Vontobel Holding AG (VONN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the presentation of Vontobel's Half Year 2026 Results Webcast. I am Matilda, the Chorus Call operator. [Operator Instructions] and 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 Georg Schubiger.

Good morning from Zurich and a very warm welcome from Christel, Jan and myself. Thank you for joining us for our half year 2026 call. We are pleased to report an excellent first half. We achieved record financial results and strong strategic progress. Christel and I will give you the highlights. Jan will then take you through the financials. After that, we look forward to opening the line and taking your questions. We had an excellent start to the year. We achieved a record net profit of CHF 216 million, up 87%. Assets under management reached an all-time high of CHF 252 billion. We are delivering ahead of all our through the cycle financial targets. We maintained a strong, liquid and well-capitalized balance sheet. Our fast capital generation gives us flexibility to continue to scale our business and invest for growth. The strategic progress behind these results is equally important. We strengthened our investment platform by embedding quantitative and AI capabilities more broadly across investment solutions. In line with our strategy, we expanded our solutions offering to address growing client demand for more tailored outcomes. At the same time, the efficiency program is no longer just a program. It is becoming visible in how we operate the firm. It is lowering our structural cost base, strengthening cost discipline and creating the capacity to invest selectively in areas of future growth. We are making targeted expansions in our focus markets in private clients. In Los Angeles, we are tapping into one of the largest and most sophisticated valve pools in the U.S. In Disteldorf, we are strengthening our presence in one of Germany's most attractive regions for high net worth clients and family offices. This is designed to scale a proven model and support our next phase of profitable growth. Taken together, this first half shows both the strength of our franchise today and the potential of our business model as we continue to execute with discipline. Let me briefly recap the backdrop against which we delivered these results. Markets were constructive overall, but conditions remain complex and volatile. In addition, visibility on the political landscape and its economic implications was lower than in previous periods. The escalation in the Middle East created a sharp energy shock in the first quarter. By the second quarter, markets increasingly looked through the geopolitical quagmire and refocused on earnings and growth. Investors focus remained highly concentrated on technology, especially companies linked to AI infrastructure and semiconductor supply chains. Equities were positive over the first half. Bonds were more challenged by persistent inflation concerns and a higher for longer rate outlook. Currency headwinds continued to impact us, especially the strong Swiss franc and weaker U.S. dollar. In this environment, clients needed analysis, guidance and flexibility. This is exactly where Vontobel adds value through active management, trusted advice and custom solutions. We are an active investment firm, serving 2 client segments, private clients and institutional clients. These are mutually reinforcing in skills and business and complementary in their diversification benefits. Both segments draw on our dedicated experts and our single investment factory, Investment Solutions, which also includes our structured product capabilities. The relevance of our unique model is increasing. Markets are harder to navigate and clients are demanding more tailored advice and solutions. A generational wealth transfer is reshaping client needs across private and wealth. Vontobel is well placed to benefit as we combine investment expertise and customization in one integrated setup. Our priorities are simple because our model is clear. We help clients navigate complexity through advice, active management and customization. We grew in markets and client segments where we have a clear right to win, and we operate with discipline so that revenue growth flows through to profitability. The first half shows that this model is working. Stronger client activity, record profitability and a clear operating leverage. Investment Solutions is at the core of Vontobel. We have flagship strategies across all major asset classes and distinctive structuring capabilities. We are also expanding private markets including the next Ancala fund and the first fund in 24 Asset Management. Vontobel Solutions builds on that foundation. The new unit within Investment Solutions is designed to connect and combine these capabilities to systematically turn them into scalable, tailored outcomes for clients. There is clear client demand. Markets are more concentrated. Correlations have been shifting and macroeconomic and geopolitical drivers are harder to predict. More than before, clients are looking for solutions built around their own goals and constraints. They want portfolios designed for the outcome they need, not off-the-shelf products. This is where Vontobel can win. We have the building blocks, investment expertise, quantitative tools, portfolio construction, risk management and structuring capabilities. We already know how to assemble them at scale, driving on the systems and approach we already apply in private clients. We are now scaling it more systematically for institutional clients. For clients, Vontobel solutions brings tailored portfolios to precise investment needs. For us, it provides access to an attractive and growing market that plays to our unique strength with a clear strategic fit. And now over to you, Christel.

Thank you, Georg. Let me start with institutional clients, where we see positive commercial momentum. We have executed our institutional client strategy with discipline. The focus has been clear, sharpen our coverage, improved client experiences and ensure our best capabilities reach the clients and markets where demand is strongest. That is now reflected in how we operate. We holistically engage clients around the problems they need to solve bringing the relevant Vontobel capabilities into that conversation. We work more closely with our clients combining global reach with selective strong local coverage. Our client processes are more efficient and faster. That is more consistently converting demand into mandates and flows. Indeed, results are clear. In the first half, we saw improved flows, margins and revenues. Reported net new money growth was minus 1.5%, reflecting the known effects from Raiffeisen and quality growth. However, the underlying picture is much stronger. Excluding these 2 known effects, growth was 7.4%, well above our through-the-cycle target. This shows that the underlying business is growing with solid momentum. This is particularly clear in fixed income, where we achieved annualized net new money growth of 15%. Strong client demand and a healthy product pipeline position us well for this second half. Taken together, institutional clients is becoming sharper and ready to scale again, converting invested demand into profitable growth. Turning to private clients where we delivered strong growth and continued to expand in our focused markets. Revenues grew by 32% and assets under management stood at an all-time high of CHF 132 billion by half year. The result was driven by strong client activity and demand across our offering specifically advisory and discretionary mandates as well as structured solutions. We attracted CHF 2.5 billion of net new money. This represents 4.1% annualized growth within our through-the-cycle target range of 4% to 6%. Importantly, inflows were positive across all regions. This confirms the strength of our investment-led approach and of our focused market strategy. We win clients with investment expertise, not through balance sheet credit. More than 90% of our assets are in developed and Western markets. We selectively hire and develop top caliber relationship managers who can grow with our investment-led approach. We are strengthening the foundations for future growth by expanding in focused markets where we see clear client demands. In Los Angeles, we opened our first West Coast office in one of the largest wealth markets in the United States. Through Vontobel Swiss Financial Advisers, we can serve the demand for international diversification. We give clients access to global portfolios and Swiss custody fully within the U.S. regulatory framework. In Germany, we will open our Dusseldorf branch in North Rhine Westfalia, one of the country's most important economic regions. We will serve individuals, family offices, entrepreneurs, by offering diversification and our unique investment expertise. In sum, private clients continues to deliver recurring, high-quality growth at conservative risk levels. We are excited to continue scaling this business. Let me now turn to costs. The efficiency program is delivering beyond its original targets. We will complete the program by year-end and realize further efficiencies as the remaining measures are implemented. I want to emphasize that we do not view this as a short-term cost exercise. The program was always about structurally improving our efficiency and embedding stronger cost discipline across the organization. Our structurally lower cost base and stronger cost discipline are already clearly visible in our results. On an adjusted basis, our cost income ratio improved to 66% in the first half. That is 12 percentage points lower than 3 years ago, and significantly better than our through-the-cycle target of 72%. We achieved this while at the same time, continuing to invest for growth. Our objective is to grow with scale. That scalability is what creates operating leverage, higher revenues will therefore, in the future translate into higher profitability. Let me close this section with our targets. In the first half of this year, we operated ahead of all our through-the-cycle targets. Assets under management reached an all-time high. Operating income grew strongly. Return on equity and the cost income ratio were both clearly ahead of target. Our capital position also remains strong, giving us the flexibility to continue scaling the business. This is an excellent first half performance. It gives an indication of the potential of our differentiated unique business model as we continue to execute our strategy with discipline. And with this, let me hand over to Jan to cover the financials.

Thank you, Christel. Good morning, everyone. I am very pleased to report that the strong strategic progress set out by Christel and Georg is clearly visible in our financial results. We delivered record profits, clear operating leverage and further strengthens our balance sheet and capital position. Looking at the chart on the far right, you can see that profit before taxes reached CHF 273 million, up 84% year-on-year. Net profit reached CHF 216 million, up a remarkable 87%. The main driver was strong revenue momentum, with revenues up CHF 191 million. Of course, stronger performance means that we must accrue for variable compensation. But importantly, costs, excluding variable compensation declined. This clearly shows the positive effects of our efficiency program and the scalability of Vontobel's business model. These results were delivered despite continued foreign exchange headwinds. We saw a higher average U.S. dollar exchange rate when comparing the first half of 2025 with the first half of 2026. As a result, dollar revenues we earned translated into fewer Swiss francs. Without that effect, profit before tax would have been around CHF 30 million higher. Let me walk you through the main drivers behind these record results, starting with assets under management. Assets under management reached an all-time high of CHF 252 billion, up 5% from year-end. The increase was supported by positive net new money, market performance and foreign exchange effects. Over on the far right of this slide, private clients contributed CHF 2.5 billion of net new money, equal to 4.1% annualized growth. This is within our target range. Inflows were positive across all regions with strong demand for advisory and discretionary mandates. This growth was investment-led and not driven by lending. In fact, lending balances declined slightly, which underlines the quality of the inflows and the continued relevance of our investment-led model. In institutional clients, reported flows were reduced by 2 known effects. The insourcing of the Futura funds by Raiffeisen until July 2027 and continued outflows from our quality growth boutique due to the current market trends that do not suit its distinct and defensive investment style. Excluding these effects, the underlying picture is very strong with a net new money growth rate above our target range. Not on this slide, but I would like to mention that in fixed income, our boutiques achieved an impressive 15% annualized net new money growth. Our both businesses, PC and IC, adjusted net new money for the group was CHF 6.3 billion, equaling a growth rate of 5.9%, which is at the upper end of our through-the-cycle target. That brings me to revenues. Operating income reached CHF 852 million, up 24% year-on-year or 29% in constant currency. We saw higher income across all major revenue categories. Net interest income increased despite the low rate environment. This was because the deposit mix shifted toward lower cost funding. Net fee and commission income benefited from the higher asset levels and better margins. Trading and other income reflected strong client activity in structured solutions, which achieved a record half year. Demand was exceptionally strong in the first quarter and remained strong in the second quarter. Vontobel's broad product offering, technology platform, distribution network and our ability to issue products swiftly allowed us to capture client demand across changing market themes. Other income included an CHF 8 million gain from the divestment of cosmofunding announced in February. By client unit, Private Client revenue grew strongly, supported by structured solutions activity and higher asset levels. Institutional Clients revenues also grew, supported by higher margins and asset levels. Let me now turn to margins. In institutional clients, the margin improved to 35 basis points. This was supported by success in higher-margin areas, including fixed income. In private clients, the margin increased to 104 basis points. This was predominantly driven by strong demand for structured solutions. The recurring fee margin in PC reflected 2 offsetting effects. Our success in the ultra high net worth segment has put some pressure on the recurring margin as larger clients typically deliver a somewhat lower margin, but strict revenue management has almost offset this. Moving to cost. This slide shows the operating leverage in our results. As mentioned before, operating income increased by 24%, but operating expenses increased by only 7%. And -- the increase in expenses was driven by higher variable compensation linked to the stronger performance. Crucially, costs, excluding variable compensation actually declined. This is an important point. It shows that the structural cost base continues to improve, and our business model scales effectively. I'm very happy that our efficiency program is bearing fruit. It has now reached CHF 116 million of cumulative exit rate savings, well ahead of our original CHF 100 million target. As a result, the cost-income ratio improved significantly, falling a full 10 percentage points to 67.9%. Adjusted for cost to achieve and M&A-related items, it was 66.4%. Both numbers are well ahead of our through-the-cycle target of 72%. Let me now shift from performance to resilience. Vontobel continues to operate with a strong, liquid and conservatively managed balance sheet. Total assets increased to CHF 38.3 billion. This was mainly due to higher client activity and seasonally higher settlement balances. Our balance sheet remains fully mark-to-market and supported by a high level of liquid assets. Earlier this year, I was pleased about the issuance of a further CHF 250 million senior unsecured bond, which was met with high investor demand. This build on the success of last year's first issuance and continued to diversify our funding base. We also maintained a very comfortable liquidity and funding position with a liquidity coverage ratio of 148%. As a truly investment-led and not credit-led firm, we view lending only as an offering to support client relationship in very strictly defined areas. The lending book, therefore, remains deliberately conservative and modest compared to peers. It comprises CHF 2.2 billion of Swiss mortgages and CHF 5.6 billion of Lombard loans. Structured Solutions continues to be managed with tight risk controls, supported by careful treasury and liquidity management. This disciplined approach is also reflected in its long-term track record, with the business having operated profitably for every year for more than 20 years. Our strong balance sheet is matched by a very strong capital position. The CET1 ratio increased to 23.2% and the total capital ratio reached 28.1%. CET1 capital increased to CHF 1.5 billion, while risk-weighted assets declined slightly to CHF 6.5 billion. This mainly reflected lower exposures from hedging positions linked to client-driven structured solutions. At 23.2%, our CET1 ratio is well above our 12% internal target. This reflects the strong capital generation and capital efficiency of our business model. This surplus offers us strategic flexibility. It gives us the capacity to fund organic growth, acquire the remaining Ancala stake over time and absorb potential regulatory impacts. It also gives us options to pursue inorganic growth opportunities such as acquisitions with a strong strategic fit. Let me now turn to value creation. This is where the financial performance translates into shareholder value. The key point is the capital efficiency of our business model. We can grow without significant capital consumption. That allows earnings to translate into tangible equity growth while still supporting our attractive payout ratio target of 50%. Tangible book value per share increased by 8% in the first half of the year. And this is not just a first half effect. Since 2014, tangible book value per share, including cumulative dividends has grown by 227%. Our return on equity was 16.9%, clearly above the estimated cost of equity of 8.5%. And again, this is not a one-off result. For more than a decade, we have operated above our estimated cost of equity. Put differently, Vontobel has consistently generated shareholder value in every single year. Let me close the financial section by bringing the key points together. We delivered record profitability. We operated above our through-the-cycle targets. We achieved an all-time high assets under management. Margins increased in both client units. Our efficiency program is visibly improving our structural cost base and is helping making our business model scale effectively. This translated into clear operating leverage and a cost income ratio of 67.9%. Our balance sheet remains strong and liquid, and our CET1 ratio increased further to 23.2%, well above our internal target. Finally, these results translated into shareholder value. Tangible book value per share increased to CHF 36.5 per share, up 8% in the first half. Taken together, these results indicate the potential of our business model, the clear results of our disciplined execution and the strategic progress we are making. With that, I hand back to you, Christel.

Thank you, Jan. Georg and I would actually like to take this opportunity to officially thank you, Jan, for your outstanding leadership and commitment as interim CFO over the past month. You successfully guided the finance function with dedication during this period. So thank you very much, and we look forward to continuing working closely with you going forward. To recap and conclude this call, we delivered an excellent first half of 2026 with record financial results, a strong balance sheet and capital position and clear progress across our strategic priorities. Our unique integrated model remains a strength and differentiator for Vontobel. The results we report today give a clear indication of the value this model can create for our clients and for our shareholders. We will continue to execute with discipline and carry this momentum into the second half. Thank you for joining us today. We are now happy to take your questions.

[Operator Instructions] The first question comes from the line of Karol Brodzinski from Octavian.

I have three, if I may. So first one is around the Raiffeisen Futura assets. So if I'm correct, the outflow in the first half of the year was associated with Raiffeisen Futura was CHF 4.6 billion, and the total was, if I recall, CHF 13 billion. So could you maybe share some insights in terms of the timing of this outflow. So it will stop at -- meet 2027, but how much should we expect for this year? And how much should we expect for the first half of 2027? And then the second question, more general. So 47% of your clients are domiciled in Switzerland, right, as a whole? And if you could maybe share some information on what this split look like between the 2 segments particularly? I'm interested in this split by domicile in institutional clients division? And the third one is if you may share some insights into what the structured products look like in the second half of the year?

All right. Shall I start with your first question, Karol. Maybe to put this into perspective because I don't think it's 100% correct. So we have reported net new money flows in our financial statements in IC of minus CHF 0.8 million. And for the presentation, we add there the flows of institutional nature, which were plus 0.8%. So it's the flat, which you have been seeing in our presentation in my part. Now in terms of these 2 known effects and how they are quantified, so actually, there's CHF 1.3 billion of outflows for Raiffeisen Futura, which we observed in the first half, not CHF 4.6 billion, so CHF 1.3 billion on an asset base of around CHF 12 billion, which is left so just 10% of it. From the time line perspective, you're right. This is going to be handed over fully by July '27, so then obviously, by then, all of these assets will gone -- will be gone, and we will obviously also report like how much that is. I would think that most of it will go out in '27, but that depends a bit on the decisions made by Raiffeisen. Maybe I'll also then jump to your third question, the structure. Okay. The structured products. So I mean, obviously, the macro environment, which we have observed is actually very positive. And -- but also, we have to see that from the way this business is set up. So it's a very scalable, fully digitalized platform, very good distribution channels and the ability to swiftly issue products that also helps us to capture these flows. And we have a very good market position in our main 2 markets here in Switzerland and Germany. So while there are -- where there's obviously always an uncertainty about the prediction of the macro environment, we believe that the business itself is very sound and also over the last couple of years developed positively, and we think that this may continue.

Let me say a few words about the client domiciles. I think first, it's very important to be aware that we have a much higher share of Swiss-domiciled clients as many of our competitors, and we believe that is actually an asset because many risks associated with other markets, especially emerging markets are simply not present here. It gives a lot of stability. Secondly, I think it's important to differentiate between the private client business and the institutional business. While we don't give a breakdown in assets, we do say that on the private client side, we are much more oriented towards Western and developed countries. So that's several European countries that are our focus countries, that's the United States with Canada, very selective, Latin American countries and South Africa. Whereas on the institutional side, we are truly global. Institutional side, we also cover Asia, we cover Japan, we even cover Australia. And that -- but that has a lot to do with the risk appetite, with the risk involved in the business that are simply different.

The next question comes from the line of Nicholas Herman from Citi.

Hopefully, you can hear me okay. I know that in the past, you have struggled sometimes. So just wanted to check if you can hear me first. Hello?

We can hear you loud and clear.

Super. So 3 for me, please, as well. So firstly, on the dividend, can I just ask why are you accruing a payout of 40%. I just -- if you could just remind us the dividend policy there? Secondly, you've got CHF 700 million of surplus capital. You have outlined some capital needs. So could you just help us understand how much is true surplus? And it sounds like M&A is finally back on the table. So if you could help us understand what are you looking at? And then the final one is on equities in institutional clients. It looks like the equities AUM has fallen year-to-date despite super strong markets outside of the CHF 2.5 billion of quality growth outflows. Am I correct that there were still net outflows in equities? And can you provide more color there, please?

Okay. Thank you for your questions. I may take the first 2 ones. So on dividend policy, we are committed to our through-the-cycle target of dividending out at least 50% of our profits. And obviously, the -- the actual dividend is being set by the Annual General Meeting after the full year has closed, and we have seen the entire results. So then we can discuss this further. On your second question, on the capital needs. So yes, I mean, of course, you can say, maybe you did that the difference between the 23.2% of CET1 ratio and our 12% minimum ratio. And I think for the capital which we have there, we needed for the Ancala acquisition, which is to close the remaining stakes we will acquire in the next couple of years, that it depends also on how Ancala develops. So the better it develops, the higher the price will be for that. And that's uncertain at the moment. Secondly, we are -- as you have seen, our business is growing nicely. And although many of our positions are hedged, and we are balance sheet light, we still need certain capital to fund and support this organic growth. Then we have the discussion currently in Switzerland about certain regulatory measures, which are mainly targeted against -- at UBS, but also may influence us. We believe that these rules come into force in 2028. So that's also a bit of an uncertainty we currently have. In terms of M&A, as in the past, we are looking selectively at targets, which bring us either scale or skills, which we need for business, but there are no concrete ones, which we can talk about at the moment.

To equities, you are right that we had outflows. They are, however, linked to quality growth and Raiffeisen. So outside of these, the equity franchises actually did grow. So you have mtx on EM, you have impact and thematic and you had the Swiss equity business, which was broadly flat. The other 2 actually group. So yes, linked to the 2 themes that we have specifically mentioned.

That's helpful. If I could just return to the M&A point. You have addressed the -- one of the whole -- one of the areas of white space for you, which was private markets. So is the kind of preference -- or I guess where do you see gaps in capabilities? And is the preference to increase scale on the private client side?

Well, I mean, we've said that both are interesting for us, scale on the private client side within our focus market, and skills where they are complementary. So that doesn't mean that you necessarily have a completely different space, but you can have additional skills bolt-on around an area where you actually build around an existing boutique or bring complementary skills. So that is more the way we're thinking about it. But there's no obvious white spot as you are mentioning. But both remain interesting. The scale and the skills.

We now have a question from the line of Mate Nemes from UBS.

I have 3 of them, please. The first one would be on costs. It appears you are well underway the cost efficiency exercise. And I'm wondering what is the expectation from here given you've already achieved CHF 160 million gross exit savings. Do you expect the demand rise further from here? Any indication on the magnitude would be helpful. And then the second question is on Structured Solutions. There, the revenues doubled year-on-year, and they're up more than 40% from the second half of last year. Could you talk about the drivers of such a strong performance that also appears to be substantially stronger than what we are seeing from perhaps sector peers? Has anything changed in the business structurally or tactically? Has the outperformance mainly come from the bond side? And also, if you could put this into the context of market risk RWA is essentially flat at year-end levels. And the third question would be the flow outlook in institutional clients. It sounds like 24 and fixed income boutique are generating strong inflows. You're still seeing outflows from quality growth and some mix trends in other areas. What is your expectation going forward from here? What do you see in the market? And then let's put Raiffeisen Futura here.

Okay. Let me go ahead with the first question. I think then Georg and Christel will do the other ones. So on the cost, yes, so -- in terms of expectation, first of all, I would say that a cost efficiency exercise never ends, right? So it's always important that you keep costs under control. And this is obviously something which needs and is embedded now in our cost culture. Now with respect to the specific efficiency program, you're right. So on the one hand side, we will realize this CHF 116 million of cumulative exit rate savings which are compared to 2023. Of course, we have -- and we said this also in previous calls, that we have reinvested some of this in growth. And the other last element I would like to mention on this one is that the cost to achieve which we have, that obviously is something which directly falls away next year.

On the Structured Solutions, it's a combination, obviously, of markets and skills. The markets are structurally favorable. By that, I mean, in particular, the sort of air pockets that you see constantly around a trend that's actually positive. The skills we very clearly have them that is demonstrated in the pool position that we have in several of our markets, but also in the hit ratios that we see. Now it's hard for -- to speak versus competitors, you will have as much transparency as we do. The success is your ability to quote and the diversification and underlyings that you have. So we are very fast to market in bringing new underlyings. What we can tell you is that in the first half, it was in particular in U.S. equities and commodities that we saw a lot of demand. We think that our edge is there to stay very clearly, which are the skills, the time to market, the diversification in products and in distribution, as is the tight risk management that we have, always had for this business, which brings me to the RWA is a reflection of that type management. But Jan, maybe you want to add something there?