EFG International AG (EFGN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. A very warm welcome to EFG International's First Half 2025 Results Presentation on a very lovely sunny morning in Zurich. As usual, I'm joined by our CEO, Giorgio Pradelli; and our CFO and Deputy CEO, Dimitris Politis. We will have presentations on both topics from the gentlemen, and then we have enough time for the Q&A session. Afterwards, as usual, I point out the disclaimer on the slides. And without any further delay, I hand over to Giorgio. Thank you.

Thank you. Thank you, Jens. Good morning, and a warm welcome also from my side to those that are here in the room live in Zurich or via webcast and that we are here to discuss our results for the first half of 2025. Now before going into the presentation and looking back at the last 6 months, I must say that they were quite eventful months if you look at the global affairs and also if you look at the financial markets. On the other hand, for EFG, actually, they were excellent 6 months, and we had a very successful period. So for this reason, you can imagine that today, we are quite pleased to be here to present this strong set of results to you. Let us now go to Page 4. And as you can see here, we like to emphasize again that we have delivered another set of consistent performance, and we are progressing towards our 2025 ambition. In a nutshell, we were able to generate a very strong growth, we were able to translate this strong growth into a record profitability and attractive returns for our shareholders, and also, we were able to deploy our excess capital into 2 acquisitions. Let us now look at the key highlights. Let us start always from growth. We delivered strong NNA of CHF 5.4 billion. This is equivalent to a growth rate of 6.5%, and this is above our target range. Now we love NNA, as many people in the bank knows, because clearly, this is a leading indicator for the future performance of the bank, but this is also a clear indication that our clients appreciate impartial advice and the comprehensive solutions that our client relationship officers and the teams offer to them. Now growth is very important, but growth has to be sustainable. And we are very pleased to report that this is actually the 13th consecutive semester of positive NNA. And as I said, growth is important, but also has to be sustainable and profitable. And let's now go to profitability. We were able to translate the strong growth momentum into a record profit for the first 6 months of 2025. We have delivered a reported net profit of CHF 221 million. This is 36% higher compared to the same period of last year, and we were able to deliver a strong return on tangible equity of 24.4%, which is clearly above our target range, as you can see on the right-hand side of the page. These figures include a contribution from insurance recovery. Dimitris will go in more detail later. This shows only that derisking for us remains a key priority. But what I'd like to emphasize is that even without this exceptional one-off item, we would have delivered a record profit for the first 6 months of the year in any event. Now what we like when we are able to generate growth that translate into record profitability that we are able to generate surplus capital, and then we are able to deploy this excess capital into value-accretive acquisitions. And like we have already announced during the course of the semester, we were able to sign 2 acquisitions, one in Geneva, Cite Gestion; and the second one in Auckland, New Zealand, ISG. So all in all, a very good, strong start of the year and a continuous progress towards our objectives for the rest of the year. With this, I pause and I hand over to Dimitris, our CFO and Deputy CEO, who will now provide a detailed overview of our financial performance for the first semester of 2025. Thank you. Dimitris, the floor is yours.

Thank you very much. Good morning, everyone. I will start with Page 6. Page 6 is the usual page which gives you pretty much the high level view of our performance over the last few years. As Giorgio said, we are very pleased to be going into the last year of this business cycle on a record profit. The headline profit after tax figure is CHF 221.2 million. This includes a one-off recovery from insurance on a legacy case, which we resolved back in 2022. The net impact of that recovery is about CHF 45 million. And as Giorgio already made the point, at CHF 175.8 million, which is the result, excluding that one-off recovery, we would still have a record first semester in 2025. Now in terms of how did we get there? I think the 2 key ingredients that we have is that we continued to create operating leverage in the semester. The revenues are up 7%, mostly on commissions. The costs are up 4%. A lot of that has to do with variable compensation. And that means that in the end of the day, we have enlarged the profitability, we have improved the cost-to-income ratio by approximately 2 percentage points compared to last year. And clearly, we have managed to deliver a record return on tangible equity at 94% or 24.4%, including the one-off gain. On Page 7, we have the usual page with the headline numbers, 6.5% growth in net new assets. I'll come back to that with more details. 97 basis points of revenue margin, excluding the recovery. 35 CROs which have been hired or signed to be joining in the next couple of months. CHF 162 billion of AUM. In terms of the profitability, you'll note the resilience in the revenue growth. Revenues are up 7% and the improvement in the cost-to-income ratio. And clearly, as I also mentioned, the record profit and the record return on tangible equity. Last, but not least, on the right-hand side of the page, all about capital and liquidity in a time where there's more volatility in the market, we managed to create almost 3% of new capital on a gross basis in the first 6 months of the year. Our capital ratios are 17.1 core capital and 20.6 total capital ratio. These figures fully include the adoption of Basel III final in Switzerland. And finally, the LCR is at 255%. I will skip the next 2 pages, which gives you all the detailed numbers. And then on Page 10 gives you a bit of a history or a bit of a trend over the last 3 semesters. And starting from net new assets, we've had 3 consecutive semesters where our growth has been beyond our 4% to 6% target range. Clearly, that is a strong beat, and it's a strong momentum for growing the business, and also achieving profitable growth, which is the key target for this business cycle. You will see that we are very resilient when it comes to our revenue margin. We are at 97 basis points this semester. This is the same as the first semester of 2024 and actually 2 basis points up compared to the second half of 2024. Cost to income has been improving continuously. If I were to draw the same and go -- the same chart and go even further back, you will see that every single year, we've been managing to bring down our cost-to-income ratio. Now it's at 71.2%. And the return on tangible equity has been constantly be going up with this semester being a record semester. On Page 11, we have the first page when it comes to our growth. We started the year with CHF 165.5 billion of assets under management. We added CHF 5.4 billion through net new assets. This is 6.5% growth annualized. Markets were positive, around CHF 3 billion. Clearly, the currency translation with the weakening of the dollar has worked against us, that is CHF 11.7 billion. So we are ending, on the 30th of June 2025, with CHF 162.3 billion in AUM, minus 2% since the beginning of the year. Pro forma, including the 2 acquisitions that we have signed, but we have not yet closed, we would have been at around CHF 173 billion of AUM at the end of June 2025. I think what is a bit more interesting is what you see on the right-hand side of the page, the CHF 5.4 billion came with a different mix between new and existing CROs. If you remember our disclosures at the end of the year, in 2024, approximately 90% of the NNA came from new CROs. So the contribution of existing CROs was fairly modest. In this semester, we're actually seeing a bit of a reversal of the trend. So 1/3 is now from the existing CROs and 2/3 is coming from new CROs. So it's a lot more balanced and closer to the mix that we would expect going forward on a medium-term basis. Page 12, in terms of which were the regions that actually drove this growth. You'll see that all of the regions are in positive territory, all the regions are either above 4% or very close to 4%. Clearly, we have Asia Pacific leading the pack at CHF 1.8 billion of NNA and roughly 9% growth for the semester. Latin America managed to have the highest growth rate at 14% and contributed CHF 1.4 billion. But you will see that the very positive element of this diversified business is that we have 5 regions plus EFGAM funds in this semester contributing positively, which drives the overall growth of 6.5% on average for all the regions. On the next page, we go into the movements in CROs. The net number of CROs has gone marginally down. As I mentioned earlier, we have hired 18 CROs. We have signed another 17 for a total of 35. Clearly, we are continuously doing performance management in our CRO base, which explains the very small net drop in CROs. And I think on the right-hand side of the page, you will see also that the average AUM per CRO have gone down. Now they're at CHF 328 million per CRO. The reason for that is the negative impact that we've had from currency exchange. So it's the weakening of the dollar that has driven the average AUM to go down on a per CRO basis. In terms of hiring, at these levels, we're coming back to a more normalized hiring level. If you remember, in 2023-2024, we had accelerated because of market dislocations. Since then, the numbers are more around the 50 to 70 gross hires per year that we have guided as being a reasonable hiring range for us going forward. Now moving a bit more to the P&L on Page 14. You'll see that clearly, our revenues have gone up substantially. These are 15% up year-on-year including the one-off recovery, which is recorded in net other income. Otherwise, it's a 7% increase in revenues. Why is this page important? Because our strategy, and this has been communicated already about 12 months ago, our strategy in the medium term is grow the business, build scale and at the same time, defend margins. So on this page, what you'll see is if you look at the average AUM, which is the second bubble, you'll see that we started with CHF 153 billion in the first half, growing to CHF 160 billion, growing to CHF 165 billion roughly on average for the last semester. So we have been growing our business throughout the period. At the same time, if you look at the bubble above, you will see that we are fairly stable throughout the period. So our defense on the revenue margins has been quite successful over the last 6 months. Now in terms of actual absolute numbers, you'll see that the majority of the growth came from commission income. This is something that we like very much. Approximately CHF 40 million-plus compared to the first half of 2024. This is on the back of the growth in AUM. It's also on the back of adding an extra basis point on the margin, and you'll see also on the following page or the following pages that, that is also high quality revenue because it is included in the recurring margin rather than the more volatile trading parts of commission income. In terms of the other elements, net interest income, including the swap -- the treasury swap revenues were pretty much flat year-on-year. And we had very good activity in currency trading. In the first half of the year, it was very similar also to the one that we had in the first half of 2024, but this has clearly supported the net other income. Life insurance gave us 2 basis points of revenue in 2025. It was 4 basis points in 2024. And clearly, we have the CHF 55 million of the one-off insurance recovery, which has also added to the performance in net other income. Now on Page 15, we show on the left the revenue margin evolution. I will not spend too much time on that. I think most of the trends I have already described on the previous page, spend some time on the right-hand side of the page, because clearly, the world is evolving, and we're seeing many changes happening in the last 6 months. We have now clearly have some more volatility on the currencies. For that reason, we are now including some indications of what the weakening of the dollar could be as an impact of our cost-to-income ratio. As you know, we have about half of our AUM in dollars, and we don't -- we have a much lower percentage of our costs in dollars, so we are long dollar, if you want -- if you wish, in our P&L. So a 10% variation in the dollar-Swiss rate costs 2.2% in the cost-to-income ratio. Clearly, the exposure on the euro-Swiss is a lot smaller at 0.4%. The impact from interest rates, which we have been reporting for the last few years has actually gone down. Now it's about CHF 45 million of profit. If all reference rates go down by 100 basis points, so I think where does that leave us is what you see at the bottom line of the page for us in terms of our actions going forward and what we are expecting is we're expecting clearly a positive for our organic growth. That is part of our ongoing strategy to build more scale for EFG. The structural weakness of the dollar is a negative. Clearly, the reductions in interest rates are going to be a negative, but we are also seeing in this semester some releveraging. We have a stronger contribution from both new and existing CROs in giving out new loans, and this will also support revenue margin going forward. Page 16 is about commissions. As I mentioned earlier, our recurring margin gained a basis point. So now it's 34 basis points. The nonrecurring, the more trading side of it, is still at 10 basis points for a total of 44. The improvement in the recurring is on the back of higher penetration of mandates in our AUM. We've reached 64% in the first half of 2025. To remind you that in 2022, we have set ourselves a target of 65% to 70%. So I'm very close to achieving that target. And what are the drivers for this success is what you see on the right is significant increase in advisory AUM as a mix. The discretionary is holding very stable but also the balances of discretionary in absolute terms are going up. And we are headed for our fourth consecutive year of increasing revenues from structured products. And we are also expanding our offering and the AUM that we hold on private equity products. Page 17, which is all about costs. I think that historically, we have been very good at managing costs, also not just the absolute amount, but also in relation to our revenue growth so that we create operating leverage. Our cost-to-income ratio improved to 71.2% this semester. This is 1.4% better than the first half of 2024 or 1.7% better than the -- than what we posted for the full year 2024. Now in terms of absolute numbers, costs are up 4%. This is driven by personnel expenses. The reason that the personnel expenses are up is that if you look at the time series that is shown in the chart, in the last 3 semesters, you will see that we have been constantly going up. This is the impact of the investments that we made in '23 and '24 now flowing fully in the P&L. Clearly, this is now fully printed in the first half of 2025. There is an increase in variable compensation over the first half of 2024. On the other hand, the other operating expenses, what the G&A has gone down by 4% compared to the first half of 2024. And this is part of the conscious efforts to manage costs. This is despite higher legal and litigation costs and all this performance is also in spite of the strengthening of the Swiss compared to the other currencies, which has clearly a drag in the P&L or the cost-to-income ratio and the P&L in the period. In terms of cost management, I'll turn you to Page 18. I'm not sure if the title is -- should be active cost management or actively managing efficiency because it's clearly -- it's not a reduction in cost is how do you manage your cost base while you're growing at very high rates. And the idea here has always been we need to make sure that we make room in our cost base to be able to fund our future growth. And the simplicity program that we are describing on this page does exactly that. You will see that in October 2022, we announced a target of CHF 40 million. We expanded that target to CHF 60 million back in July 2023. At this point, we are on a run rate of current execution of CHF 63 million, so we are above what we have stated and we expect to close the year at CHF 66 million. So clearly, a lot of actions included over the period of the last 2, 3 years. In terms of areas for these actions, you will see that on the right, there is -- a lot has to do with regionalizing some of the functions and the task that we are doing or even centralizing them in some locations. This cuts across risk, finance, compliance, operations, IT, so it goes across all functions. We have been renegotiating contracts through more effective procurement. We have been optimizing our real estate footprint, and we also have included demand management in our IT efforts to make sure that we prioritize what makes more sense and has a bigger impact in terms of technology and delivery for everybody else in the bank. I think I'll turn to the next page, which is Page 19. It's the usual page about our strong balance sheet. You'll note that there are not many differences compared to the balance sheet in terms of the composition that we have reported before. We have about CHF 17 billion of excess liquidity. So in terms of liquidity, we are in a very good position in terms of allowing the capital that we have and the liquidity that we have to grow the business. Capital ratio of 17.1%. Core Tier 1, total capital ratio of 20.6. Again, to mention that these already include the full impact of the adoption of Basel III final. Leverage ratio of 5.3%, and liquidity coverage ratio at 255%. In terms of our buyback programs, in the last 6 months, we acquired 4.8 million treasury shares. And the Board yesterday decided to launch another treasury buyback program for the next 12 months. It is going to be for 9 million shares and the purpose of the program is to purchase shares to fund variable equity compensation schemes that we have for employees. It's been the same purpose that we've been buying treasury shares over the last 4, 5 years. So no change on that. In terms of the derisking. We mentioned the recovery from the legacy -- from insurance on the legacy case, which is very important in terms of turning the page on some of the legacy issues. The other topic where we've been active in the first 6 months has been our life insurance portfolio. So in February 2025, we disposed of our entire synthetic portfolio. That was a combination of life insurance policies and hedges on them. So that is now gone. There is no residual exposure. And in May-June of 2025, we also managed to sell approximately 22% of our outright exposure. This is us holding life insurance policies. So now the exposure is down to CHF 250 million on our balance sheet. Page 20 gives you the walk in terms of capital generation. Once more, like it shows you that we are a very capital-light model. We managed to create 2.9% of capital on a gross basis. We have -- clearly, the growth has pushed us to increase risk-weighted assets. So that is one use of the excess capital. We have dividend and we've done the buyback. That gets us to a core Tier 1 of 17.4% as at June 30. And then we also have a bit of a technical movement, which has to do with our Tier 1, which is a dollar-based instrument. And according to the accounting rules, the revaluation of that instrument goes into core capital rather than Tier 1 capital. So that eats up another 30 basis points of core equity. But as you will see, the total amount, the total capital at 20.6 remains constant. This is a timing difference in the sense that when this instrument matures, that 30 basis points will come back and will also help core Tier 1 capital at the time. Now as Giorgio said, when you're creating all this capital, you need to make sure you do value-accretive acquisitions. There were 2 that were announced during the period. I'll go to Page 22, just to remind you of the parameters that we have or the requirements that we have whenever we were assessing all these transactions. Clearly, we want to grow the business in an area where we are present, where we want to add capabilities, but we also need to realize some synergies. So it's a matter of acquiring in the right locations. Number two, which is the cultural fit, is probably should be #1 in terms of the sequence that we described it. If there is no cultural fit, we do not do acquisitions because we know that you need cultural fit to make it successful. And clearly, number three is something that we, from the finance perspective, we will definitely look a bit closer to make sure that we actually create value and one measure of value is to make 10% on your investment by the third year. Now I'll briefly go through the 2 transactions that we have already announced and we are in the pipeline of closing. First one is Cite Gestion in Geneva in Switzerland, it's about CHF 7.5 billion. And the beauty of Cite Gestion is that it's a scalable platform, which has a very clear organic growth plan. You will see on the page its growth plan between 2016 and 2024. It started with CHF 2.3 billion, has grown to CHF 7.5 billion of AUM, and it's still aggressively growing already in 2025. We expect to add value by providing a much bigger and a much more robust balance sheet by having expanded product capabilities and will clearly also provide support on the back office infrastructure. We expect to close this transaction in the second half of the year. We are waiting for regulatory approval and the capital impact of this transaction is 110 basis points. The second one is ISG in Auckland, New Zealand. This is a much smaller transaction, but it's also on a company that has demonstrated its ability to grow over the last few years. This transaction will be done by our subsidiary, Shaw and Partners in Australia. The idea is that the 2 companies locally will work on a partnership. Shaw and Partners is a bigger enterprise, it can offer enhanced pricing, combined marketing, combined business development and we expect to get more revenues generated through this partnership. The transaction -- this transaction has been approved by the regulator very recently, and we accept to close in the next few weeks, and the impact is going to be 20 basis points. Now to close, it's a great privilege going into the last year of a business cycle with a record first half. So I think that in terms of confidence on delivery for 2025, I think it's an easy statement to make in terms of being able to deliver after record financial results in the first half. Now the priorities for '25 actually have not changed. So it's all about business development, it's about defending the revenue margin and it's also about being cost efficient, while we're doing all this. It's the thing that we have been working on over the last few years, and we will continue working on. And we're looking forwards to welcoming both Cite Gestion and ISG into the family. With them, we will grow to CHF 173 billion. And through that, we expect to also fund our future growth and profitability. And on that note, thank you very much. And I'll pass the word to Giorgio for his closing remarks.

Thank you, Dimitris. And now let us look ahead. Let's focus now on our outlook and on our strategic priorities for the next quarters and beyond. Now I must say that we expect that the complex market conditions will continue to persist. And this is a bit a combination of short-term market volatility, which is not always a negative. Actually, in the last 6 months, it was positive for our business and supported our top line. But this short-term market volatility is combined with some more long-term factors that we need to take into account. Dimitris already mentioned some of them. Obviously, one is the structural weakness of the U.S. dollar and the second is clearly the fact that we are in a phase of interest rate cycle where in Europe and in Switzerland, interest rates have come down already, and we expect them to come down also in the U.S. So turning to Page 28, we are clearly mindful of the challenges ahead, but our focus is on our strategic priorities and our focus is actually on what we are able to control. Now the first priority remains growth. I explained already earlier why we believe that strong organic growth is extremely important. It shows also that what we are offering as value and is attractive to our clients and the DNA of EFG is always to attract new clients and to increase the share of wallet of existing clients. So we will continue to focus on net new assets and on organic growth. Now our clients love the excellent service that our client relationship officers offer. I've been saying here in this room many times that I believe that our CROs are second to none in offering the best possible service that you can find in our industry, but also we want to continue to focus on high-value products and services that obviously are relevant to our clients to manage their financial affairs, but also are helping our net commission income. Dimitris has shown that our trend in net commission income over the last years has been very positive, and we are focused both on increasing the recurring net commission income, but also to allow clients to trade and to increase, let's say, the net operating income on FX and net commission income. Overall, this remains extremely important for us. Dimitris said, we need to be a bit more depending on protecting, in particular, the net interest income given the cycle of interest rates. On the other hand, we have seen that releveraging in a low interest rate environment can be a very good way for us to offset some of the pressure on the NII. So it's going to be more defense, but I think we have several levels to offset the trend. And clearly, last, but not least, we will continue to apply strict cost discipline and to further improve our efficiency. I have received several questions already about the U.S. dollar and what we are doing, et cetera, et cetera. I'm sure we're going to receive a few more, but I -- my answer is always that, first of all, in life, there is no silver bullet and you have to face head-on the challenges. But second, we are basically -- we always say that international private banking wealth management is an export industry, and we are exactly like any other export company in Switzerland, when you are basically obliged to become more efficient, to become more productive, to absorb the fact that sometimes the FX is against you. Obviously, from a financial standpoint, if we can do like the team, and I'm very grateful to the team, you can do an edge and get it right, obviously, this in the short term helps. But in the long term, the only solution is to become more efficient. Now this is a bit, I would say, the situation, I would say, for the next couple of quarters going forward. But if I step back, I must say that EFG, we are on track to exceed our 2025 ambition. You have seen this page already several times. This is what we committed to the market to the investors in October 2022. In a nutshell, we said that we are committed to grow the net profit at 15% CAGR, compounded annual growth rate, which, as everybody knows, if you do that, the magic of compounding over 5 years should double the business. The good news is that at the moment, we are running at 21%. And in terms of return on tangible equity, we are in excess of our targets. And clearly, this is extremely important for us. And as it has been said, it's a great privilege to be in the last year of the cycle in such a strong position. Now obviously, from our management team, it's also pleasing to see that all our efforts are translated into numbers. And clearly, you see that in a semester, we are now generating a net profit that in just a few years back, we were generating in a year. So this is an aside comment is quite good. But overall, we are on track to exceed the 2025 ambition. And to close, on Page 30, we are obviously very well placed for continued sustainable and profitable growth. And if there are 3 messages for you to take home, I would say, that clearly, today, we are reporting a record profit and a very strong growth momentum that we will make sure that it will continue in the next quarters. We are on track to exceed our 2025 ambition, and we are already preparing in order and we are committed to deliver this strong performance also in the next cycle in the next 3 years. And in this context, we are very excited, and we look forward to updating the -- our stakeholders about future strategic direction, priorities and targets on November 25. With this, I close the presentation and hand over to Jens to open the Q&A session. Thank you very much for your attention.

Thank you, Giorgio; thank you, Dimitris, for your presentation. So as just highlighted, we will start now with questions. And as usual, we start with questions in the room first and then we move to the telephone line. I think Andreas has a question, so we'll take him, on the right-hand side.

If we look through the operating income development a bit more in detail, I think the single largest driver of the year-on-year strong performance was actually from fee and commission expense, not a number that we usually talk about in this room, but it went up quite a lot or it improved, actually, quite a lot, almost CHF 50 million. So I guess it's a single largest driver of the revenue improvement. Maybe you can explain what happened there? Then you talked about the sales of the life insurance. So happy to see that this exposure has gone down, obviously. You didn't mention any impact on the P&L. So can I assume it's not relevant in terms of gains or whatever? In terms of third one, in terms of releveraging, we've seen a little bit in the first half, would you expect this to improve in the second? And of course, it's a function of what interest rates and the curve is doing. But do you see that clients are getting more active in this respect? Yes, I'll leave it here, and maybe I'll come back later.

Let me take the first 2 questions. And Andreas, you're very right that in our financial accounts, just looking at the right note, which is Note 9, we've had, over the course of the last 3 semesters, a drop in commission expense, but you will also see that equally our brokerage fees have gone down. And this trend is very much a parallel trend. The reason for that is very technical accounting is that the way you account for structured products, you need to gross up your commission income and your commission expense. On a net basis, that is 0. And because we've been moving our -- the way we actually do our structural products, this has decreased both the commission income and the commission expense. The real driver, like if you exclude this technical which I think is, as you say, it shows on page, but it's not creating the real value. If you look at the number that has actually increased over the last 3 semesters is the first line, which is advisory and management fees, which is the recurring part, which has ended up with the one -- the plus 1 basis point of recurring revenue over last year. Now to your questions about the contribution of the sales on life insurance, total impact, everything in, is CHF 12 million. And this is pretty much the contribution of life insurance for the entirety of the first half. So all the rest, call it, the normal life insurance had a 0 P&L in the first half, which is lower than what we've seen in previous periods, so.

Maybe on the question of releveraging, I would say, first of all, that for us, lending has been always a strategic asset class for our clients, and we have given it basically to our key strategic clients at the right price, at the right return, obviously, taking into account the cost of capital and the cost of liquidity. And we have seen, since 2022, so the last 3 years, basically, we have seen actually a phase of deleveraging. Now we see some, I would say, some green shoots. We see that this first semester was positive. We see that clients now that interest rates are lower, but also the yield curve, what is very important is the shape of the yield curve. The yield curve are getting more positively shaped. This will encourage certain clients to leverage their financial assets in the real estate assets. Do we expect this to continue? I think so. I think that especially if U.S. dollars interest rates will come down, the demand for lending will increase. Obviously, for us, it is extremely important to do it for the right clients. We don't want to do only lending. We want to -- lending has to be one component of a holistic relationship with the client at the right price and obviously, for us, our risk and credit appetite criteria are quite stringent. And so within these parameters, we believe that it will increase. Now to give you just a reference, in the past, we used to have a penetration of lending between 14%, 15%. Now we went to -- I believe, it would after the -- yes, 11%, which is the lowest level since the acquisition of BSI almost 10 years ago. So this is the order of magnitude what we are talking about, a few percentage points in terms of penetration. But we can expect that maybe if you look at NNA, maybe lending for a few semester will grow faster than the average NNA.

Great. Is there another question in the room at this stage? No, then we take the first question from the telephone, please.

[Operator Instructions] The first question comes from [ Hannah Leivdal ] from Citi.

This is [ Hannah Leivdal ] from Citi on behalf of Nicholas Herman. I just have 2 questions, if I may. So the first one is on targets. You're clearly confident of exceeding your financial targets. And I just wanted to confirm that this is both net profit and the cost-income ratio. And can you achieve your cost-income target without the insurance recovery? And secondly, on M&A, we have seen you announce 2 bolt-on deals this year. Should we be expecting you to announce any more of this?

Look, regarding the targets, obviously, as I said, and as I mentioned in the slides, we are very confident that we will exceed the CAGR growth target of net profitability of the company, which is ultimately what we are trying to achieve. We are trying to achieve a company that has a strong growth momentum and that we're able to translate this growth momentum in a sustainable and profitable way and ultimately to grow the franchise in terms of profitability. Now regarding the sub-targets that we have announced and that we are trying to -- obviously, to meet, it is -- there, the situation is a bit more differentiated. For sure, as you have seen in this cycle, we have been running at margins way over the target of 85 basis points, which is clearly something throughout the cycle. We have been running faster on the top end of the range in terms of NNA. We have delivered a much stronger return on tangible equity. The cost-to-income ratio indeed is the area where we -- I believe we are closed because we are at 71%. We have managed in the past, and we have managed actually in this semester to improve 2 percentage points in a semester, but you need to take into account that when we did the plan in 2022, we did not expect a dislocation in the market the following year. We know in Switzerland, why this has happened. And this allowed us to make investments that were much larger than anticipated. But again, the overall franchise in terms of size and in terms of profitability is much larger. I can tell you that we are going to do anything which is in our power to make sure that we achieve the 69% in terms of cost-to-income ratio. But out of all the targets, this is clearly the most challenging at this stage. I don't know, Dimitris, do you want to add anything?

No. I think that on the target is exactly that. I think that broadly speaking about the second question, which is the -- what we are reviewing in terms of M&A? We are in a very good position in terms of capital. So we have the resources to do it. We are also growing capital every single semester with our own organic capital generation. So in terms of redeploying it for us, it's the best option that we have in order to create value. And look, in the last 18 months, we've added organically CHF 15 billion of AUM and through acquisition CHF 10 billion. We are clearly out there looking for the suitable targets to do M&A. And we are hopeful that the consolidation in the market will continue, especially with some of the smaller players wanting to find bigger homes for them to be involved and to make their business plans a lot more sustainable over time.

The next question comes from the line of Daniel Regli, Zürcher Kantonalbank.

I have 3 questions, if I may. One is on net new assets, one is on gross margins and one on the acquisitions. First, on net new assets. Obviously, what also pops out is that Latin America had quite a strong net new asset growth. Can you maybe talk a bit about from which countries this was mainly coming from? And whether you see a kind of a benefit from one of your competitors selling its business in Brazil? And then, sorry, maybe secondly, can you also talk a bit about the competitive situation in Switzerland, kind of with UBS integrating prior Credit Suisse Switzerland now and whether there is some kind of opportunity for you in Switzerland? Then on gross margins, one question I have is about this 10 basis points you show as nonrecurring commissions. And obviously, you say that it's nonrecurring, but it's -- it looks quite sustainable. Actually, you were always around 9, 10 basis points over the past couple of years. So can you talk a bit about how do you expect these 10 basis points to develop going forward? And in particular, have you seen any kind of pickup in this number in H1 due to the increased volatility we have seen in H1? And then maybe a second follow-up question also on the net interest margin. Obviously, you show and this is quite helpful this CHF 45 million on the top right of Page 15, the impact from interest rates. But based on the current forward rates, how do you expect the net interest margin to develop into H2 '25? Can you give us some kind of guidance there? And then just one last quick question on your acquisition of Cite Gestion. This return -- by the way, also very helpful details you provide here on the Slide 23, but it is 111 return on assets. Is this really kind of revenues per balance sheet assets or is this comparable to your gross margin, i.e., return on assets under management? And then can you maybe talk also a little bit about what will happen to this number when you integrate the business into your business?

Thank you for the questions. Maybe I'll take the first one on net new assets. And indeed, I think Latin America for us has been a very good business over the last few years, and we have been able to grow at the -- not only much better than our range of 4% to 6%, in the last few years, we were at double-digit growth rates. Clearly, Brazil for us is the biggest market in the region, but overall, the growth is quite diversified. And I would say that we have a good setup to cover Latin American clients because, obviously, we recover them out of Switzerland. But also we have a strong presence in Miami and in the Caribbean with Bahamas and the branch in Cayman. So we give choices to the clients, and I think that our teams are extremely strong in covering the various markets. Regarding Switzerland and the competitive landscape and situation, while, I've been always saying that the ecosystem of private banking and wealth management in Switzerland is extremely solid, very competitive and actually is the best ecosystem that you have globally in our industry. And I must say the competition is quite fierce. Now over the last few years, our competitive positioning has been -- our market competitive positioning has been improving in relative terms. So for us, it's good. We have better visibility. Five years ago, it was, I would say, more challenging to engage in discussions with the top bankers of the country; now, it's much easier. And again, I don't think that -- I mean, the situation of Credit Suisse and UBS, I would say, obviously, the integration is ongoing. But in terms of competitive landscape, I don't think that it's influencing very much any longer. The market, I think, again, what is good for the country and for the financial center is that the competition among all the players is quite strong. And you always look at your competitors, we respect them all, but they always force you to become better and to run faster. So I think I pause here on the NNA. I don't think there were other questions. Gross margin, Dimitris?

So let me take the commission margin, what you mentioned, Daniel, about recurring and nonrecurring. Clearly, the 10 basis points that we have are not one-off in terms of when we say nonrecurring is that they are based on transactions, and they are not based on pre-agreed mandate fees, which are the ones that we would call the recurring part of the business. Now if you look historically back, these 10 basis points over the last 10 years, I would say, have ranged between 8 basis points to 12 basis points. So it is not that -- we don't expect to have them next year or next semester. We clearly expect to have them because it's part of our business and the range has historically been this between 8 to 12 basis points, and now we are pretty much at the middle of that range. Now in terms of your other question about net interest income and the forward rates. The information that we show on Page 15, on the top right, is exactly that, which is the sensitivity to interest rates. If you -- the way you should be reading the chart is, and I'll take one concrete example, let's take the dollar, which is the bigger number there. If reference rates in the dollar dropped by 100 basis points, we expect our revenues to be down something between CHF 15 million to CHF 20 million if you read the chart. Now I think if you look at forward rates, people expect probably 2 cuts nowadays for the remainder of the year maybe. So on that assumption, you can easily calculate that we would lose about CHF 7 million to CHF 10 million, let's say, over the next 12 months following the cut. Now I think that the -- in terms of -- we can discuss people's expectation on the rate cuts, but for us, this is an easy reference to be able to apply what is the impact as you realize at these levels, given that we are running at our annual revenues are in excess, like we are running above CHF 1.5 billion, these are now become less significant numbers as we move along the tail of the reduction of the rates. Finally, on the revenue margin on Cite Gestion. Yes, the 111 basis points is calculated the same we calculate our revenue margin. So it's our -- their total revenues divided by their average AUM in the period. The reasons that they are so high is they are 92% in mandates and clearly, this is helping a lot the revenue margin. To your question, what will happen after they get integrated? What I expect is that they will maintain and grow this very profitable business. But on top of that, they will add another couple of other products or business lines. To give you an example, they have a fairly limited balance sheet because of the smaller equity. They can use our much bigger balance sheet to give more loans. Now will these loans be over 110 basis points? Maybe not. But the idea is there that you expand the business by adding more revenues even if that might dilute a bit the revenue margin. So in that terms of the play, it's -- as I said, it's about expanding the business, expanding the capabilities and making sure that we capitalize on this growth momentum and the capabilities of Cite Gestion.

Okay. Very helpful. Can I just add one quick follow-up on the nonrecurring commission income? So maybe just can you break this 10 basis points down for me a bit? What is driving this? Is this structured products mainly? And if yes, is it like half of it or 75% of the 10 basis points coming from structured products?

Most of it, Daniel, comes from brokerage activities on debt and equity instruments. This is the majority of what we call brokerage fees or nonrecurring fees.

[Operator Instructions]

Great. Are there any further questions in the room at this stage? No. Operator, do we receive any further -- here, sorry, we have now another question in the room. Thank you.

I wondered about the number of the customer relationship officers, CROs, which decreased from last year to the first half year. Is that because some CROs didn't perform enough? Or did they change to -- did they get retired or did they go to other banks? And one other question about the dollar exposure. You suffered a lot from the dollar weakness in the assets under management, in the AUM. How will you tackle this problem? How will you reduce the U.S. dollar exposure in the short term? Could you explain that once more?

Thank you. Regarding the CROs, I would say that, yes, it is a bit all of the above. As you mentioned, clearly, as you know, we are -- we have been very active in recruiting teams and recruiting CROs. We are very pleased with the performance of the new colleagues. Some really had exceptional performance over the last few years. But there are also situations where, as in any relationship, it doesn't work. We don't get the expected results on both sides. And our agreements are very clear, if it doesn't work, then with part ways. This is a small minority, but there are some. And also, there are several people retiring. And on the other hand, because this is usually the follow-up question, we don't lose CROs to competition. In the worst case, CROs decide to become even more independent and they set up an external asset manager or they join an external asset manager, and they continue to collaborate and cooperate with the bank. So this is, I would say, in the -- absolutely in the norm. Regarding the U.S. dollar, I -- as I mentioned earlier in my presentation, there is no silver bullet where you can change the exposure overnight. We were checking, in the last few days, how was the exposure 10 years ago? And 10 years ago, the percentage of AUM in dollars was in excess of 50%, it was 53%, 54%. If you look today, we are at 46%. So there has been a gradual trend of decreasing that also because of our acquisitions. But on the other hand, it's very, very difficult to change the mindset of clients. If somebody -- like most of the clients in Asia Pacific, in the Middle East, in Latin America, if they think dollar, they're not going to change overnight their view of the base currency. As I said earlier, the only thing that we can do is like any export company can do is to become much more productive and efficient is reduce our cost, is improve our -- the services and products we offer to increase our net commission income, to continue growing and offset this negative impact. This is in a nutshell about the situation.

Great. Thank you. I think we have one further in the room and one further on the telephone line as well. So now we're getting...

Maybe to follow up on the U.S. dollar question. Can you maybe give a split of the costs by currencies? Because I didn't find that in the -- just makes it may be easier to calculate the impact. Then the other thing, maybe in terms of growth. You mentioned structured products that keep on growing year after year. Maybe you can give a bit more color there, also in terms of how large this business is? And the same on the private markets. You said record fundraising. What is that? Maybe if you can give a number on that, that would be helpful.

So let's start the first question, which is the breakdown of the expenses. In terms of -- for the first half of the year, 50% of our expenses are in Swiss and I would say that 25% are in dollar or dollar-linked currencies like Hong Kong dollar, Australian dollar, things that move fairly -- in a fairly correlated way. So that is the breakdown of the costs for the first half of 2025. The next question, structural products...

Structured products, this is an asset class that I believe is quite interesting, especially when the markets are volatile as they are and when there is some level of positive interest rate. As you know very well, clearly, when interest rates were negative or flat in the markets and there was little volatility, it was very difficult to be focused on that. The business has been growing. It's been growing in the last 4 years. The clients do a variety of strategies, from the reverse convertible to the equity-linked notes and capital guaranteed. So there is a variety of strategies. And again, there are several bankers and several clients who like that. Not everybody likes that. So just as order of magnitude, I would say it's about 30 -- let's say, 1/3 of our bankers that are involved in these products. Other geographies, for example, don't like them very much. I think this will continue. As long as interest rates, at least in the key currencies, will remain positive and the markets or the -- maybe the volatility, if you look at the VIX has gone down, but the views of the market, as you know very well, are very, very different, and this will continue. On private markets, I think, to be very fair, we are playing a catch-up game compared to many of our competitors. Our penetration remains fairly low, is in really the low digit percentage, but we see some traction. And maybe from a cyclical standpoint is not bad because clearly, overall, there has been a slowdown, but maybe these are the vintages when it's right, is the right moment to come in and not when everything is at record levels. We believe that this is an asset class that will increase. But again, we are very low. And by the way, structured products, too, I think our penetration is 3%, so is structured product is 3%, so it went down. And overall, so -- and private markets is also low. If you read the theory, it should be 15% to 20% on a portfolio, I think we will be happy when we go to 5%. So it's a long way. But at the margin and to sustain the net commission income, this is quite relevant, right?

Okay. Can we have the question on the phone, if there's still one left, please?

We have a follow-up question from Daniel Regli from Zürcher Kantonalbank.

The costs shown on Page 18. And can you just talk a bit about how much of this CHF 66 million will be already visible in 2025? I expect the CHF 66 million is kind of an exit cost save number you would have achieved by year-end '25 to be fully visible then not before '26, is this correct? And can you talk a bit about what is the step-down, which will be left after '25 versus '26?

Daniel, again, you are correct. So our level of execution at year-end 2024 was CHF 49 million. So that is the December '24 figure, and we expect to close December '25 with CHF 66 million. So we're going to be achieving another CHF 17 million during the course of the year. This will not print fully in 2025, it will only print fully in 2026. So again, the timing might vary throughout the year, but you get an indication of what the -- what will be appearing in 2025 and what will be appearing in '24 and 2025.

Okay. But is it fair to assume that about the CHF 17 million you kind of execute during '25 will probably be about half of it visible in 2025 already and then the step-down will be the other half in '26?

Possibly. And then you'll get full recognition in 2026.

Yes.

Great. I think we have no further question, then I hand over for final remarks to Giorgio.

First of all, thank you to all for your attention and your questions. And basically, to sum up, I would like to say that clearly, we have entered this final year of our current cycle with a strong growth momentum and record profitability. We are confident that we will exceed our 2025 ambitions. And we are committed to continue the strong performance also in the next strategic cycle, the 2026-2028 cycle, and we look forward to updating the market and our stakeholders on our future strategic direction, priorities and financial targets on the 25th of November of this year. Thank you very much.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.