Julius Bär Gruppe AG (BAER) Earnings Call Transcript & Summary

A very good morning to all of you, and welcome to Julius Bär's half year results. We hold this today in a virtual version, as we are getting used to, but I am sure that you will still feel our passion and our energy. Julius Bär has achieved outstanding results in the first half year of 2020. This is due to 3 factors: Our unique and strong focus on wealth management that left us undistracted from our clients; our highly resilient organization, agile and nimble in difficult times with solid infrastructure and excellent risk management; and our very strong business performance in all dimensions with our ability to take advantage of market volatility. And through our excellent coverage, we were able to win new business and capture flows. In February, we have announced a new strategy that will carry us into the next decade. We have been relentlessly focused over the last 6 months to implement and to transform our organization despite the COVID situation. We have advanced our front unit design, delivered on new solutions and essentially completed the cost side of our productivity program for 2020. We have also continued to build our future and resolve legacy issues vigorously. As we move into the second half, we are well prepared from a business perspective. Asset levels have recovered, and we are ready to capture volatility in the market through our business model. We use also the situation as an accelerator to change our business. This is about technology. For example, digital onboarding and identification, but also about an agile way of working and the change of our culture. With this summary, I hand over to Dieter for the financial results.

Thank you, Philipp, and good morning. As usual, in our presentation, the results are shown in the adjusted basis. A reconciliation is, as usual, provided in the appendix and in the more comprehensive alternative performance measures documented on our web page. Of course, these first 6 months were extraordinary, and we all know what happened, but it's worth to briefly highlight what was particularly relevant for our business. After a good start into the year, towards the end of February, the stock market started a sharp decline, lasting about 4 weeks. That decline ended and reversed as abruptly distorted, driving a strong recovery for the rest of the period. The volatility in this period rose to exceptionally high levels, especially in March and April, as is clearly shown in the second graph, which kept our credit team very busy, working with our credit clients to successfully avoid any meaningful damage and drove client activity to levels we had not foreseen for a very long time. Central banks everywhere reacted strongly and U.S. interest rates dropped sharply, as is shown on the third graph. This had ultimately a negative impact on our net interest income. A final development important to mention is that throughout the period the Swiss franc continued to strengthen. This had a further negative impact on client assets, and is also important due to the currency mismatch in terms of revenues and costs, especially for the U.S. dollar exposure. Moving on to Slide 7 on the results, starting with the development in client assets. AuM came down to CHF 402 billion, a year-to-date decline of CHF 24 billion or 6% as continued positive net new money of CHF 5 billion was more than offset by a negative market performance of CHF 16 billion and a negative currency impact of CHF 12 billion. Following the deep decline in March, monthly average AuM, important for the margin calculations, was CHF 404 billion, down 1% from a year ago. Net new money reached CHF 5 billion or 2.3% annualized, a somewhat lower rate than a year ago, but a slight improvement from H2. We saw solid inflows from clients domiciled in Europe, especially in Germany, the U.K. and Ireland and Luxembourg and Asia and there, especially Hong Kong and Japan. It was also pleasing to see net new money in Latin America turning positive supported by healthy inflows from Mexican and Chilean clients. Net new money would have been higher, well over 3%, without the negative impact of Lombard deleveraging in March and April, and some further net outflows in Kairos. Revenues grew by 9% to CHF 1.9 billion, driven by a strong increase in client activity, partly offset by a decline in net interest income and an increase in provisions for credit losses. Commission and fee income was up 8% to over CHF 1 billion. Obviously, we saw a very significant rise in transaction-driven income. Recurring fee and commission income decreased slightly by 1%, but that was entirely in line with the decrease in average AuM. The contribution from Kairos declined following a decrease in AuM and much lower performance fees. Net interest income declined by 19% following the sharp drop in U.S. interest rates. On the positive side, despite a clear rise in deposit volumes, the fall in rates led to a decrease in deposit costs of CHF 132 million, which outstripped the negative effect of CHF 112 million decrease -- decreased income on loans. However, the interest income on our treasury portfolio declined by CHF 70 million, also because the average size of the treasury portfolio in this period was smaller than a year ago. Net income from financial instruments, what used to be called trading income, grew by 71%. This followed a sharp increase in market volatility, as highlighted earlier, leading to a strong increase in client activity in FX, derivatives and precious metals trading and to a rise in income from structured products. Other income went from CHF 31 million positive to CHF 31 million negative as we saw CHF 49 million in credit provisioning in the first half. Of this CHF 40 million (sic) [ CHF 49 million ], only CHF 2 million linked to just 1 position was directly related to the high volatility environment in March and April. Of the remaining CHF 47 million credit provisioning, approximately CHF 44 million were due to an increase in individual provisions for some legacy cases and approximately CHF 3 million was linked to the overall portfolio following a change in the economic assumptions. The gross margin on Slide 10. The analysis shows clearly the effect of higher client activity with the trading income, gross margin increasing by 11 basis points to 26 bps. And the transaction driven component, meaning, commission and fee income jumping by 6 basis points to 16 basis points. The recurring fee component declined by 2 basis points, would have been stable excluding the impact from Kairos I mentioned earlier. Net interest income gross margin fell by another basis point from the level in H2 and is now 3 basis points below the level of a year ago. Please also note that the other income contribution was negative. Without the provisions for credit losses, the gross margin would have been 94 basis points. Moving on to expenses. Total operating expenses remained stable year-on-year at CHF 1.2 billion despite the very strong increase in revenues. Personnel expenses were up 2%, whilst the staff cost development was helped by an average 1% lower staff level. There was an increase in performance-related remuneration accruals following the strong rise in revenues. Severance cost linked to this year's cost reduction were CHF 19 million compared to CHF 17 million a year ago. General expenses fell by 5%. While there was an increase in non-capitalized IT spend, the development internal expenses benefited from a CHF 21 million decrease in provision and losses and from the fact that the CHF 20 million we were still spending on Project Atlas in H1 last year have now fallen away. Depreciation and amortization went up by 6%, reflecting the rise in IT investments in recent years. And as a result, the cost/income ratio improved to below 67%. As a result, adjusted net profit was up 34% to CHF 524 million, a new record for Julius Bär. Earnings per share were up even a bit more by 36% as the share count relevant for the EPS calculation came down following the buyback. IFRS net profit also reached a new record of CHF 491 million. Our guidance for the adjusted tax rate is unchanged at 15% for the next few years, following the Swiss tax reform and a much increased contribution from the Asian platforms. And in the table on the left-hand side, you see that our pretax margin improved to 31 basis points and our return on CET1 capital to 36%. Moving on to the balance sheet. Since the end of 2019, we see the clients partially move into cash reflected in a 5% increase in deposits. The loan book declined by 4% as Lombard lending decreased. And as a result, the loan to deposit ratio dropped to 61%. And the increase in excess deposits led to higher amounts deposited by us at Swiss and European central banks as well as an increase in the treasury portfolio. Finally, on Slide 14, capital. The CET1 ratio came in at 13.9%. CET1 capital build was CHF 0.1 billion despite CHF 112 million negative translation differences, of which about half due to the 28% decline in the Brazilian reais and despite CHF 77 million spent on the buyback until we were asked in March to pause it and despite the CHF 44 million negative impact from the remeasurement of the defined benefit pension obligations. Please note that whilst we were asked to split our 2019 dividend into 2 payments, we continued to accrue a dividend for 2020. Risk-weighted assets went up by CHF 0.8 billion, mainly on the introduction of SA-CCR, which by itself added CHF 0.8 billion at the start of the year. That's a new FINMA rule. And due to a CHF 0.2 billion in market risk-weighted assets following the increase in market volatility. At these levels, Julius Bär continues to enjoy a very strong capital position, both in terms of absolute levels and in terms of the cushion above the regulatory floors. With this, I have come to the end of my presentation, and I hand back to Philipp.

Thank you very much, Dieter. Let me start with what has enabled us to deliver such outstanding results through our pure wealth management business model, fully focused on serving our clients and with a tightly managed risk profile. There are 2 points I'd like to briefly highlight our resilience and our ability to create value. Our first priority was to keep employees and clients healthy and safe at all times. With measures swiftly taken in Asia, then Europe, then the rest of the world as the pandemic swept, less than 1% of our staff have been infected, thanks to the work-from-home and the split operations we put in place. Stable operations were ensured at all times, with more than 90% of employees being able to work from home and rigorous safety measures in place in all offices. Transaction volumes have peaked impressively at almost fivefold the daily average of 2019 with uninterrupted client service. This reflects our continued investments into our scalable infrastructure, into our platforms and processes. And this strong backbone enabled us to be fully focused on our role as adviser to our clients. Our value in such times comes from the proximity to our clients and helping them to make rational decisions. Our relationship managers report to me that they have been even closer to clients than before with even more touch points than before. Interaction has shifted rapidly from physical to remote. Obviously, the phone has been our primary use -- primary means of communication, but RMs and experts were able to hold secure client meetings through other technologies like Webex. Our digital channels like e-banking, also attracted much higher activity. For example, a close to fourfold number of trades via our mobile app in March against the average of 2019. Despite the turmoil, we stayed true to our investment convictions and kept our asset allocation stable at all times, watching closely the markets and the ongoing stimulation measures. This proved to be the right strategy and led to strong investment performance. As an example, our Global Excellence mandate outperformed its benchmark by almost 10% in the first half of this year. And on a sidenote, mindful of the impact on the world around us and our relative position of strength, Julius Bär has supported emergency relief efforts designated to help the most vulnerable members of those communities in which we are rooted. And we have also kept or even enhanced support for cultural institutions, such as the Elbphilharmonie, Verbier Festival, the Art Dubai or the Berlin Prize for Young Artists. COVID-19 has, within just a few weeks, already forced the world to rethink many of the old habits, conventions and truths that we have just taken as given. And some of those changes are here to stay in the way we interact with clients, in the way our employees work and in the way we work as a company. We have embraced this situation as an accelerator for our own transformation, and let me give you 2 examples for that. With clients going rapidly digital, we have immediately shifted more than CHF 15 million of project funds to the acceleration of our digital transformation with 1 objective, immediate applicability. And so in July, our pilot for digital onboarding, including video identification, has gone live in Switzerland, and that's just one example. We have expanded the digital interaction channels for our clients, including secure WhatsApp, which will go live next month, and the direct distribution of expert insights via digital channels. These are just a few examples and more functionality will be added in the second half of this year. This progress was possible thanks to the can-do attitude of our employees. Not only have they adapted to the new situation, they have also lent their creativity to transform the way we work and do business. And so we have harnessed this momentum through bottom-up co-creation with a global Thinkathon in cooperation with our long-standing partner, the F10 Accelerator. More than 300 participants in 60 teams have delivered us with additional ideas and priorities for the months to come. For example, on how to improve RM and client connectivity or how to optimize my workspace planning in a remote world. All that I've just mentioned fits into the context of our strategy which we announced in February. To recap, we are addressing the industry-wide structural challenges of margin erosions and cost pressures with 3 thrusts that will enable us to redefine wealth management for the next decade. First, shifting the focus in how we lead the company from an asset gathering-led strategy to sustainable profit growth; second, sharpening our value proposition for our ultra-high net worth and high net worth clients and for our intermediaries and bringing the whole bank to our clients in a holistic approach; and third, accelerating investments to make human advice more scalable, investments in technology, infrastructure and data in the client experience, but also investments in top talents. This transformation is today in full swing. Excellent progress has been made over the past 5 months, and let me cover 2 areas. First, evolving the value proposition of our clients. In line with our ambition to provide holistic advice and following the reorganization on 1st of January, we have now upgraded our client coverage model with enhanced market head responsibilities and with a new scoping of front roles. We accelerated internal training, starting with all assistant relationship managers. We have also upgraded our front organization with a dedicated front-risk management function and deployed additional 30 employees just for that. We have substantially enhanced our product range. True to our priority on private markets, we have launched 3 private equity solutions in the first half year for broader distribution. And on July 10, we announced the hiring of a global direct private equity investments team. The topic of yield enhancement was important. And for example, we managed to raise CHF 870 million within 1 week for a single fixed maturity fund invested in dollar-denominated corporate and sovereign bonds with focus on Asia, this just as an example for the placement power we have in our client franchise. We also concluded large structured real estate transactions as part of our financing offering for private clients. This reflects our sophisticated capabilities in this area. And we are (sic) [ have ] demonstrated continued drive to localizing our offering. We have rolled out fee-based advisory models in the Middle East, and we upgraded our offering for Swiss domestic clients. Finally, in line with our focus on ESG, we are developing a new impact investing platform, which is focused on the overuse of natural resources and the underuse of human resources, addressing 6 of the United Nations Sustainable Development Goals. The first product on this platform will be a fund on the blue economy and will go live in Q4 this year. The second area of strategy execution is our productivity program. We have started to streamline our organization as early as in February. And therefore, headcount reductions targeted for 2020 are almost completed as of today. Impact will be phased from the second half of this year. To reduce our geographic complexity, we have been able to implement our footprint reduction in the Bahamas as a sale transaction, offering continuity to clients and to employees alike. We have also addressed local situations in Uruguay where we simplified our business and in Egypt where we closed, and the geographic review continues. In addition to the revenue-related activities that I have already mentioned, we have also successfully and systematically started to reprice unprofitable client relationships to create value for both sides. These productivity measures together are key to achieving our midterm targets for end '22, and those targets are unchanged and herewith, reconfirmed. We are building the future of Julius Bär and also resolving the past. FINMA, the Swiss regulator, has announced in February its findings on the closure of the enforcement procedures in matters of FIFA and Petróleos. Julius Bär has, over the past more than 3 years, taken comprehensive measures to remediate the past and redefine the way we manage risks. We have concluded the Know Your Client upgrade program, Atlas, with more than 100,000 account records reviewed and re-documented. We have reconfigured risk management structures in the frontline and in the compliance organization. We have enhanced our anti-money laundering and transaction monitoring processes and systems. We defined a new risk management and tolerance framework and introduced a new client risk rating methodology. Combined investments in upgraded risk management and systems and infrastructure over the past 5 years exceeded CHF 150 million. These combined measures, over the last 3 years, have also led us to exit more than CHF 10 billion in client assets. This has substantially changed our risk profile. And all of this together underlines our commitment to structural change. As we are going forward, we continue to address legacy issues resolutely and constructively together with our regulators and the authorities. While these legacy issues will take time to be resolved, they all go back to the same shortcomings, and we are committed to resolving them completely. Past and present measures, together with our shift in strategy and our culture, should not only allow us to put past issues behind but are truly the key enablers for our future success. Let me conclude with an outlook for the second half of this year. Our eyes are on our clients and on our business. Continuing operational success and maintaining resilience are key as the COVID situation will continue and create volatility. We will be as close to our clients in the second half of this year as in the first half, helping them with advice and solutions. We are adjusting our solution offering to respond to the changes in the environment, especially the compression of the dollar interest rates, looking for new cash alternatives and investment opportunities together with our clients. And we continue to manage our risks stringently in credit in markets as we have done very successfully in the first half of this year. Equally key will be the delivery on our strategic programs. At the core is the revision of our front compensation model, aligning it fully with our strategy quantitatively and qualitatively and keeping it highly competitive. We will provide you with details on this as we go through the second half. We will also continue our work on client coverage model with strategic client planning, with client reviews and virtual teams of experts. And last, we are starting already today to prepare for a new normal of post-COVID business using what we have learned in the past couple of weeks as a catalyst for change. We started to perpetuate remote work, balancing physical presence and remote activity and adopting even more agile ways of working in IT. To summarize, we are entering the second half of 2020 in a position of strength. We are fully focused on the needs of our clients in challenging times, and we are pursuing our transformation with a great degree of confidence. With this, I'd like to end my presentation and move to Q&A.

[Operator Instructions] The first question comes from Izabel Dobreva from Morgan Stanley.

This is Izabel from Morgan Stanley. I have 3 questions, and they're actually all on the NII. Because it looks like there were a few different moving parts this quarter there. So let me start with the deposit one because it looks like you've been able to reprice a lot of the expenses out despite the balances increasing. So can you give us some color on where you are on that rotation out of term deposits? And if you see any more scope to reprice the costs out in the second half of the year? So that was the first question. Then on the second question, it's similar but on the loan side. Do you see any scope for the interest income from loans to recover? For example, if Lombard loan values go up, if we get any market recovery or you reprice any of them? And then finally, I had a question on the bond portfolio contribution because I saw that the size of the book increased but the contribution slowed down CHF 70 million. So could you tell us if the bulk of the headwind from the lower reinvestment yields is now in the price? Or if you expect more to come? And also, do you see any scope to optimize the NII and the yields by maybe investing in longer duration or a different mix of assets?

Good. Thank you for the question. I'll start with the first one. I mean it will go further down. There are still some term deposits, but all the remaining term deposits in U.S. dollar will go to current accounts. And therefore, what we pay for deposits will come to a very small amount ultimately. So that trend continues. But of course, the big chunk is already out, as you can see, from the analysis of the net -- of the interest income. Then on the loan, you ask about the recovery. Of course, already in May and June, the volume has gone up again, the lending volume. And if the asset levels of the clients go up, then we expect that the penetration loan versus AuM stays stable, and therefore, the Lombard lending would also go up. Pricing in this period has been stable, even slightly increasing, in terms of margin. So that's on the positive side. Then on treasury, as I said, I mean, the average volume of H1 compared to last year is lower. If you look at the end of June treasury volume, it's already higher than the average. And therefore, that should have some positive impact. Then also, the mix changed in the portfolio. We have less U.S. dollar and more other currency, especially euro. And we lengthened the duration of the treasury portfolio during this period. So there is, I would say, cautiously positive outlook on the treasury portfolio income.

So just to summarize, would you say that NII has now dropped? Or would you expect it to drop in the second half?

Yes. You mean in terms of basis points? I would say it's out of the level of May and June where the full impact is almost in, I would say, it should be a rather flattish development, yes.

The next question comes from Jeremy Sigee from Exane BNP Paribas.

Two questions, please. The first is, I just wondered if you could talk a bit more still on the revenue side. On Slide 10, you showed the recurring fee income actually fell a bit more, it's down from 37 bps to 35 bps. And I just wonder if you could talk about your expectations for -- well, firstly, are there any specific factors within that? Or what your expectations are for that recurring fee income going forward? Do we need to expect a continuation of these sorts of declines? I know that's a long-standing question, but I just -- I thought your disclosure there was interesting, if you could sort of talk about that. And then the second question is on a different topic. I just wondered what your thoughts were about when you might be able to restart share buybacks or if that remains politically difficult, whether you would look at the dividend as an alternative mechanism for reducing capital surpluses?

I'll start with the second half. Our -- thank you for the question. Our share buyback and dividend policy and strategy is unchanged. We have temporary halted share buybacks on the request of the authorities and expect to resume that once that temporary suspension is lifted. The same as Dieter said before, we continue to accrue a dividend also this year for next year. Maybe, Dieter, you want to say something on the first question.

Yes. Thank you. On the first question on the recurring fee in terms -- in basis points on Page 10. I mean, as I said in explaining it, the difference that the downturn of 2 basis points came entirely from Kairos that had less average AuM and a lower gross margin than in the second half and in the first -- especially first half of 2019. Taking away this impact, the recurring fee income in basis points would have been flat.

The next question comes from Andrew Lim from Societe General.

So I was wondering if you could give a bit more of color on the split of the trading -- the other trading income from financial assets at fair value. Obviously, you've had some good results there. But specifically, that amount from hedging, could you tell us how much that contribution was? And then secondly, you described Hong Kong as your second market, but obviously in recent weeks we've had the U.S. sanctions on the territory and specifically on Chinese individuals. I was wondering if you could describe if there's any impact, if any, on the way you do business there now and going forward.

Thank you for that. Let me start with Hong Kong. I think Asia is, as we have always said, our second home market and obviously, Hong Kong is a very strong hub in there together with Singapore. We've been very close to our clients over the last few years. And obviously, I think our clients are very deeply rooted in that region. And we haven't seen any major moves of assets out of Hong Kong during that time. And while I cannot comment on the current events, it is clear that we will continue to invest in that market, and we'll continue to develop our business from that platform. Maybe, Dieter?

Yes. On the first question on the kind of referring to Note 3, I mean, as we said, there was much high-volume client activity in FX, precious metal was outstanding. If you look at the asset allocation of our clients, on a rounded basis, the allocation to precious metal moved from 1% to 2%, which is quite remarkable. We also in physical precious metal trading. And there, the fees were quite high as this market was really tight in March and April. I mentioned FX. And then, of course, in -- on the equity instruments, we had a lot of gains on the structured product side due to the situation and in general on derivatives as the volumes were high. So everything -- all the different components contributed to that good result.

Do you find this behavior quite exceptional and surprising? I mean, usually, when you have a market correction, clients tend to lose a bit of confidence and then they hold back, and it seems to be quite opposite at this time around. Do you have any thoughts as to why things have changed?

I think this was not just a market correction. I think, first, the market correction is probably the first man-induced recession in the history of modern economics. And in that sense, I think the first half year took a different shape than previous crisis. And the second is, I think everyone in the market is looking forward now to recovery patterns across the globe, which will happen. The question is just at what speed and in what place it unfolds. And this typically is a time where there is volatility, where there is also opportunity. And this is why we have seen client activity, not just at the peak, actually, in March, April, but as far as into June to be at quite elevated levels.

And with that, do you see any reduction, the amount of cash that your clients are holding, I think running into COVID-19, they've been at a very high level, do you see those levels coming down?

Probably not in the very short term. I think clients typically in those moments of shock when they liquidate assets, they hold them in cash. We've been advising our clients to stay invested throughout that period, continue to do so. Any entries into investments have to happen slightly more cautiously, but we will see how the second half of this year plays out.

Next question comes from Anke Reingen from Royal Bank of Canada.

And the first is going back on net interest income. In the past, you told us we should look at trading and NII together to include the treasury income. And I just wonder where we stand at this in the first half relative to last year? And then in terms of the gross margin, I guess it was 95 basis points at the first 4 months, then it declined. I mean if my calculation is right, in fact 88 basis points in May, June. Would you think that's a reasonable run rate? Or is it obviously boosted by high levels of trading activity? And then just lastly, in your comment, you talk about we're prepared to reap some opportunities. I just wondered if you can elaborate, please.

Okay. There on the first question, referring to the base swaps we do from U.S. dollar into Swiss francs and then depositing them at the Swiss National Bank. As the spread has come down massively, the impact is about half of what it was in the first half of 2019. So the -- it is a much lower contribution in absolute terms. Sorry, the second question was referring to the net interest income or I think...

No, that's the total gross margin because obviously I didn't know the first -- I just -- if May, June, the gross margin, if I imputed from the first half obviously with the 4 months, I calculate 88 basis points. Do you think we should use that as a base for the second half?

Yes, it was a bit higher. It was about 85 basis points. And of course, as you know, I mean, the monthly ROA can fluctuate. We had a much stronger June and a weaker May between these 2. And as Philipp says, client activity levels in June were, again, quite elevated and nicely coming in, whereas in May was a bit lower. May was actually the weakest month of the 6-months period in terms of revenues and also in terms of client activity. But I mean, as you know, this can recur or not recur mainly depending on external factors. So it's difficult to forecast.

And then the third one was on the positioning. What was your third question, sorry.

You mentioned in your statement that you are prepared to reap opportunities. If you can please elaborate? I mean are you talking about acquisitions or client organic growth or depending on the opportunity?

I think the primary focus is clearly on working with our clients. And I think the first half has shown that we do have the proximity even in times when we are separated and even in times when physical contact is hard to maintain, I think that the newly established communication channels with our clients will allow us to advise them very closely and to work with them on value-generating transactions in the second half of the year. I think that's the primary element. We've also seen that we continue to attract funds, and we've seen that we continue to attract talent. We've been able to hire on a specific basis. But still, we've been able to continue to hire even throughout the first half year which was quite exceptional under those circumstances. And I think that gives us great confidence that for the second half of the year we are well prepared.

The next question comes from Patrick Winters from Bloomberg News.

Two questions from me. So the first one, to what extent do you think that the lower loan volumes, which I guess translates into lower income and lower interest rates will be a drag on your business in the second half? I know you've spoken a bit about volatility and how that potentially could help you, but just broad brush, could you give me a sense of how difficult it will be to replicate the first half because it obviously was an extremely profitable period for you. That's question one. And then I'll stick with profitability for my second question. So for banks, it's been a fairly good first half, and so I've seen huge profits. Given the social impact of COVID and that almost kind of really becomes a thing of concern. Though in that context, what's your thoughts about distributing bonuses. And if you do opt for a lower bonus despite it being a fantastic year, what are you going to do with the extra money?

I'll go for the first one. I mean, if I understand your question focuses entirely on net interest income. As I said, I mean, lending -- Lombard lending already started in May and June to grow again. So if assets levels continue to be where they are or if they are rising, then we see that people reinvest and therefore, the Lombard lending should grow. That would be one area of recovery for net interest income. Then of course, the shape of the U.S. dollar yield curve. It's a bit less flat than last year. If it would steepen a bit more, that is always positive, especially for the treasury income. So as I said before, we should, in terms of basis point, have seen the bottom and flattish. And of course, there is potential for recovery depending on the market situation.

As to the debate on bonuses, I think 3 thoughts. First, I do believe that a meritocratic compensation system where pay is truly linked to performance, not just in a quantitative but also in a qualitative way, is per se something good and something positive and something creating the right level of equality also within the company and the right distribution with shareholders. Second, I do see that many, many of the individuals in our companies, together with ourselves as an institution, are doing our part in providing relief and support to communities out there. That includes also a lot of voluntary work in different parts of the world. And the third is we will see, at the end of the year, obviously, where the quantitative targets will ultimately come in and then a decision on variable compensation would have to be taken based on that.

Can I just return to the first question. So thanks for the information about the trend in net interest income and the trends in Lombard lending. But kind of broad brush, could you -- if I could just once again ask, what's your feeling about the second half? Will it be difficult to replicate what you've done in the first half in terms of overall profitability.

That's rubbing the crystal ball probably on your as well on our side. What we do see, obviously, is as fast as we have seen deleveraging, for example, in Asia, as fast, we are seeing early signs of releveraging. Now that's still looking from the beginning of the second half moving forward. But I think if opportunities arise, I would not exclude a clear releveraging also on the Lombard side. So I believe this is and remains very hard to predict.

The next question comes from Jon Peace from Crédit Suisse.

I had a question, please, on costs. It looks like the cost income ratio bumped up to about 72% in May, June after the 64% in the first 4 months, which might have been a touch higher than expected. So I just wanted to understand to what extent were you getting ahead of the curve on variable comp in H1? And maybe you have some tailwinds on general expenses in H2. Basically, can you get the cost income back to below 72%, do you think, in the second half of the year?

Let me give the longer-term answer, maybe Dieter a bit more at a year-on-year perspective. I think we've been very cautious on cost in the first half year. We still had some benefits from the cost program of last year coming through, obviously. And at the same time, we continued the restructuring along the plan that we laid out at the beginning of this year, where there have been restructuring costs but actually no benefits yet. And obviously, there was some benefit on the general expense side from lower T&E and then -- and some expenses on the other side also in technology. So I think there has been quite a mix of elements that came into the cost result. I think the overall philosophy is still one of caution, and we want to very tightly manage costs, not just for this year but on a 3-year cycle towards our '22 objectives.