UBS Group AG (UBSG) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, welcome to the UBS Second Quarter 2025 Results. The conference must not be recorded for publication or broadcast. [Operator Instructions] At this time, it's my pleasure to hand over to Sarah Mackey, UBS Investor Relations. Please go ahead, madam.

Good morning, and welcome, everyone. Before we start, I would like to draw your attention to our cautionary statement slide at the back of today's results presentation. Please also refer to the risk factors included in our annual report, together with additional disclosures in our SEC filings. On Slide 2, you can see our agenda for today. It's now my pleasure to hand over to Sergio Ermotti, Group CEO.

Thank you, Sarah, and good morning, everyone. We sustained robust momentum during a quarter that started with extreme volatility by staying close to our clients and successfully executing the first wave of our Swiss client account migrations, a critical phase of our integration. This drove strong quarterly results, which contributed to a first half underlying return on CET1 capital of 13.3%. These results highlight the power of our differentiated business model and our diversified global footprint, both of which are reinforced by our balance sheet for all seasons and our disciplined efforts to steadily improve risk-adjusted returns since the Credit Suisse acquisition. Our clients continue to value the breadth of our advice and global capabilities. Our invested assets reached $6.6 trillion, and the private and institutional client activity was robust across all our regions. Global Wealth Management continues to attract flows into our discretionary solutions, and we are encouraged by another quarter of improving demand for loans. We have made significant progress in migrating portfolios and streamlining our fund shelf within Asset Management, positioning us to substantially complete the integration of this business by year-end. These efforts are unlocking the benefits of greater scale and enhanced capabilities particularly within our Unified Global Alternatives unit where we have attracted $18 billion in client commitments year-to-date. Invested assets now exceeds $300 billion, and this momentum reinforces our standing as a top player in alternatives. In Switzerland, we remain steadfast in our commitment to act as a reliable partner for the Swiss economy. During the quarter, we granted or renewed CHF 40 billion of loans as we facilitated client activity and also partnered with our clients in their activities across the globe. Meanwhile, the Investment Bank delivered a record second quarter in Global Markets. This reflects the strength of our Equities franchise where we are benefiting from market share gains. It also highlights the value of our leading FX business where we -- where our expertise helps our institutional clients and Swiss corporate clients navigate market volatility. In Global Banking, while I'm encouraged by the continued strengthening of our deal pipeline, client execution of strategic plans was delayed once again this quarter due to ongoing market uncertainties related to international trade and economic policies. Looking into the third quarter, we continue to prioritize the needs of our clients while further advancing our integration efforts. As we continue to see strong market performance in risk assets combined with a weak U.S. dollar, investor sentiment remains broadly constructive, albeit tempered by ongoing uncertainties and a degree of news fatigue. Having said that, clients are ready to deploy capital as soon as conviction around the macro outlook strengthens. Moving to the integration. We remain on track to substantially complete by the end of 2026. Recently, we completed the migration of Credit Suisse client accounts booked outside Switzerland. We have also now moved 400,000 client accounts booked in Switzerland from the Credit Suisse platform with minimal disruption and a positive response. We are on track to migrate around 500,000 clients more through by the end of this year, and the balance of the migration is set to be completed by the end of the first quarter 2026. At the same time, we further simplified our operations across the organization and made good progress in our active wind-down efforts in noncore and legacy particularly around costs. This also supports our strong capital position with a CET1 capital ratio of 14.4%. This is allowing us to follow through on our 2025 capital return objectives as we accrue for a double-digit increase in our dividend and are executing on our share buyback plans. As we said in June, we will communicate our 2026 capital return plans with our fourth quarter and full year results in February. As importantly, our continued momentum is generating capital, enabling us to strategically invest across the globe to support our clients and position UBS for the future. We remain focused on our targeted investment in the Americas to support our financial advisers and improve profitability. At the same time, we aim to further leverage our position as the #1 wealth manager in APAC to drive growth while reinforcing our leadership in EMEA and Switzerland. Supporting this objective is a consistent investment in infrastructure and AI to increase resilience, enhance client service and support our employees. Following the rollout of our in-house assistant, Red, the implementation of 55,000 Microsoft Copilot licenses, we saw 4x as many gen AI prompts this quarter compared to the fourth quarter of last year. Building on this, we are now extending access to Copilot so that all of our employees will be able to integrate AI into their daily workflow. We will continue to invest in our global capabilities to capitalize on the benefits of our diversified business model and global footprint. This remains a critical priority as we look beyond the integration and prepare for long-term success. Of course, one critical point defining our future will be the outcome of the ongoing debate on regulation in Switzerland. As this is the first time I'm talking to you since the publication of the Swiss Federal Council's proposal on June 6, let me start by reiterating a few points. For over a decade, UBS has delivered enduring value to all its stakeholders, including Switzerland and its taxpayers, through a sustainable business model and a balance sheet for all seasons. This is underpinned by a robust risk management culture alongside a strong governance framework. We have done this while implementing regulatory requirements with rigor. This is why it is our obligation to contribute to the ongoing debate with facts and data. In principle, we support most of the proposals as long as they are consistent with the Swiss Federal Council's aims of being targeted, proportionate and internationally aligned. However, the proposed changes to the capital regime do not meet those criteria and are even more extreme when you consider Switzerland's finalization of Basel III rules well ahead of other jurisdictions. The proposals failed to recognize that UBS has had a consistently strong capital position, business model and risk management framework and the fact that UBS has not relied on regulatory concessions or overly aggressive valuations of foreign participations. Further, it disregards the significant diversification value our foreign subsidiaries provide to all of our stakeholders, including our clients in Switzerland. We are strong thanks to our global footprint, not in spite of it. In addition, the proposal at ordinance level only consumes surplus capital and cosmetically reduces the group CET1 ratio. This would underrepresent the true capital strength of the firm on an absolute basis and relative to peers. As we said in June, after including the impact of integrating Credit Suisse and applying the current progressive add-ons, UBS would be required to hold $42 billion of additional capital. While I have no doubt that our highly capital-generative business model would allow us to meet these requirements over time, they would clearly impact our return on tangible equity, which I believe will become the more relevant return measure. Theories that we can easily absorb or mitigate these capital increases and operate with a group CET1 capital ratio only slightly above peers do not reflect reality. No matter how CET1 capital ratios are presented, the proposal still results in an increase of around $24 billion in capital at the parent bank. Of course, we will evaluate all potential and appropriate measures to address negative effects for our shareholders, but any mitigation strategies, even if feasible, would come at a significant cost. This is not just our view. The expert opinions commissioned by the Federal Council also highlighted the significant risks these proposals present for Switzerland. We are finalizing our assessment of all 22 proposals, including capital, liquidity, resolution and governance for submission to the public consultation process, which concludes at the end of September. As soon as we are ready, we also intend to provide a public explanation of our position on some of the most relevant aspects. Based on the fact that we are already operating with a robust capital buffer, and we expect no changes before 2027, we maintain our 2026 underlying exit rate targets of a return on CET1 capital of around 15% and a cost/income ratio of less than 70%. We will provide an update on our longer-term return targets as soon as we have more visibility on timing and outcome from the ongoing political process. In the meantime, I'm confident that we can continue to deliver on what's within our control, serving clients, completing the integration, supporting all the communities where we live and work and position UBS for long-term success for the benefit of all stakeholders. So summing up, I'm very pleased with our performance in the quarter, and I'm enormously proud of my colleagues for their continued dedication in a complex and uncertain environment. With that, I hand over to Todd.

Thank you, Sergio, and good morning, everyone. Throughout my remarks, I'll refer to underlying results in U.S. dollars and make year-over-year comparisons unless stated otherwise. Total group profit before tax in the second quarter came in at $2.7 billion, a 30% increase compared to the same period last year with our core businesses growing their combined pretax profits by 25%. Group revenues increased by 4% to $11.5 billion and were up by 8% across our core franchises, while operating expenses decreased by 3% to $8.7 billion as we continue to drive cost synergies across the group. Included in our performance is a litigation reserve net release of $427 million relating to the settlement announced in May in connection with Credit Suisse's legacy U.S. cross-border business. Our reported EPS was $0.72, and we delivered a 15.3% return on CET1 capital and a cost/income ratio of 75.4%. Moving to Slide 6. We delivered another quarter of strong financial performance as clients turn to us for advice and solutions to navigate a volatile and uncertain market environment. In Wealth Management and the Investment Bank, we grew pretax profits by 24% and 28%, respectively, offsetting net interest income headwinds in our Swiss business while continuing to make strong progress reducing our noncore portfolio. In group items, our year-on-year comparative also benefited from marks on hedge positions and own credit that affected the prior year period. On a reported basis, our pretax profit of $2.2 billion included $565 million of revenue adjustments from acquisition-related effects and $1.1 billion of integration expenses. In the quarter, we recorded a tax benefit of $209 million mainly from recognizing additional DTAs related to the integration of Credit Suisse. We continue to expect our full year 2025 effective tax rate to be around 20%, with a higher second half tax rate influenced by our noncore unit's pretax results, including integration costs. Turning to our cost update on Slide 7. Over the second quarter, we delivered $700 million of incremental gross run rate cost saves, bringing the cumulative total since the end of 2022 to $9.1 billion or around 70% of our total gross cost save ambition. The overall employee count fell sequentially by 2% to 124,000 and by around 21% from our 2022 baseline. By quarter end, we nominally decreased our overall cost base by around 11% compared to 2022. Even more impressively, over the same period, we've reduced our operating expenses by 22% when adjusting for variable compensation and litigation and neutralizing for currency effects. On this basis, our gross-to-net save conversion rate is 80%. Turning to Slide 8. As of the end of the second quarter, our balance sheet for all seasons consisted of $1.7 trillion in total assets, up $127 billion versus the end of the first quarter. On a deposit base of $800 billion, our loan-to-deposit ratio was 81%, up 1 percentage point sequentially. At the end of June, our lending book reflected credit-impaired exposures of 0.9%, down sequentially by 10 basis points. The cost of risk increased to 10 basis points as we recorded group CLE of $163 million. This reflected net charges of $38 million across our performing portfolio and $125 million on credit-impaired positions largely driven by our Swiss business. Our tangible equity in the quarter increased by (sic) [ to ] $82 billion mainly driven by FX translation OCI and $2.4 billion in net profit. This was partly offset by shareholder distributions of $3 billion related to the 2024 dividend and $0.7 billion for share repurchases. Our tangible book value as of quarter end was $25.95 per share, reflecting a sequential increase of 3%. Overall, we continue to operate with a highly fortified and resilient balance sheet with total loss absorbing capacity of $191 billion, a net stable funding ratio of 122% and an LCR of 182%. Turning to capital on Slide 9. Our CET1 capital ratio at the end of June was 14.4%, and our CET1 leverage ratio was 4.4%. Our common equity Tier 1 capital in the quarter increased by $4 billion principally due to earnings accretion and FX. As a reminder, the full $3 billion share buyback planned for 2025, including the $2 billion expected in the second half, was already reflected in our capital position at the end of the first quarter. Risk-weighted assets rose by $21 billion sequentially predominantly driven by FX, with $3 billion from asset growth. I would note that we presently operate unconstrained by the output floor, which during 2025 is equal to 60% of RWAs determined under the standardized approach. We are undertaking measures to minimize the impact as the output floor gradually increases to 72.5% of standardized RWAs by 2028. Our leverage ratio denominator grew by $97 billion quarter-on-quarter, with over 90% of the uplift due to currency translation. UBS AG's stand-alone CET1 capital ratio for 2Q was 13.2%, up from 12.9% in the prior quarter. The higher ratio is mainly due to an increase in CET1 capital, primarily reflecting its Swiss subsidiary's annual dividend payment, partly offset by an additional dividend accrual in the parent bank's own accounts. This brought UBS AG's total dividend accrual for the first half of 2025 to $8 billion and comes on top of the $6.5 billion accrued at the end of last year. The parent bank now expects to distribute the $6.5 billion to the holding company before the end of 2025. I would highlight that in managing leverage ratios across group entities, we may pace intercompany dividend accruals to maintain prudent capital buffers and offset the FX-driven headwind on leverage ratios across group entities. While we maintain our intention to operate UBS AG's stand-alone CET1 capital ratio between 12.5% and 13%, we'd expect the parent bank to remain above the upper end of the target range as long as dollar weakness persists. Turning to our business divisions and starting on Slide 10 with Global Wealth Management, which continues to deliver strong net new assets, support clients with diversified and differentiated solutions and drive higher revenues on capital deployed. GWM's pretax profit was $1.4 billion, up 24% as revenue growth outpaced expenses by 5 percentage points. This translated to a year-over-year improvement in GWM's cost/income ratio of almost 4 percentage points to 77%. One of GWM's enduring advantages is its unrivaled regional breadth. This enables us to deliver global connectivity to our clients at a time when wealth is increasingly mobile and investment capital is rotating across geographies, sectors and asset classes. As illustrated in our regional disclosure on Page 20, all regions delivered double-digit profit growth led by notable strength in the Americas and EMEA. In the Americas, our franchise delivered improvements across all revenue lines, driving profit growth of 48% and a pretax margin of 12.4% while remaining focused on the execution of its strategic plan. In EMEA, profit before tax increased by 30% driven by strong transaction-based revenues, coupled with higher recurring fees and continued cost discipline. APAC grew its profits by 12% driven by double-digit growth in both transactional and recurring fees and supported by sustained sales momentum across net new assets, mandates and deposits. Profitability in our Swiss wealth business rose by 10% on strong revenue growth. On to flows. GWM's invested assets increased by 7% sequentially from favorable market conditions, FX and positive asset flows. With $55 billion of net new assets accumulated year-to-date, our performance reflects continued strong client momentum and broad-based contributions across regions. In the second quarter, we generated $23 billion of net new assets, representing a growth rate of 2.2% or 3.2%, excluding $11 billion of seasonal tax-related outflows in the Americas. Our net new asset performance this quarter also reflects continued progress in managing the roll-off of preferential fixed-term deposits linked to our 2023 win-back campaign, which is now largely completed. This campaign played a critical role in restoring confidence and stability in the Credit Suisse wealth franchise following the acquisition as well as successfully winning back client assets. Over the past 12 months, GWM expertly managed to retain over 80% of maturing preferential fixed-term deposits on our platform, converting these investments into higher-margin solutions, including mandates. Net new fee-generating assets in the quarter were $8 billion, with positive flows across all regions. Client engagement continues to deepen, reflected in the rising penetration of fee-generating assets across the division and by sustained momentum in our CIO-led signature solutions. At the same time, the uneven market backdrop in the quarter prompted the rebalancing of portfolios towards liquidity solutions as clients deferred new investment allocations. As a result, we recorded $9 billion in net new deposit inflows in the quarter, enhancing our capacity to capture fee-generating assets when confidence and visibility improve. Net new loans in the quarter were positive at $3.4 billion driven by EMEA and the Americas. Our differentiated partnership between wealth and the IB in delivering tailored lending solutions is a key driver of loan growth and revenue momentum. Turning to revenues, which increased by 6%. Recurring net fee income grew by 8% to $3.4 billion, supported by positive market performance and over $60 billion in net new fee-generating assets over the past 12 months. Transaction-based income was up by 11% to $1.2 billion, underscoring strong client engagement despite the moderating effects of the quarter's V-shaped market dynamics on investor sentiment. Amid heightened market turbulence, clients took advantage of short-term market opportunities to reposition tactically. This was particularly evident in our investment fund and cash equity offerings where revenues increased by 27% and 17%, respectively. As we entered the third quarter, risk assets continued to appreciate, supporting portfolio rebalancing and broadly constructive investor sentiment. This said, with volatility returning to more typical levels and seasonal patterns normalizing, we expect growth in transactional activity in GWM to moderate relative to the third quarter of 2024 when elevated volatility had a more pronounced impact on client engagement and transaction volumes. Net interest income at $1.6 billion was down 2% year-over-year and up 1% quarter-over-quarter, with the sequential trend reflecting FX tailwinds and higher current account balances, partly offset by the effects of lower Swiss franc and euro deposit rates. Looking ahead, we expect NII to hold steady sequentially as support from a higher day count and currency effects will be largely offset by lower deposit rates. For full year 2025, we continue to expect GWM's net interest income to decrease by a low single-digit percentage compared to 2024. Underlying operating expenses were up by 1% with lower personnel and support costs more than offset by higher variable compensation tied to revenues. Looking through variable compensation, litigation and currency effects, costs were down 5% year-over-year. Turning to Personal & Corporate Banking on Slide 11, where my comments will refer to Swiss francs. P&C delivered a second quarter pretax profit of CHF 557 million, down 14% driven by an 11% reduction in net interest income. While the current zero interest rate environment in Switzerland in many respects is driving the narrative for P&C, the business is positioning itself for profitable growth once rate headwinds subside and the intensive Swiss client platform migration work is complete. This is evidenced by growth across net new investment products, loans and deposits, all while momentum in acquiring new clients in the affluent and corporate space is accelerating. Non-NII revenues were down 3% despite a resilient performance in our Personal Banking business. On the corporate side, in addition to headwinds from currency translation, the sharp dollar drop and the widening of dollar-Swiss interest rate spreads caused revenues from corporate FX hedging activity to slow while trade and export finance activity also reduced. This was partly offset by higher revenues in corporate finance. Sequentially, NII in Swiss francs decreased by 2%, largely reflecting the effects of the 25 basis point rate cut announced in March, which was partly offset by targeted deposit pricing measures and lower funding costs. With the SNB policy rate now at zero following the additional cut in June, as noted previously, rate movements up or down are expected to benefit our net interest income. This said, the implied forward curve has flattened over the last few months, suggesting the current rate environment could persist for some time, broadly keeping Swiss franc NII at current levels through the rest of the year. In U.S. dollar terms at current FX, this translates to a sequential low single-digit percentage increase in 3Q and a mid-single-digit percentage decline year-on-year for full year 2025. Turning to credit loss expense. CLE in the second quarter was CHF 91 million on an average loan portfolio of CHF 249 billion, translating to a 15 basis point cost of risk, up 7 basis points sequentially but marginally down over the last 12 months. This included Stage 3 charges of CHF 74 million mainly on smaller nonperforming positions. Operating expenses in the quarter were down 5% as the team remains focused on deflating its cost base while the Swiss client migration work remains ongoing. Moving to Slide 12. Asset Management profit before tax was $216 million, down 5% year-on-year, reflecting the absence of a gain from disposal that contributed to the prior year quarter. Excluding that gain, Asset Management's pretax profits were up 8% on 4% higher revenues. 2Q marks the fifth consecutive quarter that the business delivered pretax profits exceeding $200 million, a testament to the business' strategic retooling and disciplined execution. This consistency, achieved despite secular headwinds and the integration, underscores its agility in adapting to evolving market dynamics and its ability to drive positive operating leverage in a transitional environment. This positions Asset Management well for future growth. Net management fees increased by 3% primarily driven by FX and higher average invested assets, which together outweighed the effects of margin compression from clients having rotated into lower-margin products over the past year. Performance fees were $39 million, up over 1/3 year-over-year mainly driven by our hedge fund businesses. Net new money was negative $2 billion primarily as outflows from fixed income and multi-assets more than offset flows into ETFs, SMAs and money markets. Our investments in ETFs are yielding results with $4 billion of inflows in the second quarter. We also recently launched our first active ETF, offering access to our Credit Investments Group, a leading platform specializing in non-investment-grade credit and multi-credit solutions. Our Unified Global Alternatives unit delivered $1.5 billion of institutional and wholesale new client commitments, which came alongside $7 billion in Wealth Management. Operating expenses were 3% higher or down 1% excluding FX. On to Slide 13 and the Investment Bank. In the IB, we delivered a profit before tax of $526 million, up 28%, and a pretax return on equity of 11.5%, leading to a first half pretax ROE of 13.6%. Revenues increased by 13% to $2.8 billion, a record second quarter driven by Global Markets. Banking revenues decreased by 22% to $521 million, largely reflecting the effects of macroeconomic uncertainties affecting clients' strategic decisions especially in the first part of the quarter. In Advisory, revenues decreased by 19% despite growth in M&A in the Americas and EMEA where we outperformed the fee pools. Capital Markets revenues declined by 24%, driven by LCM and reflecting a continuing trend from 1Q as the mix within the LCM fee pool in the Americas has shifted towards corporates and away from sponsors where we're more concentrated. Also weighing on our performance this quarter was a markdown on a now largely derisked LCM underwriting position. This, together with a markdown on hedging positions, drove a total $65 million headwind in the quarter. ECM grew by 45%, reflecting the benefits of targeted investments and pipeline strength as IPO activity began to recover. APAC was the standout regional contributor. Looking ahead, we remain encouraged by improved market sentiment and by the strength of our pipeline, which continues to build and is expected to support our growth ambitions in banking over the coming quarters, assuming a constructive backdrop. Revenues in Markets increased by 26% to $2.3 billion, tracking the exceptional levels of volatility experienced at the start of the quarter. The dynamic trading environment and elevated client activity levels in Equities and FX were once again particularly supportive of our strategic positioning and business mix, boosting our ability to capture growth and market share. Equities revenues were 20% higher than the prior year quarter driven by a record 2Q across cash equities, equity derivatives and financing. In financing, top line growth of 27% was supported by Prime Brokerage delivering record-level revenues and client balances. FRC increased by 41% primarily driven by FX, delivering its best second quarter, up 52%. Notably, our leading FX trading capabilities helped us to capture client demand for hedging products amid FX volatility in the quarter. Looking ahead, we expect our market performance in 3Q to reflect seasonality and more normalized levels of trading activity and volatility, both sequentially and versus the prior year quarter. Operating expenses rose by 7%, largely reflecting increases in personnel expenses and currency effects. Excluding FX, costs were up 4%. On Slide 14, noncore and legacy's pretax profit was $1 million with negative revenues of $83 million. Funding costs of around $120 million were partly offset by revenues from position exits in securitized products and credit. Operating expenses in the quarter were negative $83 million driven by the litigation release I mentioned earlier. Excluding litigation, costs were down 46% year-on-year and 25% sequentially as the team continues to make strong progress in driving out costs. For the second half of the year, we expect NCL to generate an underlying pretax loss, excluding litigation, of around $1 billion, including negative revenues of around $200 million, mainly from funding costs. Revenues from carry, continued exits and remaining fair value positions are expected to net around zero, and underlying operating expenses given the ongoing strong progress should now average around $400 million per quarter. On to Slide 15. Since the second quarter of 2023, NCL has reduced its nonoperational risk RWAs by over 80%, including by another $1 billion this quarter, in total, freeing up over $7 billion of capital for the group. In addition to significantly strengthening our capital and risk position, the wind-down efforts expertly executed by the team over the past several quarters have led to a reduction of the divisional cost base by over 2/3. Also as of the end of June, NCL closed 83% of the 14,000 books they started with and decommissioned over half of its IT applications. To sum up, with an underlying return on CET1 for the first half of the year of 13.3% and strong execution across key integration milestones, we remain firmly on track to achieve our financial targets by the end of 2026, an underlying return on CET1 capital of around 15% and an underlying cost/income ratio of less than 70%. With that, let's open up for questions.

[Operator Instructions] Our first question comes from Kian Abouhossein from JPMorgan.

The first question is related to the parent bank UBS AG where you gave us a number of $14.5 billion of accruals. Also clearly understand the special dividend reserve of $6.5 billion. I'm just wondering, the $8 billion accrual that is remaining, so to say, can you discuss that part and what you will do with this part in terms of distribution, double leverage or any other usage? And the second question is related to Wealth Management U.S. Americas. You have advisers down quarter-on-quarter. Can you please talk about where we are in the process of the improvement in pretax margin in Wealth Management in the U.S. and the initial thinking and thoughts post-adjustment of adviser incentives?

Thanks for the questions. Regarding the $8 billion you highlighted, which is our 1H '25 accruals at the parent bank, the expectation is that they'll be upstreamed, hence the accrual. And we will -- our expectation is that our equity double leverage ratio, which we'll print in the parent in the group accounts in the coming days, will be sub-110% at the end of 2Q. And with what we intend to pay up in the second half of the year, which is the $6.5 billion I highlighted in my comments, the equity double leverage ratio of group will be sub-105% by the end of the year and moving towards the targets that we set out, which is to align with an equity double leverage ratio of around 100%, which is where we were pre-Credit Suisse. In terms of Wealth Management U.S. and your comments, thank you for recognizing the improvement in the pretax margin and your question around advisers. So first, we are making progress improving the pretax margin in the business. As I've said in the past, we have the array of initiatives that we reset strategically and announced in 4Q, and we're chipping away and making strong progress. In terms of the FA point, look, our platform in the U.S. remains highly attractive for advisers as we continue to invest in technology. And as I've highlighted before, the availability of best-in-class CIO insight and joint teaming with the Investment Bank is giving us a competitive advantage. And we're also seeing that our platform, Kian, remains a compelling source of asset and profit growth for advisers who are aligned to our strategy. And that's evidenced by the exceptional same-store net new money growth we've seen in the first half, which is substantially above levels in each of the last 3 years. I'd also highlight that 90% of our FAs are up in T12 production. But in terms of headcount, look, the second quarter is typically seasonally more active in terms of FA moves across the street. And the changes we've introduced, which I think you were referring to and which I've highlighted previously, means that we could see some continued movement across firms and to the independent channel. Having said that, we're actively recruiting, and we're also seeing more FAs commit to stay and retire at UBS than at any time since we've introduced this retention program several years ago.

The next question comes from Anke Reingen from RBC.

The first is on the output floor. You mentioned that you're looking into your ability to mitigate the currently around $48 billion of RWAs. Can you talk a bit more about -- potentially about the magnitude you think you can mitigate? And then secondly, sorry, on the FX derivatives point, can you sort of like try to size the matter for us as much as it's possible? And did Q2 already see some impact of potential compensations?

Anke, thanks for the questions. On the output floors, I mentioned in my comments, we're operating unconstrained presently. You're asking about where we see the potential for the output floor to cause an increase in the RWAs we operate with. So we are hard at work in developing mitigants to address the output floor wherever possible. It's way too early to prejudge where we'll come out, but we'll keep posted in our disclosures and in my comments from time to time to talk about the progress that we're making, but it's a clear focus for us. And we still obviously have the better part of the next 2 years to continue to make progress in that respect. On the FX matter, as we have -- our comments previously in this is that we've completed a comprehensive review of this matter. We've determined that a very small number of clients, fewer than 200 in just a few locations in Switzerland who had exposure to a product outside our standard asset allocation framework or their particular individual risk capacity, experienced losses mainly arising from U.S. tariff-related market volatility in April of -- at the beginning of the quarter. But from the outset, we've taken the matter very seriously, and where appropriate, we've reached agreements with affected clients. The financial impact from these agreements is substantially captured in our second quarter results.

The next question comes from Chris Hallam from Goldman Sachs.

Just two quick questions. So first of all, what are your latest expectations regarding the deduction elements of the capital proposals, including whether or not they may get wrapped into the broader legislative package, i.e., taken out of ordinance? Do you expect to have sufficient clarity on any potential phasing or delays in time to be able to calibrate the '26 distribution ambitions later -- well, I guess, early next year with the fourth quarter results? And then secondly, just on the longer term, I guess, Slide 26, the bar chart, it's a pretty powerful image. I just -- I wonder when you show that to people that you're engaging with in this topic, what's their response? How do you think, how receptive are they to understanding the longer-run competitive impact on the business from these proposals rather than the nearer-term recalibration of the rules per se?

Thank you. Well, first of all, I think that, as I mentioned before, we're going to see exactly how things play out. Honestly, I don't think we have a clear insight here on what's going to happen. The Economic Committee of the Upper House will also have to opine on this proposal to basically put everything into one package. Then it's still very open if the Parliament will follow the recommendation should also the Upper House committee propose any change. So that really remains something that is not predictable, is not in our control. I think that the only thing I can say is that, as I mentioned, we will now finalize our assessment of the proposals and trying to identify how -- potential positive strength of the proposal but also its weaknesses but also making sure that people understand that capital goes with liquidity and goes with recovery and resolution and should also somehow be related to the business model that a bank is pursuing. So in that sense, trying to have a comprehensive fact -- set of facts before coming to a decision would be probably a good way to handle the problem. But this is a political problem, a political process. We fully respect what's going on, and our aim is simply to contribute to the debate. So as I said early on in September, most likely, we will be able to comment on these proposals publicly. In respect of this chart, yes, thanks for highlighting this because unfortunately, we also saw some other graphic representation of what the new regime would mean, and they were confusing a little bit capital requirement with actual level of capital hold by other banks, underrepresenting the impact in relative terms to us. This, we feel, is the best way to fully highlight what I think is important, is minimum requirement versus minimum requirement. If a bank decides to have a buffer above its minimum requirement, it's its own decision. They may have their own idiosyncratic reasons, but the binding constraints for all of us is always minimum requirement. Therefore, here, you have a clear picture. So the average is 11.5% -- sorry, 10.11% -- 10.9%. And when you compare it to de facto minimum proposal of 19%, it tells you the story.

The next question comes from Giulia Aurora Miotto from Morgan Stanley.

And I have two on capital again. So I know that you want to run with a double leverage of 100%, which makes sense. But if this capital proposal was to go ahead as it is currently written, which completely removes any subsidiary double leverage, would you consider running with higher levels of double leverage between group and parent? And then secondly, the stress test results in the U.S. showed an improvement year-on-year and the capital requirement should come down. Could you give us an update of how much capital do you expect to upstream from the U.S.? And I think you said vaguely that you were expecting some upstreaming, but I don't know if you can quantify that.

Let me take quickly -- because somehow the technicalities, as we say, we are running our business and our capital plan and capital returns as communicated in the past. So our -- we're going to take down the equity double leverage ratio at group level, as Todd just mentioned, to around 100%, which is where we were before the acquisition, pending the finalization of these proposals. When -- if and when these proposals are fully adopted, we will need to then understand exactly how to mitigate and how to act. But it's now premature to talk about one item without knowing the entire package. So this is the only thing I can tell you. So we're not going to engage into mitigation, remediation, whatever you want to call it, before we know exactly what the final rules are. So Todd, maybe you want to take that?