a StabFund option in the fourth quarter. This resulted in the reversal of the capital deduction of CHF 2.5 billion, which was applied to our CET1 capital and had only an immaterial impact on RWAs. While cost reduction slowed last quarter, our focus and determination to make progress towards our targets is intact. When measuring cost reduction, we exclude changes due to FX movements, WMA's formula-based FA compensation, litigation charges in excess of the first half 2011 run rate and other factors. To date, we've achieved CHF 2.2 billion of gross annualized cost savings. Of the CHF 20.4 billion of costs carried by our business divisions last year, just about 1/3 was allocated from the Corporate Center to the business divisions. IT and operations represent about half of these allocated costs, and the bulk of our efficiency and effectiveness initiatives will be implemented in these areas. We have evaluated a large number of cost savings initiatives both in our business divisions and Corporate Center. We expect our cost-reduction programs to yield tangible results through 2016. Our main focus is on improving effectiveness and efficiency in our operations and processes. We've already implemented a number of initiatives, but a larger number of other work streams, including outsourcing and the expansion of near-shoring operations, are currently in the execution phase, and their effect will progressively become visible in our results. We're building a pipeline of future initiatives, and we expect to see future savings as our outsourcing partners improve their efficiency. As previously mentioned, we remain vigilant on costs, and we're redoubling our efforts to achieve our cost savings targets. The bonus pool for 2013 was CHF 3.2 billion. Following a decrease of almost 40% in 2011, an additional decrease of 7% in 2012, we increased the bonus pool in 2013 by 28%. The pool as a proportion of performance before tax has declined since 2011 as we reduced incentive funding rates. The 2013 IFRS bonus expense was CHF 3 billion, roughly flat year-on-year as lower expenses related to the amortization of prior year awards offset the impact of the increase in the pool. At CHF 1.6 billion, the total amount of deferred compensation awards to be amortized in future periods is slightly lower than it was a year ago. In 2013, we amortized CHF 800 million, and employees forfeited CHF 200 million of prior year awards. Of the 2013 bonus pool, CHF 900 million is scheduled to be amortized in future periods. We expect to amortize about CHF 700 million of deferred compensation awards in 2014, a 13% reduction compared with last year. While the incremental operational risk RWA resulted in an additional CHF 22.5 billion RWA in the fourth quarter, we were able to offset more than 2/3 of this increase or CHF 16 billion through continued, successful reductions in credit and market risk. We ended the fourth quarter at CHF 225 billion, in line with our 2015 target. This represents a 44% decrease since the third quarter of 2011. Operational risk RWA now make up 35% of the total for the group. We ended the fourth quarter with a fully applied Basel III CET1 ratio of 12.8%. Since our Investor Day in 2011, we have more than doubled this ratio. Our Swiss SRB Basel III leverage ratio increased substantially to 4.7% on a phase-in and 3.4% on a fully applied basis. This jump was driven by the exercise of the StabFund option, which contributed to an increase on our CET1 capital, while Non-core and Legacy Portfolio risk reductions contributed to a decrease of our Swiss SRB total exposure. We ended the fourth quarter with a total exposure of just above CHF 1 trillion, down CHF 35 billion quarter-on-quarter. We're confident that we'll meet our 2019 leverage ratio requirements early based on our current deleveraging plans and loss-absorbing debt issuance targets. As we've recently emphasized in public forums and contrary to conventional wisdom, an increase in the leverage ratio will not primarily constrain our Investment Bank businesses. As we've made the necessary balance sheet changes to adapt our Investment Bank to the new environment, the leverage ratio is rather a constraining factor on our corporate and lending businesses and our deposit-taking activities from Wealth Management, Retail & Corporate clients. Higher leverage ratio requirements would more likely impact traditional banking businesses that support the real economy in Switzerland. In our view, overreliance on the leverage ratio and standardized risk models as regulatory tools would set the wrong incentives for banks and could slow economic growth. This is why we believe that the economy would be best supported by a globally consistent implementation of the risk-based framework agreed under Basel III. Our strategy is ideally suited to the new regulatory environment and plays to the unique strengths of our franchise, which offers diversified revenue sources predominantly from fee-generating businesses with attractive growth prospects. We're the best capitalized bank in our peer group and the largest and fastest-growing large-scale wealth manager in the world. Our transformation remains on track, and we have every confidence in our future success. Thank you. Sergio and I will now take your questions.

[Operator Instructions] First question, from Mr. Kinner Lakhani from Citigroup.

So I've got 3 questions. Firstly, I just wanted to check on the DTAs, what tax utilization we've seen in 2013 and if you could kindly remind me of the numbers for 2012. Secondly, on the Wealth Management business, we're starting to see some movement in the kind of 4- to 5-year end U.S. dollar yield curve. I think it moved up about 60 to 90 basis points. So I'm starting to wonder at what stage you can see any redeployment in terms of your treasury, certainly securities yield for a couple of U.S. banks have started to increase in Q4. And certainly, just on the Basel proposal on leverage and how you think that might impact the way you look at leverage going forward.

Thanks, Kinner. So on the DTA question first that you asked, one of the things when you look at our DTA reevaluation process that we go through each year, we have a conservative view in terms of the way that we assess the value of those DTAs. I'm pretty much looking at 5 years' worth of cash flows that would support the balance of the DTAs that we carry. So if you think about utilization versus the write-ups, you're roughly rolling, year-after-year, the write-up versus what was utilized in the previous year. And if you'd like to go back a little bit further, we can catch up with you after the call to show you that. On your second question on -- within Wealth Management, have we seen -- with some of the backups in yields, is there the opportunity for us to redeploy our -- by extending some duration in the portfolio. We run our treasury framework within a set of existing -- set of existing risk limits. And we, in this framework, have not been extending duration. We still look at the trade-off between what happens to shareholders' equity in the event of a rising rate environment to be a nonoptimal choice regarding extension or duration at this point in time. So we're rolling within our existing framework. And that's in line with our views on the -- on what we've seen in terms of interest rates. If you look forward a bit, we're beginning to see, based on some of those facets, looking at our replicating portfolio income over the course of the next few quarters, we could begin to see that bottoming out in some areas. But when you look at our investment of equity portfolio, which is a longer duration portfolio, it's still a couple of years out before we see a bottoming as long as implied forwards stay in place.

Yes, thank you. On leverage ratio, I think that at this stage, we are fully concentrated on continuing to execute and stay ahead of the curve in the current regulatory requirements. I think that we are not speculating on what the outcome will be of all these discussions. I do not expect Switzerland to be well above -- way above any framework that would be out there, so -- but if that should be the case, if you can see from Chart 28, we will be able just by implementing our reduction of balance sheet and ensuring our loss-absorbing capital to add another 100 to 140 basis points. This do not include any retained earnings. Should there be a higher requirement, I think that the real solution will be to reprice, and that cost will be passed to the real economy. So from our standpoint our view in terms of strategic decisions about our business mix, we are very clear that this is the one model that makes sense for us, and any adaptation will not come by exiting businesses but rather by repricing.

And then, Kinner, just on the [indiscernible] so your question refer to the latest Basel proposals or the combination of the old Basel proposal and then the new Basel proposal. If you look at where those -- where some of the most penalizing decisions were made, that impacts areas of the business that are in our Non-core and Legacy Portfolio, so the big area that we're running down. So our view is based on what we see. Even if FINMA were to adopt all of the changes exactly as they've been framed out, we have no worse than a 20-basis-point headwind in the leverage ratio.

The next question is from Mr. Huw Van Steenis from Morgan Stanley.

I had 2 questions. First, in terms of your ROE targets, I noticed in your report that you had subtly changed the language to be quite a little bit more constructive about potentially hitting 15% in 2015, and I was just wondering if you could maybe share some of your thoughts behind that. And number two, Tom, you gave us some useful disclosure about cost-cutting and efficiency programs in the core business. But as I read it, not very much on -- from -- on the Non-core, and I was just wondering if you all could share some of your plans about how you're going to squeeze that CHF 3.3 billion down and over what sort of time period we could -- maybe could see a step reduction in the Corporate Center cost as well.

Okay. Thanks, Huw Van. On the ROE target, just one thing, I mean, we still have the target of 15% in 2015, and we will certainly focus on trying to achieve that. But the point that we've made, which is the same as we've made it last quarter to the extent that there are incremental RWAs that we haven't planned on associated with operational risk that, that could push out the achievement of that target to 2016 or beyond. But our ambition is still, obviously, as you know, with all of our targets, to work hard towards achieving it. In terms of the cost-cutting programs and the time to achieving that, I think it's useful to place this into context. We've made the achievement of the CHF 2.2 billion in gross cost savings in an environment of increasing regulatory requirements, increasing regulatory compliance, changes in structure, a lot of work being done there. So there's a lot of increased spend that actually is a headwind to the cost savings. In terms of looking at the Non-core portfolio, you're exactly focusing in on one of the areas that we are, which is, at which point do we get to that step function in the Non-core and Legacy cost structure? It looks like you've got a run rate of about CHF 250 million, CHF 0.25 billion a year, and we've reduced line items by 44% year-over-year. And yet, we've had a very sticky cost base there. So one of the things we're working on with the team in Non-core and Legacy is taking a look at, are there certain areas, if we're focusing in on reducing LRD or focusing in on RWA, are there certain ways for us to package items together in a way that would allow us to reduce infrastructure costs as part of that? And so that's part of that -- when we're starting to evaluate where we have a preference to move, that's getting factored into that assessment. And I would say I think that that's more likely where we are in the portfolio versus where we were at the start of last year. Overall, if you look at the achievement of cost savings, a lot of these things have transitional time frames to adjust. So I think over the course of '14 and '15 and then bleeding into '16, we'll see the cost base coming out on the targets that we've set.

Next question, from Mr. Andrew Lim from Societe Generale.

First of all, on the Wealth Management division, I appreciate -- you were saying that seasonality is partially a reason for higher cost, but if we look at the annual cost/income ratio, then that's gone up by about 500 basis points. So that argument doesn't really stand. I was wondering if, on the variable cost side, there's really been a step change up to reflect that. And is that the going run rate for the cost/income ratio on an annual basis going forward? And then I noticed you've guided on your effective tax rate about 20% to 25% from 30% from the 3Q stage. Is that entirely due to your more optimistic assessment of DTAs being recognized? And then just finally, on the payout ratio, that should be jacked up to 50% plus once you hit 30% core tier 1 ratio. Is that on adjusted earnings or on stated, if you could remind us?

Andrew, so on the Wealth Management question on cost, I think another thing to remember in addition to seasonal, because we had the change in the deferral schedules associated with the variable compensation for this year, it's important to note that we did have some acceleration of expenses into the fourth quarter that are not seasonal, also were just accelerated expenses into '13 that would have occurred in '14. In the fourth quarter, that was approximately CHF 35 million in Wealth Management. So that's another thing to factor into your calculations. I think the second piece on Wealth Management's beneficiary of the cost saving that we'll have in the Corporate Center as we bring down the structural costs there, so that will allow us to certainly be with -- be well within our target range. And then finally, let's not forget Wealth Management is a business that we're investing in. So we've got the combination of investing for growth in the growth markets where we see the best opportunities, APAC, emerging markets, investing in our ultra high net worth initiatives, investing in our products and services platforms, while at the same time trying to create the structural efficiency. And I think some of that slowdown that we saw in the fourth quarter exactly represents this combination of investing for the future and then taking out the structural cost in the business. So we're still comfortable with that target cost/income ratio range that we mentioned previously. Second, on tax, on the 20% to 25% versus the 30% previously, the guidance we had of '14, there are some technical issues with recognizing losses in subsidiaries under Swiss GAAP, where based on some choices that we've made, we see -- we're a little more comfortable saying that we see a structural rate of between 20% and 25%. Certainly, in '14, that matches our longer-term range of tax rates in that area. Finally, our payout ratio, we calculate the payout ratio on net profit attributable to shareholders.

Unadjusted?

Unadjusted.

The next question is from Mr. Jon Peace, Nomura.

So 2 questions, please. The first one follows on a little bit from that last one, which is when you think about your 50% dividend payout, how do you think about the spread between ordinary dividend, special dividend and buyback? And what sort of factors are you considering when you set the mix and the payout? And then the second question was just on the Investment Bank. You sort of held back on adjusting any ROE target until you'd seen it performed through good and less good markets. So are we sort of there now? And do you feel you might want to revise that potential ROE run rate going forward?

Thanks, Jon. I think that as we communicated in the past and today, we are basically reiterating that our dividend policy will be one of having a stable, predictable dividend, and then any additional capital returns would come on top of it. So we will favor our dividend policy in that respect, where you could -- regular dividend that is stable and predictable. So the mix on -- are we going to address when we reach these targets and when we are also going through the second very important element of our -- is being above 10% past [ph] the stress test. It's going to be a very important element. I'd like to remind you of that will be based on the different options that will be available and considering what is more convenient for shareholders. In respect to the Investment Bank, while we are very pleased with its performance during 2013, during all quarters in different market conditions, I think it's way too premature to talk about changing the targets. We would be and we are structurally very happy if the Investment Bank, on a sustainable manner, achieves a -- its return above the 15%. So there is no necessity for us to change that target and to try to push towards other new numbers or new -- guiding you in that respect. So I think that we are very pleased that we will continue using this benchmark as our reference point.

Next question, from Mr. Michael Helsby from Bank of America.

I've got a couple of questions, if I can. Firstly, Tom, you cautioned us on RWAs going flat [ph] at the third quarter. And I think resulted consensus, RWAs were quite a lot higher coming into Q4 than what you actually achieved. So I was just wondering if you could explain the gap between what you were thinking at Q3 and what you delivered in Q4, and whether we should then expect RWAs to start drifting up more materially from here, i.e. what's the correct baseline for us to work with? And second question, I guess, follows on really from what Jon was just asking. But clearly, you've had the -- the surprise operational risk charge, which came in Q3. You've had new conversations with the FINMA over Q4. You've reiterated quite strongly the -- your dividend target of 50% payout ratio after 13%. And in -- behind all of that, we've got all this noise going on with leverage. So I was just wondering if you could give us some color on your conversations around all this distribution that you've had with the regulator. And just to reask what Jon -- I think asked it, I don't think you answered it, if you could give us any idea on what the mix of dividends, what that stable level of dividend is from a payout perspective, I think that would be extremely helpful. And then just to add on to that on a completely different tack, clearly, in your outlook statement, you highlight in -- the tricky trading conditions that we're seeing at the moment in Q1. I was wondering, is that a reflection of the net new money performance that you've seen in Asia given the volatility? Or is that just more a broad, sort of typically UBS cautious outlook statement?

So, Michael, let me go through these in order. Starting on that -- on the RWA piece versus what we're looking at in Q3 versus the outperformance we saw in the fourth quarter, the Non-core legacy team plays [ph] the fact we were coming into what is traditionally a more seasonally slow period and things started to shut down, as you know, a bit earlier in the year, we saw very good activity in terms of reducing our exposures both on a leverage ratio basis, balance sheet basis and RWA basis through the year end. And it seems that there is strong performance. I think, they are -- I think it literally is the teams just outperformed the expectations that we had at the end of 3Q. Second, as you noted, the adjustment, the move from the temporary operational risk data onto the supplemental analysis calculation that we're doing also reduced CHF 5 billion on RWA. So, one, I do think that that's a factor. Second, I think one of the things I might have mentioned in the third quarter was we're at the 2015 RWA target of CHF 225 billion. There's a point at which, in order to absorb -- there's growing business demand from our Wealth Management businesses, our Retail & Corporate businesses. If you look where the IB is running, they were very conservative coming into the fourth quarter. So they're lighter than their limit. So there is some upward pressure that will exist on RWAs to handle business growth. So that's one of the other things I was flagging. And then finally, third, you may see the emphasis. We have a lot more to do on LRD as we continue to reduce the exposures in Core and Legacy. On the operate charge, leverage ratio, how do you factor all these things in, what are the discussions like with your regulator, clearly, these are all factors that we've built into our capital plan that we discussed with FINMA. And as we've mentioned before -- and I think it's one of the key things that's highlighted as we move into the question on the mix of dividends, which was on Sergio's slide from earlier in the presentation, which is Slide 5. Let's not forget there's this component that we call the management countercyclical buffer. There is a judgment that we have to make, as management team, making our recommendation to the board, what the environment looks like, what future capital requirements might be, that certainly would influence the total payout ratio. And also, to some extent, the mix of that -- and Sergio emphasized earlier one of the key things that we face, which is our baseline dividend is one where we really want to look at that as something that we wouldn't have to reduce in the future. And so the flex is in the supplemental or buyback piece. But I also think that Sergio's comments are dead on with, it's the first month of the year. It's a little premature for us to start to think about mix on supplemental payouts in a future year. And then last, outlook, you said is this a reflection of something that's specific that we're seeing in the business? Or is it a general comment? It's very similar to the general comments we've made in the past because if you look, client cash levels also remain extremely high and they remain extremely high because of the things we cite in our outlook statement. And certainly, some of the events that you've seen in the past couple of weeks don't help to add to client confidence.

Next question from Kian Abouhossein from JPMorgan. Kian Abouhossein - JP Morgan Chase & Co, Research Division: First question relates to coming back to the Basel III leverage ratio. As I understand it, you just mentioned earlier, that the Basel III leverage ratio would have about 20 basis point impact relative to your Swiss calculation. So if I look at Slide 28, the CHF 3.4 billion would be about CHF 3.2 billion, is that correct? And it implies that assets under Basel III would be about CHF 1.08 billion, so just sort of under CHF 1.1 trillion, sorry, trillion not billions. Could you just confirm that this calculation is correct? And secondly, the question I have is relating your Corporate Center - Core division. Could you come or could you maybe marry slide Page 18 and slide Page 39? Because I want to understand the -- how the assets will look like by 2015 and what's actually in these assets, and marry that with Page 18 where you just gave some indication on numbers on the CHF 500 million, how the CHF 500 million will develop over time? If you could maybe repeat that because that was quite important. It was quite quick. The CHF 510 million, how the retained funding cost will change over time in your view? And I would really like to know how you've split the assets, and my feeling is a little bit you understate the assets in the IB because clearly your funding cost for the IB, and most of the funding costs will be IB-related this year [ph]. So I really try to understand what is the real economic assets that are related to the IB, i.e. IB assets transport [ph] in the Corporate Center?

Thanks a lot for those questions. So on the leverage ratio question on the 20 basis point impact, we can run through the numbers with you after the call, but it sounds roughly in-line in terms of the calculation you've done. It's a forward look on where we are after reduction in the Non-core and Legacy, so there are some adjustments maybe that you'd have to do. And you also want to factor in your assumptions on our loss observing capital issuance, both of the low trigger in the markets or the high triggers through the DCC [ph] compensation plan. On the... Kian Abouhossein - JP Morgan Chase & Co, Research Division: But just to understand, the assets roughly CHF 1.1 trillion, it's -- would that be roughly right estimate after your restructuring is achieved?

You might be a touch high, but that's reasonable enough for now. I mean -- and we'll follow up with you after the call. Then on your -- you asked to marry Slides 18 and 39. I would actually marry Slides 18 and 36. The question isn't the asset side because the question is really for us, how do we adjust the funding mix. So the unsecured funding pool is an excess supply of long-term debt, long-term structured debt that we have that, when we reduced the size of the Investment Bank so dramatically under the acceleration of our strategy, we had an overhang of liabilities that we have to run down over a longer period of time, so actually, it has nothing to do with the current IB. It has everything to do with the old IB, which we put into Non-core and Legacy. The only difference is we put the assets in Non-core and Legacy, we put the liability structure into Corporate Center - Core because Group Treasury is responsible for risk managing the funding profile of the bank. So I would say that the way we're presenting the Investment Bank currently is correct for the current Investment Bank. Kian Abouhossein - JP Morgan Chase & Co, Research Division: And can you just run through the numbers on Page 18, again? How the CHF 510 million changes?

Yes, so CHF 510 million, we said slight reduction in '14, down to about CHF 100 million, loss of CHF 115 million and roughly 0 in '16. Kian Abouhossein - JP Morgan Chase & Co, Research Division: And just to understand, I mean, you must have -- so how much of your total assets that are in the Core because I'm a bit confused now. Now I get the impression part of the funding is related to Non-core, but you call it Core. So I'm just trying to understand how much of the Core is actually -- will remain of these assets after you finalize your restructuring?

Well, when we finalize the liability portion of the restructuring, then we retain funding costs, that will go to 0 because it's the excess long-term debt, essentially, that we no longer need because we so dramatically reduced the long-term asset demands, which used to be created from the old Investment Bank carrying highly liquid positions that we had to fund term rather than overnight. So we had excess liability term that we're running off of a -- over a period of time. And then as you know, we can do that through a mix of whichever's optimizing it. Do we just let some things roll off? Or do we engage in debt management activities like the buy back -- the buybacks that we had last year. Kian Abouhossein - JP Morgan Chase & Co, Research Division: Great. Last question, if I may, maybe I need to follow up on that as well. But last question is on risk-weighted assets on the CHF 225 billion, you're basically 0 and you're saying you're going to be below that, but you're not being more specific. I think it's Slide 26. Could you be a little bit more specific for '14 where we should be thinking about you're going to end up? I mean, CHF 25 billion is not hugely ambitious considering you're doing such a great job on RWA reduction.

So I think let's remember a few things. First, we have things like the FINMA mortgage multiplier that took place just at the beginning of this year that puts upward pressure on RWAs. Second, as the Investment Bank sees opportunities, they're certainly not going to run as far below their limit as they currently are, so they may be buffing up a little bit higher. There's growth in Wealth Management, growth in Retail & Corporate, growth in Wealth Management Americas. Those are all upward [indiscernible] upward pressure. There's also the June countercyclical buffer increase that recently was announced by the FINMA [indiscernible] Federal Council's approval. So you got these growth effects that will be bumping up RWA. Against that, we'll be running down the Non-core and Legacy Portfolio, but as I mentioned a little bit earlier, increasingly, there may be more of an emphasis on LRD reduction rather than RWA reduction. So I think these target schedules that we have in place are the correct target schedule considering both the reductions that we need to make, but also accommodating growth up for the profitability of the business.

The next question is from Mrs. Fiona Swaffield from RBC.

Just on 2 areas. Firstly, on the cost side, sometime ago you gave a slide with all the moving parts on costs and an absolute cost target, other things being equal, of about CHF 20 billion, could you talk us through why we're only at something like CHF 2.2 billion of costs achieved? I think we were supposed to be at CHF 3.2 billion according to your Q3 '12 slides? And whether the CHF 5.4 billion growth is still your plan and just all the moving parts? And the second area is on the European offshore tax amnesty impact. I think at some point you said CHF 12 billion to CHF 30 billion of net outflows from this. Where are we in that process? Could you give us a number? And given the other tax amnesties that are happening, do you think it will be larger than that over time?

Yes, thanks for that question. We're still targeting the CHF 5.4 billion in gross savings. You're correct that the previous projection that we'd had a couple of years ago as we were looking at this was for the CHF 3.2 billion at this point in time. And we've mentioned that we're redoubling our efforts. I've also mentioned some of those headwinds that we saw, and that some in the wok [ph] are due to some of the seasonal expense, pops that you see in the fourth quarter, which will be mitigated in 1Q. Some of those are also the real costs, real increase costs of regulatory compliance, some of the legal, the non-provisioning costs associated with legal regulatory and other matters that also are headwind. But we're still focused on a CHF 5.4 billion in gross savings reduction. And then that's up against some of it could be timing of investments. On the European offshore question, yes, we still think the CHF 12 billion to CHF 30 billion range is the right range because of some of the things you mentioned. There is, as we see clients expanding their voluntary compliance with some either tax amnesties or questions about declaration of assets, our assessment of that range is still correct. I think a more meaningful number now given where we are in the process is just to realize that our 3% to 5% net new money growth target incorporates that whatever outflow we expect, whether it's the low end of that range or the higher end of that range.

Next question from Mr. Christopher Wheeler from Mediobanca.

Just a couple of questions which, I guess, at least on strategy, I suppose. The first one on Wealth Management Americas where, obviously, you're very excited about the performance there. But again, I suppose I ask of your cost, just to get my head around where you are on your targets. Clearly, one of your biggest competitors pushed up their target for their cost/income ratio, pushed it down to 78% to 76%. And I guess, given the progress that Bob's made, what is the next step here? Or should we be saying to ourselves, "We can't really compare this now with the bigger players in the market and we have look at a very different animal?" So I'd just like some comments on that, given the progress you've made there. And then on the Global Asset Management business, clearly, I've always thought that the business was probably the best bank-owned, wealth asset manager around. And I'm just wondering whether you can share anything with us that you think you're talking to? Or like about what might change? Because it does appear to me there are quite a lot of changes around the asset management industry and also, in particular, where asset managers are linked fully closely with wealth managers.

So Chris, I'll take the first one. I think Sergio will take the second one. Yes, on Wealth Management Americas, as you mentioned, we are extremely happy to think -- you look back a couple of years ago, and think this business, to think that it would have CHF 1 trillion in invested assets, CHF 1 billion in pretax and advisors with a productivity of a CHF 1 million a piece is really quite an achievement. And the question, "Well, where are we going next? And how does that compare to others?" Let's not forget those -- the larger firms in the U.S. that are going to play the scale game are always going to have a slight advantage in terms of cost/income ratio versus our targets. So number one, that's just a structural choice that you make in the strategy. In our view, we believe we'll earn a very attractive return on the business based on not trying to play the scale game, playing a very focused strategy and also that focused strategy on high net worth, ultra-high net worth aligns with what our strategy is in Wealth Management globally. So in our case, we think that's the right way to marry this and not try to push into a more core affluent or affluent business to try to change the scale profile.

Tom, do you think -- I mean, do you think that this -- the shape of your business also means that when markets turn down again, that actually you'll outperform the competitors? Is that part of the view you have?

Our view that this is the strategy that Wealth Management Americas has is very robust through a cycle. One of the key things you can get hung with in a turn of a cycle, if you're playing a scale game, is excess real estate or you have a younger training classes of advisors that have -- that struggle during the downturns of markets. So we think focusing on experienced advisors, wealthy clients, manage our cost base well, manage the business for productivity is the right approach and it'll yield a -- on a risk-adjusted basis, a better profit profile than for us to play a scale game.

So on asset management, I think that, as you know, we have a strong platform and in terms of global footprint, expertise across different businesses and asset classes, also in passive but also in outside capabilities. So I think this is a pretty good base. We have communicated clearly in the past that asset managers has an important role to play within our business mix. It's a low capital absorbing capital, generating very good fees. Ueli will take on -- Ueli Koerner will take some on John legacy, also in respect of assessing the strategic movements we want to do in this business. He will go through reassessment of this in the next few months. And as soon as we have something important or meaningful to communicate, we will do so. This is not going to be before the end of the second quarter for sure. But for sure, we are focusing on how to better leverage these assets. As we now concluded the journey of restructuring many other parts of the bank, we will also look at how to do -- further enhance and take out value of our asset management business.

Next question from Mr. Jeremy (sic) [Jernej] Omahen, Goldman Sachs.

I have a couple of very short questions and then maybe a slightly broader question. So the first one is for you, Tom. I was just wondering, I thought that this was going to be the quarter where UBS releases the standardized risk-weighted asset number for the first time, but I couldn't find it. I was wondering whether that is still the case? And if not, when do you plan to release that? Then I have a question on Page 34 on your -- Page 34, yes, on your deferred tax assets. And I think we all obviously knew that you have plenty of DTAs in the U.S. and some left in the U.K., but I was surprised by the deferred tax assets in Switzerland. Can you just remind me which part of the Swiss business you made losses in for those DTAs to be there? Then I have a question on, very briefly again, on the issue of subsidiarization, geographic subsidiarization. I think in your last quarterly report, you made a reference that you might be thinking of establishing subsidiaries, particularly in Switzerland, and bundling some of your businesses in there. And I was wondering, a, is that still the plan? Do you plan to proceed with this; and, b, what, if the answer is, yes, what impact on the profitability of the non-Swiss businesses would this have, i.e. would you have to start charging them market rates for liquidity or not? And then as a final question, which I'm really hoping to get some more color on. UBS, I think before probably up until 2010, 2011, was very vocal, together with Crédit Suisse, on the topic of collaboration revenues and the synergy between running an investment bank and running a private bank at the same time. Now UBS is alone in executing, successfully executing, very deep cuts to its Investment Banking business. And I was just wondering whether you have a gauge or whether you have a sense as to what the revenue impact on the private bank has been due to the sharp downsizing? Or I guess I could ask this question differently: Do you think there is an impact at all? And if the answer to that, obviously is, no, then I guess the follow-on question would be, whether these collaboration revenues are something that we've overemphasized in the past?

Okay, thanks, Jernej, for the questions. I think there are 2 things in terms of the question on publishing information on standardized methodologies. What we've said in the past is that our view is that some of the most valuable things that are done are by the BCBS where there are standardized portfolios given out to a number of banks. Those are -- the data has been crunched by the banks, sent back to BCBS, validated and reviewed by them and then published anonymously. And then that allows a data collection for boards to discuss with their management and regulators to discuss with management banks that understand how some of the differences that exists. And based on everything that we've seen, on the market-risk standpoint, we showed up in the middle of the pack. On a credit-risk standpoint, from what we saw, we showed up to be slightly more conservative than the median and to the extent you had outliers, we've seen those banks have discussions with the regulators and their boards. There's some additional disclosure that we've added that may help you on that on Pages 77 and 78 of our report that showed a breakdown of RWA by type and also show some information on standardized versus advanced approach that may be helpful. But the full just data dumped to the market of the standardized calculation, we think, is actually pretty misleading information because it's got to be taken into context, and we think the BCBS is doing good work on that topic. On the DTA question you asked on Slide 34. It's not losses in Switzerland, it's losses in subsidiaries, foreign subsidiaries that have been booked into the parent bank branch in Switzerland and create tax losses at Switzerland. So it's not that we had a loss in a Swiss business. Subsidiarization, we're still on track, exactly what we said last quarter is what we intend to do, and we're in the process of implementing that. And then the fourth question, I think Sergio can answer.

Yes, well, when we look at our strategy, I mean, 2 years ago, we started really to grow and go down and understand clearly what kind of businesses within the IB where businesses were, a, were critical in order to help and sustain our value-added proposition in Wealth Management and in Corporate in Switzerland, very important; and the second element was really the one driven by what are we good at? Where can we compete globally and give our best services? First of all, to corporate and institutional clients, which is the prerequisite for us to be strong in supporting Wealth Management. So that was basically the journey in the last 2 years. A year ago, we accelerated that focus and what we do today in the Investment Bank is basically what our Wealth Management needs in order to support these businesses. But the fractional -- there are some areas in the credit businesses that we are now using more open architecture and other providers, but in essence, that equation hasn't changed. Actually, by focusing the IB in looking at Wealth Management as its best clients, we're really enhancing even more the spirit of collaboration and cross utilization, which is naturally very, very compelling and important across-the-board, in Asia, particularly. But also, I would underline how it's important in Switzerland and more and more in the U.S. and across the globe. So nothing has changed. If anything has changed it's that we have even more focus on those aspects.

That's very helpful. If I may, Tom, just follow up on one technical aspect. So if UBS goes down the route of geographic subsidiarization, so if you have a legal entity Switzerland, legal entity U.K., legal entity U.S., right, will you have -- will UBS have to lend to the non-Swiss entities at market rates? Because I think that's important because it would mean if you have to charge your Investment Bank at least a market rate, i.e. an arm's-length rate for the liquidity, I guess that would have a substantial impact on the profitability of those legal entities. Maybe I'm completely off, but...

Yes, but when you look at the subsidiarization effect, we have Wealth Management businesses around the world. And if you look then at the legal entity structures which we'll be required to by regulators, running liquidity coverage ratios by entity, net stable funding ratio calculations by entity, so overall, there will be an effect. But if you look at the development of our onshore businesses in Wealth Management, one of the reasons why that strategy, the combined strategy of Wealth Management, the very focused Investment Bank, makes a lot of sense. We believe that we're in a position and all of our targets to take into account the subsidiarization effects that we expect to see. So you're correct, there will be some factors, but it's not like there's this central place that we'll have to have funding and it will look at something [ph] of the costs. There will be funding within entities. And also, when you look at the profile of those entities, some of those entities will have attractive credit rates.

Yes, also, it's very important to understand that all this subsidiarization exercise is meant to facilitate a recovery and resolution process and not that we plan to run on a stand-alone basis each legal entity. That's not the spirit of how we and regulators in general look at this dynamic. So all these issues -- what we want to do is to make the system and resolvability and -- of any part of our group much more concrete and feasible, but clearly, keep all the advantages of being a united group.

And I think, Jernej, if you look at what some of the large U.S. banks have already done around this, I think it shows you, actually, the possibilities as some of them have commented on the possibilities of the combined operations and some of the advantages of that.

Next question from Mr. Stefan Stalmann, Autonomous Research.

I have just 2 questions left, please. The first one, what kind of interest rate environment do you assume to get to 15% ROE eventually? Or maybe worded in a slightly different way, do you think you would get to 15% ROE with no change in rates from where they are currently? And the second question is, you have not yet applied the value adjustments to your accounts. Could you, in the interim, guide what kind of amount of uncollateralized derivatives you currently have that would be impacted by these value adjustments?

Stefan, thanks. If I understand your first question correctly it's, how much harder is it to reach our ROE target if there isn't -- if you don't get the change in -- upward move in interest rates that exist in the implied forward curve? That would certainly be a drag on us and could hamper that. So how much could that push that out? That could push it out potentially another year, if we saw completely stable rates, and no move on implied forwards. But increasingly, when you get to a more normalized environment, we believe those moves will come through perhaps faster than some people think. On the FDA question, we do have a note in the -- in our financial statement, referring to Note 1, where we comment that, yes, we are currently in the process of exploring FDA adoption and that's possible in 2014. But one of the things I'd note on the uncollateralized derivatives side, that exposure is almost entirely in our Non-core and Legacy book, which is the book that we're running down. So the ultimate impact of that will depend on how much you run down Non-core and Legacy, and we believe the impact is a manageable number in our P&L.

Next question from Mr. Jeremy Sigee from Barclays.

It's really follow-ups at this point, actually. Just a couple on the flows, actually, where you used the Slide 9 where you split your flows by region. Firstly, could you just talk about Europe, what you expect from Germany, France, Italy in the coming quarters? I see you've gone from modest inflows to outflows again, and just how that plays out with changes underway in tax amnesties, et cetera? Also, secondly on that slide, emerging market flows collapsed in 3Q, 4Q, sort of suggests you're getting the negatives from the emerging market wobbles rather than the flight to quality positives that you sometimes get in those kind of circumstances. I just wondered if you could talk a bit more about that? And the finally, on the Investment Bank, headcount down a couple of percent in the quarter, but obviously the bonus pool being up is quite an important sign of the success and stabilization of that franchise now. And I just wondered where you see headcount going from here going forward in the IB?

Well, let me take in order -- in reverse order your questions. I think that in terms of headcount and the restructuring of the business, the job has been done as of January 1 of last year. We have been making some fine-tuning in execution of that strategy during the year. I don't see any meaningful change in our strategy in respect to headcount and resources involve [ph] on personnel and, also, on financial resources, balance sheet or risk-weighted assets. I think that the compensation dynamics at group level were clearly addressing the fact that in the last -- over the last couple of years, tools segments of the bank and other segments in Corporate Center were penalized by the actions we took on variable compensation will now normalize the situation based on market conditions [indiscernible] in the competitive landscape and our performance. So we feel that this is a good baseline on how to judge our business going forward. You also raised the issue of the outflows in Europe. Look, this process, I think, in Germany, we do expect that the regularization, the voluntary compliance program still is rolling out, and we do expect the German clients -- we do expect our German clients to complete that regularization by the end of this year. So you won't see a drastic one-off event into any of the future quarters. In France, it's ongoing. We'll also take some times. In Italy, the government has just announced a voluntary compliance program. That has still to be ratified by the parliament in Italy and is still subject to potential discussion or negotiations. So it's unlikely that you will see a major event in the next 3, 6, 9 months that leads into a huge volatility. But as Tom pointed out before, even though that, and you can see the trend, our effort is really to manage towards increasing share of wallet with those clients to offset the outgoing assets, gaining new clients and gain market share. And that's the reason why we are confident that we can stick to our overall 3% to 5% growth in net new money, which includes those outflows. And I think I'm missing the second.

The exposure.

On the flows, specifically in Wealth Management, just that same slide, Slide 9 it shows a collapse in flows in 3Q, 4Q. So as I was trying to say, it looks like you're getting the negatives of the emerging market wobble. In the past, it's sometimes been a positive, you get a flight to quality effect, and it doesn't seem to be happening at the moment?

Right, look, I mean, when you look at emerging market dynamics, I think that in broader terms, if you mix that one with the Asian numbers, so as you would probably have seen in similar comparisons, the numbers doesn't look so bad. It is true that when you look at certain aspect of x Asia, the dynamics there in terms of growth -- sorry, wealth generation monetization of wealth are changing as a function of what we see in those economies. So although the secular opportunities and -- in those markets do remain intact, the short-term headwinds are clearly there.

Many thanks. I guess, we now conclude the call for analysts and investors, and we are opening up for questions for media.

Ladies and gentlemen, the Q&A...