Vontobel Holding AG (VONN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the presentation of Vontobel's Half Year 2025 Results Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christel Rendu de Lint. Please go ahead, madam.

Good morning, and a very warm welcome from Georg, Thomas and myself. Today, Georg and I will focus on the highlights and share some more details on how we are executing on our strategy. Thomas will then take you through the numbers in detail, after which we look forward to opening the line and taking your questions. Let me start with the environment in which we delivered our half year results. Equities delivered a choppy yet positive performance. After a shaky start driven by tariff headlines, indices recovered strongly as trade tensions eased. Investors rotated towards Europe and Asia. Bonds generated modest gains. Credit spreads tightened after the April sell-off, while safe haven demand kept high-quality issues well supported. Government yields moved lower across maturities, most visibly in Switzerland after the SNB cut rates to 0. In the U.S., rate cut expectations were pushed back, yet yields still drifted down on rising growth concerns. FX markets saw a pronounced shift. The dollar declined sharply against most majors as fiscal worries grew, whereas the Swiss franc appreciated further, cementing its role as a safe haven. For Vontobel, this backdrop had a mixed impact. Lower Swiss rates and the weaker dollar weighed on net interest and translational income and the extreme volatility of April temporarily slowed down activity of our structured solutions clients as well as partly of institutional clients. On the other hand, and durably so, the volatility and structural shifts are leading both private and institutional clients to seek firms with a solid balance sheet with high-quality investment capabilities offering diversification potential. And indeed, we could successfully capture these flows. Let me turn to our financial and strategic highlights for the first half. We delivered CHF 148 million profit before tax. This is a solid result in the context of very strong Structured Solutions revenues last year and a sharply weaker dollar. Our operational resilience as well as cost discipline helped offset some of the revenue and translational impact. Assets under management increased slightly to CHF 233 billion, supported by CHF 2 billion of net new money. Private Clients continued its very strong growth path, achieving 6% net new money growth right at the top of our target range. Institutional Clients net new money is negative at half year, but saw a positive second quarter with strong inflows in our fixed income funds year-to-date above the industry growth. We closed the first half with a strong CET1 ratio of 16.7%, comfortably absorbing the Basel III final impact and the IHAG client book acquisition. We further diversified our funding base with an inaugural senior unsecured bond. And our overall conservative stance on risk, once again proved its value during the exceptional market volatility in April. We also made important progress on our priorities in this first half. We continue to realign and expand our offering towards areas which play into our investment strength, have attractive economics and secular growth prospects. We notably brought 3 new investment strategies to market, a European equity income fund that builds on the great success of our innovative Swiss equity income product, an active ETF in the U.S., and an asset-backed finance fund in private credit. Private Clients could, for the first time, also access a revised offering centered around personalization and built on a modular open architecture platform that combines best-in-class internal and external investment modules. The integration of the IHAG client book was completed ahead of schedule, and we selectively appointed senior hires. These includes a U.S.-based CEO for Vontobel Americas, including SFA, key market heads in Institutional Clients and additional relationship managers in our focus markets. Finally, the CHF 100 million efficiency program is tracking firmly to plan. Our priority to sharpen and accelerate our operating model and client delivery is yielding tangible results. Exit rate savings reached CHF 62 million, enabling continued investment in growth areas while keeping the cost base on the downward path. We will execute this program to completion by end 2026. Looking to the second half and beyond, we have a clear strategy and priorities to drive sustainable growth. Vontobel operates a unique integrated business model. We are an active-only investment firm with a single investment factory that serves 2 complementary client segments: Private Clients and Institutional Clients. We are convinced this setup is the best way to make sure all our clients wherever they are in whatever segment they are, can benefit from the full range of our investment capabilities and our products. The balance of the 2 client segments is mutually reinforcing, complementary and creates clear diversification benefits. Product innovation and best practices move between them. We can address and serve a larger market. We capture both the steadier revenue growth in private clients as well as the more cyclical but highly scalable business of Institutional Clients. You will hear many asset management firms speaking about wanting to break into wealth management and vice versa. We have both. We strongly believe in this model and our capability to drive it. Building on that conviction, we last year set 3 clear priorities. We then, together with our more than 2,000 colleagues move straight into execution. We deliver value to our clients through advice, active management and customization. We grow profitably in Private Clients and Institutional Clients. We deliver on our efficiency goals. The wording is intentionally simple: put clients first, grow profitably, run the firm efficiently. And we will continue to create generational value for our clients, employees and shareholders alike. Let me now hone in on how we are in the process of activating this strategy, turning it into concrete actions and results. Starting with investment solutions, a single investment factory that serves both client segments. Consistent with our priority to deliver value to our clients through advice, active management and customization, we are accelerating our execution on a number of priority initiatives. First, build on our leading fixed income capabilities and our market-leading strategies and performance. This ambition is already translating into tangible results across several of our flagship fixed income strategies. At '24, assets under management now exceed CHF 24 billion across our asset-backed, multi-sector and outcome-driven strategies. In our fixed income boutique, the emerging market sovereign debt strategy has grown beyond CHF 3 billion and consistently ranks top quartile across every time horizon. Credit opportunities, which we only began to market this year, already exceeds CHF 500 million in assets and ranks in the top 5% over 1, 3 and 5 years. Second, get ready for the recovery in equity flows. We have sharpened investment processes, tools and teams as needed. Third, expand our private market and solutions offering. We will carry forward the momentum we have with Ancala in private credit, equity solutions and the expanded private offering for Private Clients. Fourth, build on our strong multi-asset track record in Private Clients. We are now scaling these capabilities in Institutional Clients, not only through mandates where we already have a solid Swiss franchise, but also through mutual funds in key markets like Germany and Italy. And finally, technology. We are accelerating the development of our cutting-edge tech platform, empowering investment teams with advanced tools to deliver mass customized solutions. Through this disciplined execution, we are systematically expanding our capabilities in faster-growing segments that both deliver clear value to our clients and attractive economics for the firm. And now over to Georg.

Hello from Zurich, and a very warm welcome from my side. Let us move to Private Clients, where we again have achieved very strong inflows with 6% annualized net new money growth right at the top of our target. All regions were positive, and we were notably able to capture growing interest from U.S. clients. All relationship manager tenures had positive flows with seasoned relationship managers contributing more than 40% to the total. Our success is deeply rooted in a disciplined implementation of our investment-led approach concentrated sharply on our focus markets. We will continue to, first, selectively add and develop top caliber relationship managers. We will use our robust process for sourcing, onboarding and developing talent. Our focus remains on relationship managers with established client networks who embrace our investment-led culture and disciplined approach to risk. Second, put investments and advice first. We will resist the temptation to deploy balance sheet credit to accelerate growth. This reduces capital consumption, earnings cyclicality and credit risk. Third, invest in our market-leading digital platform for structured solutions. We will further expand its capabilities and throughput. And fourth, evaluate and selectively seize inorganic growth opportunities, which add scope or scale. We will build on our successful integration of Notenstein La Roche, UBS SFA and IHAG. These actions will keep our unique Private Clients growth engine running. Let us move to Institutional Clients by first reviewing the wider industry context for active asset managers. Please refer to the left-hand chart. The blue line plots cumulative European and cross-border passive fund flows since January '22. They are up almost CHF 700 billion. The black line shows active funds. After 3 very tough years, the bottom was reached last late year. Since February, the curve has turned firmly upward. This is the inflection point we anticipated. The middle chart splits those active flows for fixed income and equities. Fixed income is decisively leading the rebound. Equities remain negative, but the trend is clearly improving. On the right now, you see a ranking of 24 European active managers. It shows percentage fund asset growth from January '24 to May '25. The story behind the extremes in this chart is instructive. The leaders have either a strong captive distribution channel or a pure fixed income focus. The laggards are emerging market specialists. Our position between the extremes is consistent with our business model. First, we deliberately keep an open architecture and put our fiduciary duty towards our clients first. We do not push products and our Private Clients are not in a captive channel. Second, we went into the 2022 historical sell-offs and resulting homeshoring with recognized but exposed emerging markets capabilities. This negatively affected growth during the period. Third, we are, however, a leading player in actively managed fixed income strategies. In short, we were above the peer median despite 2 clear headwinds. We do not rely on a captive distribution channel and industry-wide outflows affected our emerging market strategies. Our outperformance speaks to the quality of our fixed income franchise and the reach of our distribution teams. Those of you who attended the Investor Day in November last year know that we, together with Christoph von Reiche and his teams have been working hard to sharpen and accelerate our delivery in Institutional Clients. We are focused on evolving our sales approach, implementing globally scalable client journeys and commercializing strong existing track records while activating new strategies. Let me give you a few examples of what this means in practice. First, we have sharpened our coverage model. As opposed to starting with a given product on the shelf, we now start with a complete view of the clients' needs. What this means is that coverage teams are no longer organized by product, but by client segments such as pension funds, insurers and global banks to name a few. Second, we deliberately accelerated our core strengths. Fixed income is the most obvious example. We concentrated our distribution on our strongest strategies and solutions. Fixed income today accounts for almost 40% of our institutional assets. It is a key driver of our flows, and we see continued strong client demand, an area we will continue to decidedly lean into. Third, we are in the process of implementing a scalable client service model. All RFP, onboarding and reporting processes are increasingly moved from various regional systems onto one global platform. This cuts client response times, error rates and costs. Fourth, we are now systematically concentrating our sales efforts on the markets and client segments where we have the greatest strides to win. As Christel mentioned earlier, we have appointed experienced senior talent to lead our efforts in key markets. And finally, we are improving our efficiency and client service capabilities by making increased use of technology to standardize, accelerate and automate our processes. This includes more traditional systems and data architectures in areas such as client reporting. It also means staying at the forefront of rapidly advancing large language model-based tools for select workflows. Taken together, these ongoing measures put us in pole position to capture and outperform on the cyclical recovery we're already seeing in actively managed fixed income, and we are ready as equities is now following in its path. Importantly, no one is sitting on their hands waiting for traditional tides to turn. Our distribution teams have already demonstrated great success in enabling our systematic expansion into solutions, private markets and other strategies. Tangible examples include partnering with Ancala teams and the great success in distributing our innovative products such as Swiss Sustainable Equity Income Plus, which has attracted more than CHF 800 million over the last 6 months. The momentum we are creating with our actions gives us tangible proof that our strategy is working and that we are well positioned to turn this industry and macro backdrop into another cycle of profitable growth. Moving on to our priority to sharpen and accelerate how we operate and serve our clients, thereby improving efficiency. Let me start with the bottom line. 18 months in, our CHF 100 million efficiency program is tracking to plan. Exit rate savings already amount to CHF 62 million. Last year, together with our leadership team, including our COO, Markus Pfister, we presented the levers to improve our efficiency. These are unchanged. But let me give you 3 tangible examples of what we have achieved. We now operate 6 core platforms after retiring more than 30 legacy systems and migrating an increasing share of our compute to the cloud. We have in-sourced high-value roles, 32 external contractors have already converted to permanent staff with another dozen to follow by year-end. And we have renegotiated approximately 340 vendor contracts and engagements ranging from data service providers to facilities management firms. We remain committed to completing this program by end 2026. By becoming more efficient and freeing up resources, we will, at an accelerated rate, generate the capital, which can be deployed for organic and inorganic growth. Our clear objective is to continue our track record of through-the-cycle growth and attractive shareholder returns. The last year reaffirmed our strategy and explained why we are doubling down on our integrated model. We, today showed the concrete actions that are already underway. With disciplined execution, we are confident that we will reach our through-the-cycle targets. They remain unchanged. With this, let me hand over to Thomas, who will cover the financials.

Thank you, Georg. Good morning, and a warm welcome from me as well. Profit before tax in the first half of 2025 stands at CHF 148 million compared with CHF 173 million in the prior year period. This amounts to a decline of 15% or 10% at constant currency. Despite the decline, we view these numbers as solid given significant macroeconomic headwinds. We have seen SNB and ECB rate cuts, a significantly weaker dollar and Structured Solutions revenues normalizing from last year. This led to CHF 29 million lower revenues at constant foreign exchange rates or CHF 39 million as reported. Our efficiency program offset some of these headwinds and contributed CHF 21 million to the profit before tax. We continue to invest into growth in Private Clients. This amounted to additional costs of CHF 8 million in the half year, which are comprised of the IHAG teams and selective hiring of relationship managers. The foreign exchange rate development reduced profit by CHF 8 million. Like many Swiss multinationals, we carry a structural Swiss franc exposure. About 80% of our costs are in Swiss francs, while only around 1/3 of our revenues are. We also have seen one-offs linked to the efficiency program and the final IHAG integration of CHF 10 million, CHF 1 million more than last year. The effective tax rate fell to 22%, reflecting that the one-offs from last year did not repeat and reflecting the implementation of selected improvement measures. That also offset the decrease -- the increase in the Dubai tax rate from 9% to 15%. For the full year, we continue to guide to a 22% tax rate. That all leaves the group net profit at CHF 116 million or CHF 124 million at constant exchange rates. All in all, a solid result given the environment. Turning now to assets and flows. Assets under management increased to CHF 233 billion despite the CHF 9 billion foreign exchange headwind on the decline of the U.S. dollar. Net new money contributed CHF 2 billion and market performance contributed CHF 11.3 billion, including the CHF 1.8 billion from IHAG. On flows, Private Clients delivered very strong CHF 3.3 billion inflows, 6% annualized net new money, which is an almost 40% acceleration versus the first half last year. What is equally important is the fact that inflows were broad-based with inflows across all regions and across all relationship manager tenures. Institutional Clients recorded CHF 1.3 billion outflows, mainly due to the loss of one large quant mandate of CHF 1.3 billion in the second quarter. Please note that the CHF 1.3 billion includes CHF 500 million of inflows, which are booked in the center of excellence for technical reasons. The flows in the second quarter have been positive, driven mostly by fixed income and equity solutions. The operating income was resilient at CHF 689 million, 5% below last year. Net interest income, as guided at the last full year results declined by 29%. This reduction is explained by the SNB rate cuts and the fact that just short of 50% of our deposits are denominated in Swiss francs. Net fee and commission income grew 2% on higher mandate assets and higher asset levels. Trading and other income was 11% lower than prior year. However, last year, we had strong trading volume from February to May, driven by high demand for Mag 7 and crypto products. What we have seen this year in contrary is 4 to 6 weeks of muted client activity after Liberation Day. By segment, Private Clients revenues normalized from last year, while Institutional Clients revenues mainly reflect the impact of the U.S. dollar and a lower share of emerging market products. The Private Clients revenue margin declined by 14 basis points to 87 basis points. Roughly half of the change stems from lower Structured Solutions revenues compared to the strong last year. The other half comes from previously guided compression in net interest margins as Swiss rates are now back to 0. But now let's take a closer look at the Institutional Clients margin, which stands at 34 basis points. For 3 years, industry demand for emerging market funds and mandates has been weak. We also see this in our business mix. The share of emerging market-related products has declined from 21% 3 years ago to 10% today. This has directly impacted the overall margin because emerging market strategies generally carry higher margins across all asset classes. If we look ahead, they are both head and tailwinds. On one hand, the second half 2025 year-on-year comparison might still show some residual mix pressure. On the other hand, several developments point to higher margins. First of all, client interest in our emerging market strategies is returning, and we have seen positive inflows into the emerging market debt fund. In other words, there are clear indications that the share of assets of emerging markets has flattened out. Second, our strategic priorities to expand our capabilities in solutions and private markets will be margin accretive over the medium term. And finally, the fixed income flows are concentrated in higher-margin products. So based on the recent inflows and the current pipeline that we see for new business, we expect margins to remain broadly stable in the second half. Moving on to costs. Operating expenses decreased by 2% to CHF 541 million as our efficiency program is starting to yield tangible results. Personnel costs were CHF 355 million, down 2% despite some inflation, selective hiring and the ongoing in-sourcing of external resources. Our efficiency program could offset parts of the revenue decline. Cost/income ratio finished at 77.9% or 77.1% at constant foreign exchange rates. This increase is entirely driven by lower revenues in net interest income and transaction revenues, both of which have very low marginal costs. Let's move on to the balance sheet. We continue to maintain a strong and highly liquid balance sheet. In the first half, total assets rose by CHF 2.6 billion to CHF 35.5 billion, driven by seasonally higher delivery versus payment positions and CHF 1 billion of additional client deposits. Our balance sheet comprises more than CHF 20 billion of liquid assets and our liquidity coverage ratio stands at 160%. Leveraging this strength, we have successfully placed our first CHF 200 million senior unsecured bond in March. The bond issuance diversifies our funding base and represents a first step towards establishing Vontobel as a regular capital markets issuer. Credit exposure remains low, in line with our investment-led growth strategy. And we will continue to operate with a conservative risk stance, which has consistently served us well through periods of market stress, most recently during April. The CET1 ratio increased by 60 basis points to 16.7%. Net capital generation from retained earnings added 80 basis points. The gross impact of the Basel III final regulation, which became effective on January 1 in Switzerland, amounted to 80 basis points, but was more than offset by 130 basis points of continued capital management improvements during the first half. Since last year, Basel III final regulation in total has amounted to a gross CET1 ratio reduction of 2.2 percentage points, of which we have already offset 1.5%. The IHAG client book acquisition resulted in a 20 basis point decline due to associated goodwill and intangibles. In short, our CET1 ratio is comfortably above the 8% regulatory minimum and our 12% internal target. This leaves further headroom to support organic and inorganic growth. We now turn our focus to the long-term health aspect of Vontobel. As previously mentioned many times, we assess Vontobel's health against 3 key measures: first, the ability to grow revenues and profits. We focus on delivering long-term through-the-cycle growth even if macro conditions weigh on individual periods as we have seen in this first half. Second, the ability to create value with a return on equity of 10.2% versus an estimated cost of equity of 9.1%, we generated positive economic value. And finally, generating capital. Tangible book value per share growth, including the cumulative dividends paid, further increased and remains among the strongest in the industry. The return on equity -- the return on tangible equity of 13.8% and the return on CET1 capital at 18.5% remain ahead of their respective hurdles, confirming that our strategy is generating sustainable shareholder value. Now to summarize the financials, we generated a solid profit before tax of CHF 148 million amid lower rates, a weak dollar and a sharp but brief slowdown in client activity after Liberation Day. Operating expenses declined as the benefits of our efficiency program become visible in the P&L. Private Clients continued their strong trajectory with 6% annualized growth, while Institutional Clients turned positive in the second quarter. Also, our balance sheet remains strong. The CET1 ratio rose to 16.7% despite the new Basel III final FRTB regulation. And we further diversified funding with a successful first issuance of a senior unsecured bond. And with that, I hand back to Georg.

Thank you, Thomas. The first half of 2025 was a period of disciplined execution for Vontobel. Let me briefly summarize. We delivered solid results and positive flows in a challenging and volatile macro environment and against a strong prior year comparable period. We executed on our priorities with discipline: 3 new investment strategies launched, IHAG integration completed ahead of plan, and our CHF 100 million efficiency program is firmly on track. Looking ahead, we are determined to carry this execution momentum into the second half and beyond. Thank you very much for your attention. We are happy to take your questions now.

[Operator Instructions] The first question comes from Nicholas Herman from Citi.

Hopefully, you can hear me okay?

Yes.

Great. I've got a bunch of questions, but I'm going to start with 3 and then I might circle back later on in the call. I guess just on -- if I could start with Asset Management, please. So a couple of questions, one on margin and one on your offering. So just to clarify, are there any one-offs or lumpy items that are distorting your institutional client margin? I guess it just seems a bit counterintuitive to me that in a period where equity flows appear to have been relatively better and the proportion of emerging markets has been stable that we've seen such a strong deterioration in your gross margin much more so than in prior periods. Although I did note your comments around the outlook for that business. On your offering, I saw that you've launched your first active ETFs in the U.S., I guess which client segments is that particularly targeted for? And I guess more broadly, the active ETF market is steadily growing in Europe as well. So could this next structure -- product structure make sense across your offering? And then the final question I had was on capital and M&A. You've talked -- Thomas, you talked about how you've offset 1.5 percentage points of the 2.2% impact from Basel III final. Could you -- do you see more scope to optimize your capital from here? And I guess just more broadly, with a now rebuilt surplus capital position and M&A activity is picking up across the industry post-IHAG, are you optimistic on utilizing and deploying that surplus capital for further, I guess, particularly inorganic growth? And what kind of -- what opportunities do you see in the market?

Let me get started with the margin. Thank you for your questions. I will dive into the first part. Yes, there is a one-off, but the one-off was last year. So you're right to point that out. We had last year a one-off roughly 1 basis point, which explains why it kept up last year and was going down this year, as I have mentioned in last year's presentation. The key driver here that we talk about is emerging markets in equity and fixed income. However, what we seem to see is that the emerging markets are stabilizing. Now if you look at what is going on in the market in the last couple of years, 70% of all flows have been going to the U.S. If you take the MSCI, the emerging markets market capitalization in percent of MSCI, what you see is it has been going down since a couple of years now. And now we see this flattening out, and we are also seeing increasing demand now, right? So the institutionals seem to slowly, slowly rerisk, while we hear about rerisking from the U.S. on the retail side, much, much more, in particular on trading-oriented areas. But on the institutional, they're only slowly, slowly coming back to this higher octane. And what we are seeing here is the inflows and the pipeline, as I said earlier, is in high-margin products. So yes, we see fixed income running ahead. But in fixed income, we're not talking about the low margin. We're talking about the attractive high-margin business such as 24 Asset Management or credit opportunities. The second question, Christel.

Yes. So on the active ETF, you asked about which channel. So it's predominantly the intermediary channel or wholesales channel, global bank channel, however you want to call it. So for us, it's really the wrapping of our own capabilities. We obviously observed the higher demand that there is for this type of instrument. It is strategic. And indeed, we are assessing the potential in Europe as well. What we would stress is our edge, obviously, is the capabilities, right? It's what we produce. That's the DNA. It's the investment skills, the investment performance. The wrapping is just a wrapping, but you need to have it if this is where the demand is also seeking it. So that's exactly how we thought about it. Launch first on international equities, which is one of our strong track record, and it is very good that we give it this home, in particular, a product that has been in high demand in the U.S., obviously, by the nature of it. And if I may add on before I give back to Thomas on the capital, on the inorganic you were asking, we will continue with the same approach that applies to both organic and inorganic in how we approach things, which is in a disciplined, selective but open-minded way, disciplined as in -- you remember when we hired 42 RMs last year, we had conducted over 600 interviews. We're go in exactly the same way inorganically. They must add scope or scale. If it's scale, it's obviously in our focus market. And we definitely remain open-minded to this type of opportunities?

Yes. So Christel answered the second part of the third question.

Not exactly the second part -- Okay, the first one.

And I will go on the first one, whether there's more scope to go. Let me take a step back. Basel III final has only been introduced in Switzerland. We are -- the way it looks currently, it will not be introduced in the EU. They shifted it for 1 year. The U.K. shifted it 2 years and the U.S. flat out said that such things are designed to make U.S. banks competitive advantage worse. So it's very unlikely that under the current administration, any steps in these directions are being made. We have explained that at the introduction, our impact is, of course, market risk RWAs will go up. The credit risk, I said, will remain flat and the operational risk RWAs are coming down, which you can see also from the report. And it's mostly driven by different risk weights on the bonds and for RWA calculation, tails need to be hedged. So for example, we need to underlay a 25% or minus 30% move on equities with capital now or with risk-weighted assets. So what we have been working on is adjusting the products, adjusting the bond portfolio and selectively adjusting our hedging strategy to the new risk-weighted assets to optimize risk return. We have done the bond portfolio. What remains still is to do a bit more on products and on the hedging strategies. So the long-winding answer to your question is, yes, there is more scope, and we are currently implementing for the -- we're in the implementation for the second half of the year. But I would say we've got 2/3 of the benefits we have already realized around 2/3. And the rest we are realizing in the second half of the year.

That's really helpful. If I could just ask one follow-up, please, just on active ETFs. So I appreciate that the structure is also more cost efficient. But I guess is there any difference for you in terms of revenue and pretax margins for you with active ETFs? And just to be clear, I totally get what you're saying that makes total sense about the edge, the capabilities, not the wrapper, but just from a financial perspective.

Partly because this is why we are indeed going into the active ETF and will only be going into the active ETFs. So to answer concretely, this -- the product that we launched has a 60 basis point management fee. So that should help.

[Operator Instructions] The next question comes from Benoit Valleaux from ODDO BHF.

I have two questions, in fact, 2 on revenues and one on expenses. Regarding revenues, maybe first question is related to NII trajectory. I mean we saw a decrease of roughly CHF 8 million, CHF 9 million, H1 this year versus H2. There have been another cut in rate. You mentioned that 50% of deposits are in interest. So can you give us any color on what could be the trend for H2 this year? We could assume a further decrease, definitely, maybe at a lower pace than what we've seen in H1. So any potential comment? The second question is related to trading activities and revenues. You mentioned, of course, that client activity was more muted post-Liberation Day. Do you believe that to some extent, we might have some kind of catch-up maybe, let's say, in H2 this year or maybe at the end of this year? I mean something which could occur? I mean, what's your view on that? And related to expenses, you are on track or maybe marginally ahead of your plan. Do you believe that you could potentially have room to exceed a little bit your target of CHF 100 million? I mean because -- I mean, with the decrease in revenues, your cost income has deteriorated. So could you go beyond your current target?

Let me get started. With the revenues, so net interest income. And generally, we have a very low net interest income. If you look 10, 15 years back, it is around 8% average. And this time, it is 6.4%. This is a result of the business model and the strategy of investment-led growth in private banking rather than lending-led growth. So loans are for Vontobel a service and not a business. So that I wanted to say in the beginning. If you look, we have roughly CHF 7 billion in loans, roughly CHF 14 billion in deposits. Some of the deposit type is under structured products. It has to do with how they are wrapped and provided to the clients, 50% of which is Swiss francs, then U.S. and then euro. So in essence, Swiss francs deposit is, so to say, the driver of what we talk about here. So the outlook is we're expecting a slight decline and some adjustment for dividends because it's net interest income plus dividends. All in all, we would say CHF 75 million to CHF 85 million in that range would look okay as an estimate for the second half of the year. So we see a bit of more decline. The Swiss franc reduction in interest rates will come through and the dividends will not -- they're happening in the first half of the year. That's it on this question. On the trading side, generally, trading is very, very difficult to predict. That's why we don't do this publicly. But in general, the second half is a bit weaker than the first half, and that has to do with July and August, the holiday period and in December. Normally, what we see is a significant slowdown 2 weeks before year-end. So that's a bit the background. What we have seen in the first half is after the liberation day when the decline started, we did not see a pickup in volume. Our explanation for this is the clients that are trading. There are -- it's 2 reasons for that. First of all, they are -- higher volatility is generally good, but what we have seen is significant political uncertainty. And this is generally not good for the trading volumes. And secondly, what I have also explained last year is we don't make the money with trading in the sense of the work that we take active positions. The money is more than 90% made from clients. It's client margins, bid-ask spread and all these kind of things. That's why the client demand is very important. And we have seen this blip for 4 weeks to 6 weeks, we were -- otherwise, the half year has been good. And we were -- it was running good already at the end of May. So there may be a bit of catch-up possible, but it's very, very difficult for us to predict. And it, of course, depends on how the markets are developing.

And the last one is the -- if we're going to exceed CHF 100 million. Well, we are definitely sticking to it. We've announced CHF 100 million. This is -- we stick to that. We can reassess depending on market or structural conditions rather. But for now, you go with the guideline of CHF 100 million.

Okay. May I have just another very quick question. You mentioned the impact of the weakness of the USD. I mean, does it have also an impact on your normalized tax rate?

No. It doesn't have an impact on the tax rate. These are different effects because the taxes we pay, of course, on the statutory accounts, so in the local currency with a local number. So as we calculate it back, I mean, U.S. dollar calculates with U.S. dollar taxes. So of course, in Swiss francs, they go down, but also the revenues go down. That's why the tax rate itself should not be affected by that at all, unless there are some timing differences, which would explain a very, very small piece of it. But generally, no impact on the tax rate.

The next question comes from Daniel Regli from Zürcher Kantonalbank.

Obviously, a bit of a follow-up regarding the questions on client activity, but in particular, with regards to the structured products or Structured Solutions business. And there, obviously, we have also seen a bit of a drop versus last year. And can you maybe just help me again understand why last year's H1 Structured Solutions contribution was so high? I think you well explained why this year was a bit softer, but I think also compared to previous years, last year's H1 results seem pretty outstanding in Structured Solutions.

If I move you back a little bit in time last year, the year started in January a bit slow, but then from February to end of May, we had quite a run in the markets, right? The recovery, it was quite strong, in particular, in the Magnificent 7 and in particular, in NVIDIA. So we saw a lot of demand in the Magnificent 7 and in NVIDIA structured products. And the second thing is Bitcoin had this very strong run during that time as well. And also here, we saw extremely strong client demand for our crypto products. And those 2 things have now this year not happened, obviously, but we have seen an opposite effect. But in general, I mean, all in all, in general, we have a very strong platform, and we continue to gain market share. So the underlying business is very healthy. But of course, we're driven by client demand, as I've highlighted earlier, and that was just very strong with Magnificent 7/NVIDIA and crypto last year.

But shouldn't the kind of volatility environment we have seen this year, I'd say, mid- to longer term be helpful to the Structured Solutions business?

Yes, as I said, I mean, higher volatility is in general, good. These 4 weeks that we have seen or 6 weeks, it wasn't volatility. It was uncertainty. And what we see more and more with private clients on the private side, we also see it in the trading is that clients, when they are uncertain, they just do nothing. They don't buy, they don't sell. The pain was not big enough. It reversed within a proper period of time with a strong rebound. And that's why we have -- and clients took some time to come back and start trusting again and start trading again. And that took 4 to 6 weeks, as I said earlier. So that's what we are seeing. I mean, yes, you're right. In general, higher volatility is good. If we see higher volatility environment for the second half, that's accretive. But what we have seen in those 4 weeks is due to maybe too high volatility, too high volatility and in particular, political uncertainty. It wasn't that something is going on in the market that people could understand and position them against. It was a political thing that came out basically of the left field. And that's our explanation why we have seen -- and that's also what our distributors tell us why we have seen less demand.

We have a follow-up question from Nicholas Herman from Citi.

So just -- I guess it's a big picture question for Christel. You said get ready for the recovery in equity flows. But when you presented your strategy -- and I can totally see the kind of the trend that you're illustrating here. But when you presented your strategy, you flagged the relatively low yield on equities versus fixed income. So I guess just what makes you much more constructive? I mean, that hasn't really changed. So what do you see that's really kind of changing this demand picture from a client perspective? The second one would be, it's great to see you start to see some inflows into your emerging market funds. Could you help us with the performance in those strategies, please? So maybe the percentage of assets in the top 2 quartiles for your emerging markets equities and debt strategies. You obviously help us with the overall segment, but just maybe for emerging markets specifically, that would be helpful just to give us a sense of how well geared you are into that...

Yes. No. Go ahead.

Should I stop there and just...

Go ahead.

The third one I had was on multi-asset. Was that -- it looks like there may have been some small outflows there. Is that correct? And then the final one on Wealth Management. There has been a relatively notable decline in recurring fee margin, both, I guess, versus the full year '24, but also versus on a year-on-year basis. So just what is driving that, please? And how to think about that line item going forward, please?

Sure. So starting with the -- if I understood your question right, I mean, we had a sound problem actually. So in case that is not answering exactly your question, you just please come back. But you were asking what makes us confident that equities will be recovering. It's basically in line -- so if you look at what Georg was presenting on Page 9, if you can see it the run rate basically of outflows in active equities is obviously shrinking. And the evidence is that there are -- it's starting -- we're starting to see the first interest into active equities again, including into EM. It's tentative still. So it's not saying that the massive flows into active equities. But you can see that the trajectory is the one that you'd expect normally. So after shock 2022, it took longer. And by the way, that's the same thing because there was political uncertainty, it takes longer and then flows come back gradually, fixed income first, equity second. EM, by the way, is a very similar story, right? It's starting where the -- where it's perceived as being the least risky, I'd say, across all asset classes, and that would be into EM sovereign because the only credit risk you take is the risk of the sovereign basically and hard currency, which would be seen as safer as local currency by clients. So this is where we're seeing the interest. That strategy, in particular, is top quartile across all segments. And for the others, we can come back to you with the performance. I mean you have 2 core strategies that are really the leading strategy, which is the EM debt sovereign. You have the EM local currency, which is also in the top quartile. And you have the EM corporate that is -- that remains top quartile on a 5-year basis, has suffered in 2023 on top of my head and so has receded probably to the second quartile between top third quartile and second quartile on a 3-year basis, but you can get all of that. And on the EM equities, mtx has turned the corner last year in terms of performance was ahead of benchmark, was coming back in the peer ranking, needs to pull another good year to come back up in terms of ranking on the longer-dated period.

Very helpful. I just want to just -- on that point, Christel, I mean, at the Strategy Day, hopefully, you can hear me better now. You flagged the relatively low yields in equities versus fixed income as a reason why you were much more constructive on the outlook for fixed income demand. I guess, is it this kind of sign of this turning, is that because we've seen a convergence with slightly lower interest rates and lower uncertainty? I'm just kind of curious about what's -- from your perspective, what is driving that kind of turn in sentiment because that yield differential still remains from what I can see.

Yes. This is a completely personal view. I do think it's just the -- it's the pecking order of risk appetite coming back in. And in particular, for active, when you think about it to reengage into active and also just give you the taste of wanting to reengage, if you are fundamentally thinking no way for emerging markets, it kind of also shut downs that market, and that is turning. You also had early in the year, the DeepSeek whether that proves lasting or not lasting, hasn't proven lasting for now, but still kind of went like, okay, is there something happening? And then you have the question of the diversification given the U.S. backdrop. So I think it's a bit of all of that, which is rekindling interest into active almost more -- and then so equities and active in particular.

Good. And I go with the question 3 and 4. On the multi-asset, the outflow was slightly positive. So as we said, it's -- you don't see that from the numbers, but in the quant boutique has suffered outflows in the first half of CHF 2.1 billion, of which CHF 1.3 billion was one very big mandate. The multi-asset -- core multi-asset had an inflow of CHF 0.2 billion. So that's how it went. And on the multi-asset, as you could see, we have very strong performance. And one of the key strategic directions for the second half of the year is to start distributing the strong multi-asset performance to our Institutional Clients base. So that is that. And for the recurring fee reduction, there's exactly 3 reasons that I can give you. Number one, IHAG. So IHAG was dilutive to the margin when we bought that, not only in general, but also don't forget, this is an asset deal. So we took over the client, they had to go to AML, KYC checking, compliance, all the repapering, all this kind of work, and that takes time from relationship managers before they are fully set up again. Also relationship managers need to get used to the new setup, all these kind of processes that work. It just takes a bit of time, right? That is the main reason. And then what we have seen is some smaller asset allocation shifts in the advisory mandates. And our ultra-high net worth business is also increasingly successful. So we get bigger chunks of business. The average size of our mandates is going up. And that, of course, has also a bit of an impact on the margin. But it's not bad margin reasons. All of the things are good margin reasons or as I said, with IHAG, a significant part is transitory.

And it sounds, I guess, with the ongoing mix shift that, that kind of remains the direction of travel even if your pretax margin remains kind of unchanged. Is that fair?

No. Not necessarily because IHAG is transitory. The smaller allocation shifts that Thomas mentioned were on the higher volatility or really, as you rightly said, the higher uncertainty. The bigger clients, you could say, yes, that could be provided we keep on gaining marginally more bigger clients, but I wouldn't -- the bottom line impact is a positive one.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Georg Schubiger for any closing remarks.

Thank you all for joining us today and for your continued interest in Vontobel. We value these discussions. And should you have any additional questions, please do not hesitate to reach out to our Investor Relations team. With that, we look forward to meeting you soon, and we wish you a successful day and a pleasant summer. Thank you. Goodbye.