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Edited Transcript of EFGN.S earnings conference call or presentation 26-Feb-20 8:30am GMT

Full Year 2019 EFG International AG Earnings Call

Zürich Mar 12, 2020 (Thomson StreetEvents) -- Edited Transcript of EFG International AG earnings conference call or presentation Wednesday, February 26, 2020 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dimitris Ch. Politis

EFG International AG - CFO

* Jens Brueckner

EFG International AG - Head of IR

* Piergiorgio Pradelli

EFG International AG - CEO

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Conference Call Participants

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* Andreas Venditti

Bank Vontobel AG, Research Division - Head of Banks & Senior Analyst

* Daniel Regli

Octavian AG - Senior Research Analyst - Financials

* Daniele Brupbacher

UBS Investment Bank, Research Division - MD, Banking Analyst and Head of Equities Research Switzerland

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Presentation

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Jens Brueckner, EFG International AG - Head of IR [1]

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Good morning, ladies and gentlemen. A very warm welcome on a rather rainy day in Zurich this morning. Thank you for attending our full year 2019 results presentation. I'm pleased to have with me sitting on the presentation stage, Giorgio Pradelli, CEO of EFG International; and Dimitris Politis, CFO of EFG International. And as usual, we obviously will have a slide presentation for the 2 gentlemen. And then we will have, obviously, a lot of time for questions afterwards as well. As usual, I point out the disclaimer on the second page of the presentation assumed to be read.

And with that, I hand over to Giorgio. Thank you.

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Piergiorgio Pradelli, EFG International AG - CEO [2]

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Thank you, Jens, and good morning, everyone. Also from my side, I would like to welcome the audience here in the room and those following today's presentation via webcast or telephone, and I believe that it's fair to say will be probably the majority. This is sign of the times. As usual, before Dimitris takes us through the detailed financial results, I would like to give a quick review of the past year for EFG, both in terms of our strategic initiatives in our financial performance.

So let's move now to Page 4. This is a page that might be familiar to some of you. 2019 was for EFG an important year. And if you recall, in March 2019, we presented our 2022 strategic plan. We have done considerable progress in executing our strategy. And we have identified at the time, back in March of last year, 5 major initiatives, strategic initiatives, that were key for us to bring EFG back on a growth path.

First of all, we had to reverse the trend of decreasing number of Client Relationship Officers, CROs, as we call them. And CRO growth was for us one of the top priorities. Actually, 2019 was a very good year in this respect. As you can see, it is -- it has been a record year. We have hired more than 180 CROs, and we have been exceeding our original guidance of 70 to 100 hires per annum.

Second of all, we need to focus not only on new CROs but also on the existing CROs. We need to make sure that our existing CROs are put in the best conditions to succeed and to serve successfully our clients. And we are pleased to report that we managed to substantially increase the average size portfolio. We will see it later, but it is almost CHF 300 million on average per CRO.

Also, it is critical that our existing CROs, and obviously also the new CROs that are joining us, leverage more and more our first-class investment solutions platform. And one of the key indicators in this respect is the mandate penetration of advisory and discretionary mandates, which has increased from 40% to 47%.

Third key element of our strategy, especially in the short term, was to bring Switzerland and Italy, our biggest region with almost CHF 45 billion, it is almost 1/3 of our total business, I was saying, to bring Switzerland and Italy back to growth. And we're very pleased to see that Switzerland and Italy have had a very good rebound, and they reported on their full year basis a good, positive net new -- excuse me, NNA inflows. But in particular, we have seen an acceleration in the second part of the year, with NNA growth rate of over 6%, which is the top end of our target range.

Also, after the integration of BSI, we started to expand internationally. For us, what is critical, and we have mentioned it a year ago from this room, proximity to clients and be able to serve our clients is very, very important. So we relaunched our domestic Italian business from the Milan branch in March last year. In June, we opened our new advisory branch in Lisbon. And in the fourth quarter, we launched our operations in Dubai, in the DIFC, strengthening our presence in the Middle East.

And finally, we strengthened our global coverage of independent asset manager segment with a multi-custody platform. Again, what is critical to emphasize here, and we will come back later on, is that we want to be, on one hand, close to our clients, on the other hand, we want to do it in a lean and cost-effective manner.

Finally, last year, we said that we could use our capital in a smart way. We have made an acquisition. We acquired the majority of stake in Shaw and Partners, an Australian financial services company. It has been a very good, strategic fit with a substantial contribution. So for us to conclude on this slide, what is important to retain is that we have successfully changed tack; we shifted our focus from the integration of BSI to the profitable and sustainable growth.

Now let us see what are the impacts in terms of our highlights in financials. First of all, as I said, 2019 is an important year for us because we successfully refocused our business to growth. And clearly, the leading indicator to see whether this has been achieved or not is what we call the NNA, the Net New Assets growth, and also the growth in terms of assets under management.

We're very pleased to report that we had a 4% NNA growth for the full year, with basically 3 quarters. So from the second quarter onwards, on -- within the target range, our target range is 4% to 6%, and we have seen an acceleration in the second half of the year. As I mentioned already, above 6%, which is at the top end of our target range.

It is important to underline that in the second half of the year, all regions were in positive territory. Now obviously, NNA is a leading indicator. What is very relevant is obviously the amount, the size of the business. And we're pleased to report that our assets under management have grown 17%, and they reach now CHF 154 billion.

Now, these positive developments were also reflected by strong performance -- by a strong business performance. As you can see, at the bottom of the page, we have improved our IFRS net profit to CHF 94 million, 34% increase, driven by higher revenues and lower operating expenses, despite the fact, as I said, that we have done considerable investments in growth. We have actually front loaded some of the investments in growth. And to me, what is a very critical element is that we have more than doubled our IFRS operating profit from CHF 81 million in 2018 to CHF 173 million in 2019. Obviously, to achieve that, we managed to achieve all the cost synergies that we announced back at the time of the acquisition, and we achieved a target of CHF 240 million. Dimitris will go much more in detail in these areas.

In terms of the underlying profitability, we achieved CHF 109 million. And the underlying profitability has been impacted by a secular trend in our industry, which is the compression of margins, which has been made even more difficult, I would say, last year by the interest rate environment, which obviously, is negative in Europe, but is also decreasing, in particular, in the dollars. We have seen normalized provisions and tax expenses. And as I said, we had considerable investments in growth, which we have front-loaded.

So before handing over to Dimitris, let me just recap on the key messages that we would like you to take away. First of all, we are on track to execute a range of our strategic initiatives, and we have achieved profitable growth. This is not only visible with the NNA growth rates, as I said, that are very encouraging, in particular, in the second part of the year, but also with the doubling of our IFRS operating profit.

With this, I now hand over to Dimitris, who will give you a detailed review of our financials for the year 2019. Thank you.

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Dimitris Ch. Politis, EFG International AG - CFO [3]

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Thank you, Giorgio. Welcome from my side on this more likely wintery day today in Zurich. I'll take you straight to Page 7, which is some housekeeping for you to understand what we are reporting this year. Obviously, we have ceased reporting anything that has to do with the BSI integration. The only thing which is going to be reported today, and it's going to be the last time we're reporting on the BSI integration, is the successful implementation of all the cost synergies.

The second point is that we have acquired Shaw and Partners on the 30th of April, and we have been consolidating the figures for 8 months. I understand that this makes it a little bit more complicated to understand our performance for the year. So what we have done is, we have been very explicit at the back of this pack of the presentation to give you information stripping out the impact of Shaw and Partners, so you can understand what is the real like-for-like performance of EFG this year. And as always, there is a reconciliation between the IFRS reported figures and our underlying performance on Page 38 of this presentation.

On Page 8, you see the financial results in perspective, and these are the key highlights. As Giorgio said, NNA up CHF 5.2 billion, annual growth of 4%, with a pickup in the second half at 6.6%. AUMs are up 17% to CHF 143.8 billion, and a record hiring year with 181 CROs, who have actually joined, have been signed or have been approved to join.

On the profitability, operating profit has more than doubled to CHF 173 million. IFRS net profit is up 34% to CHF 94.2 million. And the underlying profit came at CHF 108.7 million, reflecting a challenging interest rate environment and a substantial investment in growth.

On the cost side, I would like to mention that if you've been following us for some time, this is the fourth consecutive year of cost management delivery. It started in 2015. If you look at it over time, you will see our performance, and I'll come back to that, for this year, and all of this is on a like-for-like basis.

IFRS operating expenses are down 9%. FTEs are down 4%. Like-for-like underlying operating expenses are down 6%, and we have delivered CHF 242 million of cost synergies from BSI integration against a target of CHF 240 million.

On the legacy issues, I think it's been a long time since we've been able to do this. It's the first time we actually posted a profit on our life insurance portfolio, it's a CHF 12 million profit for the full year, and I'll come back about the volatility and what we have done during the course of the year. But I think this is a testament to our confidence that this portfolio has hidden value, and we'll manage to extract it over time.

On the capital position, core Tier 1, 16.2%, total capital at 20.1%, and underlying capital generation of 140 basis points and a proposed dividend of CHF 0.30 per share, which is unchanged from last year. Pages 8 and 9 are the detailed financials, I will not spend time on those. And I'll take you straight to Page 11.

Page 11 is a bit of a more longer-term view. It's a 3-year view of our performance. We believe that this 3-year review better demonstrates our path and how we plan to get to our targets for 2022. So the key messages are, our NNAs are already in the first year within the 4% to 6% average range that we have set in our Investor Day presentation on the 13th of March, which is very encouraging. It is the first year of positive NNA since the BSI integration.

Our investment of growth has been substantial, 181 CROs hired. This is against a guidance of 70 to 100 hires that we had given last year, but we have the opportunity to hire good teams, and we have taken that opportunity this year.

Operating profit more than doubled and IFRS net profit 34% up. Also, you see that the 3-year trend is very encouraging.

On Page 12, we show both the evolution of net profitability, going from CHF 70 million to CHF 94 million, but also the reconciliation between the underlying net profit and the reported profit. The strong performance on the IFRS reported profit is on the back of higher revenues and lower costs. So both lines have been contributed to this benefit.

The positive impact of CHF 12 million of life insurance that you see here on the left-hand side of the page is a dramatic swing between the first half and the second half. If you remember, in the first half, we recorded losses of CHF 28 million, in the second half, we recorded gains of approximately CHF 40 million. This shows the volatility of this portfolio, which was something that we have continuously highlighted over the years, but also the fact that we have our first positive year -- overall year in life insurance is encouraging for the next 5, 6, 7 years that the portfolio has to go until it fully matures.

At the same time, in December of 2019, we took the opportunity to restructure our indirect life insurance exposure. If you remember, we have 3 exposures in life insurance. One is the fully direct, where we hold the life insurance policy itself. The second one is the exposure where we hold the policy, but we also hold a derivative that hedges this policy. And the third one is an exposure through a loan to an SPV with life insurance policies as collateral. These have always been reported at the back of the presentation. Now you'll see them on Pages 43 and 44 of the presentation.

What we have done, we have foreclosed on the indirect exposure on the loans. We have acquired the underlying collateral, which is the life insurance policy. In terms of overall economic exposure, there is no change. It's exactly the same economic exposure as we had before. It gives us a better ability to manage our position. And going forward, I think, for us, it is very beneficial to be moving that way.

Overall, the P&L impact of this restructuring has been marginal at CHF 2 million loss because of this restructuring. By the way, during that process, we re-underwrote the portfolio that we onboarded, so all the information that we have for that portfolio is up to date.

Page 13 describes the evolution of underlying net profitability for the year. In 2018, underlying net profits were at CHF 191.8 million. What happened during the course of the year, we had a drop in operating profits, so revenue is less expensive. The key drivers for this change is a CHF 52.7 million revenue reduction, CHF 36 million, of which is because of net interest income due to tightening USD interest rates. This has been a driver that we are obviously not expecting when we announced our strategic plan in March 2013.

At the same time, we managed to extract CHF 55 million of synergies, of cost management reduction, from the combined operation of EFG and BSI. And what is also very important is, during the course of the year, we invested CHF 32 million in growth. What does it mean that we invested CHF 32 million in growth? It means that we have spent CHF 32 million during the course of the year in hiring new CROs and in opening up new locations. But that investment has not yielded in 2019 any significant revenue. So this is the investment where we foresee the revenue coming in, in 2020 and in years going forward.

Otherwise, we have changes in provisions and impairment charges. 2018 benefited from some significant releases, and 2019 is burdened by a one-off staff-related provision. We had a normalization in our tax rate. As we've always said, our medium-term tax rate should be between 15% and 20%, and some differences in noncontrolling interest. So the starting point now is CHF 109 million, and I will come back later on to give you an indication of how we see that figure evolving going forward.

Now Page 14. Page 14 describes the leading indicator of our performance, which is net new assets. You'll see on the orange block on the left are NNA, which is the key driver. Obviously, markets help this year compared to a drop in 2018. So CHF 8.6 billion of increase because of market valuations. CHF 2.5 billion decrease because of currencies, the acquisition of Shaw and Partners and some other items for CHF 300 million. Closing position, CHF 153.8 billion of assets under management, 17.2% up versus last year.

On Page 15, we take you back to the presentation we made in March 2019. And at the time, what we said was that during the 3 years of integration, BSI, our growth was limited to one lever, which was our existing CROs. We were not hiring big teams. We're not expanding our operations. So the key change in strategy in 2019 was we wanted to expand that. And we said that in the course of the next 4 years, we would be using 3 levers instead of 1. So definitely, our existing CROs, but also our new CROs, and what we call business initiatives, which is opening up our operations in new locations like Dubai, like the acquisition of Shaw and Partners, like Portugal, like Milan.

How did this come out in 2019? That's what you have on the right-hand side of the page. So you see that existing CROs brought in CHF 1.4 billion of NNAs, new CROS, CHF 2 billion, and new business initiatives, CHF 1.8 billion. What is encouraging in these numbers? Firstly, that it's balanced. For us, this is a very good diversification of how we think our performance going forward. The second one is that, although we hired 75% of our new CROs in the second half of the year, which means that they did not really have the opportunity to produce NNAs because it takes some time until they come into the bank, they get systems operating, they start moving their clients, we still had CHF 2 billion of NNA coming from new CROs. I think this is very strong performance. And to tell you the truth, it is a performance that we were not expecting as strong in the first half of this plan.

On Page 16, we have the breakdown of the performance by region. You'll see that for the full year, we had a CHF 5.2 billion of NNA, CHF 4.9 billion of that came in the second half. So a very distinct difference in performance between first half and second half, with second half really accelerating. All the regions have been positive in the second half. In some cases, the regions in the first half, especially Asia, was impacted by some deleveraging, but they recovered in the second half. And I think that the fact that we have all territories being positive is also a very good testament of our performance for 2019 -- the second half of 2019 in terms of NNA.

Page 17 is about penetration of high-value services and high-value products. This includes advisory, discretionary and our own funds. You'll see that we have an increasing penetration. Our target is 60% by 2022. And this is on the back of 2 things, mostly. One is a solid performance on our discretionary offering throughout the year. At the same time, it is due to more technology being employed in this area with what we call the investment advisory tool, which is an instrument that allows our CROs to be more effective and more efficient and more quick when they discuss with clients their investment positions and the investment opportunities and their investment choices. This -- the utilization of this tool has been increasing throughout the year. We are rolling it out at this point as we speak in the Americas and in Asia, hoping to be fully rolled out by the second quarter of the year.

We are further expanding our offering to complement with existing strategies. And at the same time, as is the theme in the entire industry, we are looking a lot increasingly into ESG and the ESG criteria have now been taking a lot -- increasingly taken into consideration for investment decisions.

Page 18 describes our CRO hiring momentum. At the bottom left, you'll see a comparison of our hiring strategy in 2019 compared to previous years. Obviously, there is a quantum leap in terms of our hiring. As I said, our hiring at this point is more than double of what -- or roughly double what we had communicated as our average hiring. It does not mean that we will continue at this pace. We took some opportunities. At this point, the key driver is to make sure that the people that we have hired perform and produce the NNA. That means that you should expect a lower gross hiring levels in the future.

What is also important is that, if you look on a like-for-like basis, although we hired 181 CROs, our net CRO increase is only 39. That means that we have gone through an extensive performance management exercise with our existing CROs. And obviously, we have partnered with some of them.

The idea here is that although we're making a substantial investment in growth, we know we cannot afford simply to add. The idea is, we need to make space in our cost base to add effective and efficient new CROs who become profitable as quickly as possible, mostly through teams, which we have seen are more effective than single-hire CROs. But at the same time, something has to give, and we are doing a lot of efforts on all sides of cost but also in managing the performance of our existing CROs as is evident from this slide.

On the bottom right, you see that through this exercise, we have actually increased substantially our average AUM balance per CRO, our effectiveness per CRO. We are now excluding the new hires, we are at CHF 295 million AUM per CRO as at the end of 2019. This excludes Shaw and Partners, of course. And this compares to CHF 180 million per CRO in 2015, so we had more than 60% increase in the productivity of the CROs.

Moving on to Page 19. Now we come to the P&L side of the figures. Let me explain what you see on this page. There are 3 bars. The first one is 2018 as reported. The second one is 2019, excluding Shaw and Partners, so this is the like-for-like comparison between 2018 and 2019. And the third column is 2019 as reported, so it includes Shaw. Over and above the actual interest income commission and net other income, there are 2 bubbles at the top, which are very important. The bubble on the left, which is in the brown circle, is the average AUMs in the 2 years. And the bubble on the right is the margin for the year.

Now what does it show? Obviously, what you see is that we had a drop in average balance on a like-for-like basis from CHF 139.5 billion to CHF 136.4 billion. This is a carryover effect from the review of the BSI portfolio in 2018. If you remember, this is what we used to call attrition.

And at the same time, we had a drop in margins by 2 basis points. And this entire drop is in the net interest income line. Actually, what is very encouraging is that we had a very solid performance in net commission income in the second half of the year. The second half of 2019 is 10% up on a like-for-like basis to the first half of 2019. And this is -- if you want to put it into perspective, usually, from a seasonal perspective, the second half is weaker on margins than the first half, mostly because of summer holidays and lower activity during the summer.

Now, we see the reverse. So I think that over time, and I will come back to the margin on the following page, we are very -- the result on the commission line are very encouraging.

Global markets improved their contribution in 2019, another good year for treasury, a one-off gain of CHF 15 million from SIX participation, which was recorded in the first half of the year and was also communicated in the first half results. And Shaw and Partners impact our revenue by 3 basis points in 2019. So we go from 82 basis points to 79 basis points because of the accounting of this new acquisition. That will be 4 basis points on a full year basis because we only consolidate them for 8 months.

Just to make a note on Shaw and Partners. The reason that the impact from Shaw and Partners is large is because the accounting treatment required for Shaw and Partners is different from what we do in other locations. And the difference -- the big difference is that the fees paid to external financial advisers are not in the cost line, but they are netted from revenues. So the actual net revenue that we get is significantly lower. It doesn't compare to our other businesses because what we now show as net income is not the client income, it is the client income less the fees paid to financial advisers. That's the reason the impact is more pronounced.

Finally, underlying return on assets under management, excluding loans, which is what competition typically reports, is at 95 basis points versus 97 basis points in 2018. So the same drop on a like-for-like basis, so 2 basis points as we had for our 84 basis points to 82 basis points evolution between '18 and '19.

Moving to Page 20. This is a spotlight on margins. I think that everybody is very keen to focus on what has been happening to margins over the last couple of years. Historically, EFG has been resilient to addressing any underlying margin erosion. If you look at the last 5, 6, 7 years, you see that the margins have been always hovering between 83, 85, like in 2017, we had an excellent year with 87 basis points.

This year, we went from 84 basis points to 82 basis points. Again, very solid performance in commissions, stable, 41 basis points. All these figures exclude Shaw and Partners, so they are completely like-for-like.

Increased penetration has helped. We've seen increasing client trading activity towards the end of the year. So in terms of the history of the trading activity, if you remember, in the early part of 2018, trading activity was at normal level, and then we had a substantial reduction starting mid of 2018. That lower client activity, I think, lasted for 12, 15 months. And then towards the end of the year, we've seen increasing client activity. Now obviously, we have a lot of geopolitical events happening, as we speak. So we'll see how that client activity evolves in the future.

Again, commission margin at the end of the year was coming in very strong, so we would expect that on a run rate basis, the 41 basis points should improve and the 25 basis points of net interest income is now stabilizing because of the drop of NII and the movement in dollar interest rates, at least until the year-end was more in a stabilizing mode more than anything else. Page 21 is a view on costs. And here, we've taken a bit of a longer-term view, take you back to 2015. The combined operation of EFG and BSI in 2015, came to the cost of CHF 1,254 billion.

The like-for-like comparison for 2019, so excluding Shaw and Partners obviously, and also excluding our most recent investment in growth, would take us to CHF 911 million. That is a cost reduction of CHF 340 million over the course of 4 years. That is 27% cost reduction. This reduction has happened every single year. So in terms of track record and cost management, I think we have one of the strongest track records in cost management in the industry. And the latest success between 2018 and 2019 is the headcount reduction of 4% and the operating expense reduction of 6% on a like-for-like basis.

Now obviously, what we've managed to do over these years is, we have reduced cost by CHF 340 million and CHF 240 million of that is what we call synergies from integration. But over and above the CHF 240 million, we have added another CHF 100 million of cost management actions, which go -- have gone beyond what we call synergies, which are more continuous cost management of the operation. To highlight again, 2019 was a year where we invested CHF 32 million in growth, and that investment in growth came with a very limited impact on our revenue line.

Page 22, and this is going to be the last time we actually present the page. This is the confirmation that we've managed to achieve CHF 242 million, to extract CHF 242 million, of cost synergies from the BSI transaction. The achievement for the year was CHF 55 million. This was against a target of CHF 240 million, so we have met our target.

And on the right-hand side of the Page 22, I will take you back to the 8th of December, 2016, I'm sure Giorgio remembers this page very well as he was presenting it, where we gave an indication of how these synergies will come about. And we have highlighted a block, which is towards the bottom of the page, which used to be called booking centers and perimeter review. This had to do with optimizing our international presence. What is important is that we've managed to deliver CHF 242 million, but we have not touched upon this lever, which was optimization of booking centers. We have not touched on this lever so far. And Giorgio will come back later on to give you some indications of what our plans are on this front.

Page 23 gives you the evolution of our cost-to-income. And more importantly, it gives you our view of the path of how we will get to our target of 72% to 75% cost-to-income ratio.

In 2018, we closed with a cost-to-income ratio of roughly 83%. We managed to get CHF 55 million of synergies, as I mentioned earlier. This would have reduced our cost-to-income to 78%, roughly. So that is about 5%, 500 basis points reduction in cost-to-income ratio. We invested in growth. Obviously, that increased our cost base. That would get us to 81.5% cost-to-income. That investment is probably double what we had envisaged in the first place. And then we also had the adverse movement from interest rates and the revenue reduction coming from that, which increased our cost-to-income. So we closed the year at 85% cost-to-income ratio.

Obviously, it is not the way we would have liked to go, trying to get to the target of 70% to 75%. But what is also important is that our starting point for 2020, which largely depends on our starting balance, our average balance will simply, because of the starting point, the starting point for the year is going to be a cost-to-income ratio of 81.9%.

Now, why is -- what is the calculation to get to that figure? It is simply calculating revenues not based on the CHF 136 billion of average AUMs that we had last year, but with CHF 141.1 billion, which is our starting AUMs, excluding Shaw and Partners always, for the year. So we have about a CHF 5 billion benefit on the average AUMs, which is what, which -- it's the item on which we earn on the revenues. So simply, our growth, the NNA growth and obviously the positive effects from markets which has helped that gives us a very good starting point on the cost-to-income ratio.

Now does that mean that this is the end? Obviously, it's not. And as you'll see in the next 2 blocks where we have actually not put any specific figures, there is an additional positive effect because we expect to grow in 2020 and also an additional positive effect on cost-to-income because we expect to be reducing costs. So to continue our cost management exercise in 2020.

Now, what is the plan going forward? The plan going forward, so 2021, 2022, is taking advantage of operating leverage. We're at the point where the growth of the company will not be followed by commensurate growth in costs, and obviously, taking advantage of that will get us to our -- within our 72% to 75% cost-to-income target for 2022, again.

Page 24 is trying to put this profitable growth into perspective since we have quite a few moving parts that we should take into account. So in 2018, we had an average AUM of CHF 139.5 billion and a revenue margin of 84 basis points and an underlying operating profit, and operating profit is simply revenues less expensive, excluding anything else, of CHF 198.6 million.

Now, what is really the like-for-like comparison for 2019? Lower average AUM, CHF 136.4 billion, lower margin, 82 basis points. So if you look on a like-for-like, you see that our revenues are obviously down, they're about CHF 50 million down compared to previous year. But the cost management actions, and again, this is excluding the investment in growth, which has not brought in any revenues yet, is CHF 911 million. So this adjusted underlying operating profit comes at CHF 201 million, which is slightly above last year. Obviously we had other things moving during the course of the year, but our key driver for future profitability is managing this line, managing the operating profit line because we will always have a bit of provision. Taxes will be at 15% to 20%. So I don't expect that to be varying very differently going forward. So acting on this line is what is going to get us to our profitable growth targets.

Now expectations for 2020. Starting point, CHF 5 billion higher on the AUMs versus the average of last year. Revenue margins stabilizing from what we've seen towards the end of the year. Expected growth in 2020 -- in 2019, we've showed that we can deliver the 4% to 6%. It is -- as we get our new CROs also to produce even more, I think we feel confident that the 4% to 6% is very much achievable.

More efforts to improve on margin. There is the penetration of high-value products. There's a lot of pricing actions being taken at this point on the back of the impact on the net interest income. So we believe that the revenue margin is stabilizing with an upside potential. We had cost reductions or FTE actions taken at the end of the year, which will give us more room in 2020. We have more cost measures coming in, which includes the rationalization of the footprint. We have front-loaded the investment part in CRO. So as I said, we expect lower hiring patterns in future years. And obviously, we expect Shaw and Partners to contribute increasingly to the bottom line of the company.

At the same time, I need to say that there's always the risk of some margin erosion. This has been a pattern in the industry. And again, there's a lot of geopolitical risks at this point and we need to wait a bit and see how these would affect our business.

To close on the operating performance on Page 25, I take you to a page that we presented on 13th of March, which was a bit of a roadmap on how we are -- what are the actions that we would like to achieve in 2019, 2020. And I would like just to go through the key actions because we have done quite a few things in 2019.

So we completed on the remaining synergies, so that is done. We have invested in new hiring. Dividend payout is over 50%. Shaw and Partners was concluded. Switzerland stabilized. Switzerland in 2018 had outflows of CHF 2.5 billion. In 2019, it had inflows of CHF 1 billion, so the swing is very dramatic in that region. And obviously, it's very key for us to have Switzerland stabilized because it is the largest region that we operate in.

We have success in increasing penetration of high-value products, and we have a lot more that we have to do in that range. And also, we have also a good performance from our life insurance portfolio, although the volatility is always something that we need to be worried about. Now the key item that we had not foreseen at the time was the movement in interest rates. When we're presenting, we're actually expecting dollar rates to go up on the 13th of March. Obviously, the world changes, so we need to move ahead and accommodate this in our own plan.

Moving to Page 26. Balance sheet, no significant movements. The balance sheet has always been a very liquid balance sheet. Loan-to-deposit ratio of 53%, LCR at 182%. So I will not spend too much time. Loans were up 1%, deposits were up 2% for the year. So no significant change overall on the balance sheet.

Page 27 is about capital, 16.2% core tier 1, 20.1% total capital with risk-weighted assets remaining flat between 2018 and 2019. And also we repurchased about 5 million shares over the course of the year, spending above CHF 32 million to purchase those shares back.

On Page 28 is the evolution of the capital position from 2018 to 2019. As I said earlier, we created 140 basis points of capital. This is underlying P&L and equity impact. So it's not just the P&L.

Flat on the risk-weighted assets. And we are proposing a CHF 0.30 per share dividend, which comes to CHF 87 million of outflow. This is the 90 basis points there. So overall, accretive on an underlying net capital generation.

A drop in -- of 30 basis points for the share buyback. A drop of 90 basis points for nonunderlying P&L. The reason is that the accounting treatment between IFRS and Swiss GAAP is not the same for the nonunderlying items. That's the reason you see the negative number here. 20 basis points for Shaw and Partners, and 50 basis points for other items, which includes some currency adjustment differences and things of that sort. So total position, 16.2% core tier 1, 20.1% total capital ratio. In March 2013, we mentioned a minimum capital ratio of 14% on a core tier 1 basis, so we still have quite a bit of capital available to us, if we were to decide that an acquisition, for instance, is something which would be appropriate at this point in time.

On this note, I would like to close. Thank you very much. And I pass it to Giorgio for the closing remarks.

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Piergiorgio Pradelli, EFG International AG - CEO [4]

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Thank you, Dimitris, for the very comprehensive financial review of the 2019 financials. Now let's go -- let's look forward. Let's look at 2020 and what are our key focus areas for this year and our strategy going forward.

So I'll now go to Page 30. The title of the page is, I would say, the key message that we would like you to retain, which is that we need now to maintain growth and profit momentum. 2019 for me was critical because we managed to reposition the company from integration, which was very, very intense and inward looking exercise, to expansion, to growth, profitable and sustainable growth, which is obviously a completely different mindset for our organization, for our colleagues, which is looking outside, looking at clients, looking at competition. And this is obviously very simple to put in a slide, but to do it, and to do it quickly, it has been, I would say, a very good challenge. But as I said, at the beginning, we have seen an acceleration of the momentum quarter after quarter.

Now in order to maintain this growth and profit momentum, we need to focus on 3 main areas. The first one is about the business initiatives. Dimitris has been very clear, we have -- we have front-loaded a lot of investments. We have opened new locations. We have hired a record number of new CROs. Now we need to ensure that all these investments will bring the returns that we expect.

We need to ensure that our new CROs are put in conditions to succeed, to be able to serve our clients, to be able to feel well and welcome in our organization in order to thrive. We believe that we are on the right trend of that. We see already, as it was pointed out earlier, already very positive and promising trends. But we need to ensure that this continues. Obviously, our existing CROs are also very eager to continue to develop client relationships, existing client relationships and new client relationships. And I believe that there we can further enhance the productivity of our existing CROs.

And the last point on the left hand side of the slide, about the business initiatives, I mentioned it already. We see also here very positive trends. We need to leverage more our client solutions platform. Obviously, we want to increase the mandate penetration, but it is all about client outcomes. It is all about servicing our clients in the best possible way.

If we do all this, I'm sure that we will not only continue to grow, and again, NNA is -- remains important as a leading indicator, but also we will be able to drive our top line and our return on AUM. For sure, we live in a secular trend where margins in the financial industries are under compression. I still believe that there are certain areas where the industry has some pricing power. And obviously, as Dimitris was mentioning, we are focusing very much on looking at all the actions for repricing and seeing how we can better leverage our platform.

So this is about growth, but it's also about profitable growth. And clearly, we are not happy with our cost-to-income ratio, but a cost-to-income ratio is both about income and about cost. I mentioned already the initiatives in order to improve the top line and the return on AUM. Let us now focus in the middle of the page about cost efficiency.

Now for us, the objective is to improve our overall efficiency and in order to drive what we call the operating leverage, if we want to achieve profitable growth, we need to improve the job between the growth in revenues and the growth in cost. And we know to ensure that we have a lean and flexible cost base.

I am convinced and looking at the slides that Dimitris has presented, even more that what we have done over the last 4 years in terms of cost management and cost reduction is quite extraordinary. We have taken out over -- almost 30%, 27% of the combined cost base. We've done it in 4 years. We have executed very well a plan that was laid down at the time, at the end, 3 years ago, at the end of 2016.

And as Dimitris has reminded us, there was an action that we mentioned at the time, which we did not execute. But again, we have not forgotten about it. And this is why this is now at the top of the page, in the middle under the cost efficiency section. We will now rationalize our booking centers footprint. This is something that we wanted to do already 3 years ago or 3.5 years ago. And obviously, we will review our presence. We will look and exit and reduce presence in location with high cost income and low return on AUM.

Obviously, here, I repeat, is not about exiting geographies, it is about cost management. It is about achieving better efficiency. As I said, it is important for us to be close to clients, but we need to do it in a different, efficient way.

Now having said that, the efficiency can be achieved not only in reducing and reviewing or rationalizing the footprint but obviously we need to look at the 8 main locations, offshore locations that are more integrated and see how we improve the operational setup and how we can avoid duplications and improve processes. This is critical because I repeat, we want growth. We want to develop our business. We believe that we deserve and our CROs deserve to grow our client relationships, but we need to do in a profitable manner. We need to drive profitability up.

Now obviously, the third area of focus for 2020 and beyond is what we call the strategic prerequisite. Because growth is to be, obviously, profitable but has to be also sustainable. And for us, maintaining strict risk and compliance standards and further optimize the processes is essential. It is a matter of framework. We believe that we have a very good framework. But it's also a matter of culture and is also a very clear understanding that if we don't have a very solid framework in this respect, growth will not be sustainable and at the end will not be profitable.

And last but not least, the focus is on organic capital generation. Obviously, this is very much linked to the operational leverage. And clearly, we want to support our dividend policy.

Now I'm coming to the end of the presentation, and I would like with the last page, page -- Slide 31 just with 3 simple and easy statements just to wrap up what we intend to do. Again, for us, it was very important in 2019 to reposition the group into growth. Now we need to maintain this growth momentum. We need to do it in a way that we continue to focus on our strategic prerequisite, which are risk and compliance culture and framework and obviously capital generation. And at the end, we want to significantly improve our profitability via operational leverage.

As we announced a year ago, we have a very clear strategy and value proposition. Last year showed that we are on the right track to achieve our growth ambitions, and we will continue on this path to further increase our momentum to achieve our targets for 2022.

With this, I'd like to close our presentation today and hand back to Jens for the Q&A session. Thank you.

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Questions and Answers

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Jens Brueckner, EFG International AG - Head of IR [1]

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Thank you, Giorgio. Thank you, Dimitris, for your presentations. As indicated, we'll now move into the Q&A session. We would start with questions in the room and then move to the phone later. So if we have the first question here in the front, please?

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Daniel Regli, Octavian AG - Senior Research Analyst - Financials [2]

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This is Daniel Regli from Octavian. My first question is about net new money. Obviously, you had quite a good net new money growth in the second half of the year. I'm just wondering when I look at your peers, obviously, they de-emphasize a bit the net new money growth number, how do you think about net new money growth? And particularly with regards to profitability, can you give us some kind of an indication how important is the profitability? Obviously, you said want to grow profitably, but are you willing to, let's say, forgive some profitability short term for long-term profitable growth? Or is profitable net new money a key crucial aspect of your net new money? And from where is this net new money coming? Is it new CROs, which were driving this net new money? Is it particular regions? Obviously, you had new money in all regions, but were there certain aspects which stood out in terms of net new money?

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Piergiorgio Pradelli, EFG International AG - CEO [3]

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Yes. Very good question. I'll answer it technically. But before I answer it technically, very often in our discussions, we receive this kind of question. And says, but do you want -- do you prefer NNA or do you prefer profitability? And I say, sometimes, it is a bit like asking a child, do you prefer -- do you love more the mom or the dad. I think that at the end of the day, we need to achieve both. Now I know that some of our competitors have de-emphasized NNA growth. The only thing I can -- and I'm sure that they have done all their analysis, and I'm sure that everything is extremely valid. From our perspective, I think that Dimitris made it very clear. What, for us, it has been extremely tough in the last 3 years, especially regarding the top line, has not been only the fact that we were losing assets, but it's the fact that the average AUM was going down.

When you have your average AUM going down, then it's very difficult to turn around your cost income ratio. So now if the question is, I de-emphasize the growth and instead of 6, I grow 4, yes, maybe depending on the market conditions, this is a valid strategy. But again, we come from a period of 4 years -- 3, 4 years, where we had average AUM going down. This is extremely painful. For us, what is critical is to ensure that we continue to grow in order to make sure that our average AUM grows.

Now -- and now let me talk about a second about our people. As I said, for 3 years, we were focusing, all the management team and all the organization, even the bankers, we're focused on integration. And clearly, the time dedicated to clients was less. As an organization, we want more to spend time with our clients. And when you spend time with your clients, and you nurture these relationships, usually money comes in because they like that. Our CROs are eager to attract new clients because, obviously, the networks among our clients are strong and if you receive a good service. So there is a trend in the organization that says that we want to continue to grow.

Now I said it, Dimitris emphasized it, we don't want to grow at any rate just to show great NNA numbers. I said it is a clear leading indicator. At the end, we make money with the average AUM times the return on AUM. So obviously, we need to have an improvement on our average AUM, as I said. But we need to strengthen our return on AUM. So for us, this is clear.

Now regarding where they come from, I think that on a slide, we make it, and Dimitris was very eloquent this is Page 15, the NNA comes from existing CROs, new CROs, new locations. We're very pleased that actually it is so balanced. And it has come from -- yes, especially in the second half, from the various regions. So we have seen, again, a shift in acceleration. And for us, obviously, the key priority is to maintain this momentum, because unfortunately, we live in a world which is a bit complicated and at times certain events can change the risk appetite of clients and markets very, very quickly.

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Daniel Regli, Octavian AG - Senior Research Analyst - Financials [4]

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Okay. Then my second question is regarding CRO hiring. Obviously, you had quite a strong CRO hiring also in 2019 now. How does this impact your CRO hiring target for 2020? Should we expect now a lower CRO hiring in 2020 or do you continue with your 70 to 100 target new CROs? Or are you just opportunistic, if there is the opportunity to add good CROs, you add them, and if there aren't any opportunities, you don't?

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Piergiorgio Pradelli, EFG International AG - CEO [5]

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No. Very good question. I think that, as we mentioned, our guidance was 70 to 100 per annum over the course of the cycle until 2022. This was based on previous experiences. If you look at 2015, we had at the time 102 CROs hires. So we knew that we could do that.

Obviously, 2019 was an exceptional year. Obviously, we have, as Dimitris said, front loaded a lot of costs. We have probably had an investment, which was double than our plan. I think this is an advantage because it gives us flexibility now to calibrate for the next 3 years. Overall, regarding the number, we do not expect to continue at the rate of 180. And if we are at the low end of the range, and even below the low end of the range, this would not be a problem for us. It would not be a problem for us even if the net number would be on a negative -- with a negative. What is critical is that the existing CROs now are in a position to serve their clients and do well. Clearly, we continue to look in the market. We continue to recruit. And by the way, for us, what was very important when we started recruiting was the sign that the market gave us that our strategy and our business model were attractive. Obviously, we are now in a positive position that we are -- we can be much more selective. As Dimitris said, we see that hiring teams is much more effective than hiring the individual CRO. And I think, also, we have developed, together with the colleagues of investment solution, a much better strategy in onboarding, "new CROs" and make them successful quickly.

So we will continue. As you know, there is always an attrition because some of the CROs that we have hired will not make it. We would love that all make it, and we will work very hard on that. But experience in previous year shows that up to 1/3, could not make it. We know that there are retirements. There are some resignations. So we will continue -- we will remain in the market, but we have not, let's say, the pressure that we had a year ago. So we are, I would say, in a positive position there.

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Daniel Regli, Octavian AG - Senior Research Analyst - Financials [6]

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Okay. And maybe one last question regarding these investments. And this is really just a rather technical question. This CHF 31-something-million you tagged as investment into growth, is this recurring in nature? So is this really your cost base, which has now increased, and we will see this CHF 31 million again this year? Or is this partly one-off in nature?

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Dimitris Ch. Politis, EFG International AG - CFO [7]

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Let me take that question. This CHF 31.5 million includes recurring elements. So it is the cost of carrying the CROs. But it also includes some nonrecurring elements, as would be, some fees to recruiters, let's say, for recruiting these people. So it is a combination of the 2.

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Piergiorgio Pradelli, EFG International AG - CEO [8]

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If we have the next question that's next.

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Andreas Venditti, Bank Vontobel AG, Research Division - Head of Banks & Senior Analyst [9]

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Andreas Venditti, Bank Vontobel. Maybe on net interest income, I guess, that was obviously the biggest delta, I would say, to the plan, unexpected, of course. Maybe looking forward in terms of net interest income, what shall we expect, given how rates have moved, how forward curves look currently? Maybe if you could give some guidance and flavor there?

Second one, on the review or rationalization, as you said, in the booking centers and perimeter, and in the original BSI plan, you had this CHF 20 million number, is this still a number we can take as a guidance in terms of what might come out? And maybe lastly, on Shaw and Partners, on the slide, it says a substantial contribution, I guess, that's related to AUM. Because if I look at underlying results, I don't really see much of a net profit contribution yet. From this, you also said you expect increasingly -- an increasing contribution. Maybe you could explain how should we think about this?

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Dimitris Ch. Politis, EFG International AG - CFO [10]

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Do you want to take the second one?

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Piergiorgio Pradelli, EFG International AG - CEO [11]

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Yes. Take the first one.

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Dimitris Ch. Politis, EFG International AG - CFO [12]

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Okay. Let me take the first one, which is on the NII in terms of guidance, and I'll take you to page -- the page on the margins on the presentation, which is Page 20. Now you see that overall, between 17, '18 and '19, the NII margin was 26, 27 and 25 basis points. The way the curves have moved and our biggest driver, let's say, is the 2-year dollar forward overall. Let's take that as the key benchmark is that in beginning of -- like throughout 2018, the curve was going up. Peaked sometime early 2019. And then we had the drop towards the end of the year. I would say that the run rate is at the end of 2019 is slightly below the 25 basis points, but not substantially below.

Now my only caveat is these things move. And given what's happening to the world today, these could continue moving up. We are trying to manage, obviously, our revenues accordingly. But it is not substantially different from the 25 basis point that we had in 2019.

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Piergiorgio Pradelli, EFG International AG - CEO [13]

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Regarding the footprint, I think that, yes, the question is very valid. We have decided this time not to put a number out. This will depend on the review that we have -- we are carrying out. But again, we believe that it can be substantial. But we have not put a figure, at the moment. Again, as I said, I think that in terms of cost management in the last years, we have showed that our execution capabilities are good. So we did not do it at the time because it was a matter of sequential measures. Now we -- now that the integration is completed, we can focus on that. And we intend to do it in 2020. Shaw and Partners?

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Dimitris Ch. Politis, EFG International AG - CFO [14]

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Shaw and Partners, Andreas, you're right, if I look at Page 36, where we actually have the results including and excluding, it is -- the underlying net profit contribution of Shaw and Partners is 0, pretty much for the year. The reason is that in 2019, EFGI had also to carry a CHF 3 million acquisition cost for the operation. So the net profitability of the operation was CHF 3 million for 8 months. And at the same time, EFG had a CHF 3 million acquisition cost, because nowadays under IFRS rules, we cannot capitalize acquisition costs, which is investment bankers and all the support that you get. So that was expensed. Obviously, that CHF 3 million acquisition cost is not going to be included in 2020. And we'll include Shaw and Partners for 12 months.

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Jens Brueckner, EFG International AG - Head of IR [15]

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Okay. Great. That answers the question. Can we go first here? Exactly. Yes. Thank you.

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Daniele Brupbacher, UBS Investment Bank, Research Division - MD, Banking Analyst and Head of Equities Research Switzerland [16]

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It's Daniele Brupbacher from UBS. I had 3 questions. One, again, on CROs, then on cost, and then on capital. On CROs, I mean, obviously, the gross increase has been very strong at 180. And then, obviously, the net decrease, 40, so 140 people left. How much of a function of the gross hiring is this, really? So did the heavy hiring on -- in terms of gross increase give you an opportunity to be tough from performance management or is that a function of this? And then just interested to see whether you could share with us what is the proportion of regretted and nonregretted leavers within that 140?

And then in the past, you showed us CRO classes over time have -- what percentage has been successful and whatnot, if you could give us a little bit of an update there? And a bit of a follow-up question to Daniel's question on the productivity of these client advisers. Would it be possible to give us an indication what the average AUM of those various classes are now on Slide 18? Is this close to the CHF 300 million average or still substantially below? And probably what the gross margin of this newly acquired AUM is?

And then just on costs confirmation. The CHF 242 million cost savings, so that's fully in the P&L, and it's because you're saying it's achieved. So that's fully in the P&L? And we shouldn't expect to see more of that coming through in 2020 in terms of annualized run rate?

And in general, in terms of cost, I still struggle to model costs overall because there is people leaving the firm. There is new advisers joining the firm. In a normal year, which probably will never happen, but how should we think about costs in 2020 versus '19? And sorry, just very lastly, on Slide 28, the capital ratio, you mentioned that the minus 0.9% from nonunderlying P&L. And I really struggle to understand this because I don't really see much of a difference between stated and underlying profits on Slide, I think, 38. So what really drives that, I don't understand that? And is this something which we can regard as a true one-off or could this happen again?

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Piergiorgio Pradelli, EFG International AG - CEO [17]

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Okay. I'll take the first question on CROs and performance management. Obviously, as you pointed out, our efforts in performance management have been severe, have been important. Clearly, the fact that we were hiring more than expected, I mean, it was not the driver. Obviously, if you are in a position where you can have better teams, and you have maybe situations where some relationship managers have been struggling over the years during the integration, et cetera, then you might come to a decision sooner than you would have done.

But I would say that EFG has in its DNA and the culture, since inception, the fact that, obviously, CROs are put in a position to succeed. But if this is not the case, I think for both parties, there is no point in continuing the relationship, although, as I said, we try to ensure that this does not happen. So I think -- also, this was in the wake of the acquisition, so probably, again, the rate was higher than a normal year, and I'll come back to that.

You're right, we used to give more detail about the classes. Since the class of '17 -- '16 and '17 and '18 were not particularly big because we were dealing with integration and less with hiring new CROs, we have not done that. What I can tell you, I don't have the figures with me. Obviously, we monitor everything. But I can tell you that the class of '15 was a very good class and the class of '16, '17, '18, were not so good. Maybe during the integration and with the events that we had in those years, probably we were not able to retain the best talents that the market offered.

So now we are very confident about the class of 2019. We have changed completely the process in hiring. There is much more scrutiny from the regional heads and from the center, from the head office. So we're very confident on that. And as I said, the majority of new hires in '19 has been in teams, which usually gives a better outcome. I don't think there was anything else on CROs.

Regretted leavers. We did not -- I mean, usually, we don't have regretted leavers that lead us to lose the AUM. Let me explain. Usually, the regretted leavers are CROs that decide to become even more entrepreneurial and independent and they join or they found a new company, an external asset manager. And usually, they maintain the assets under management with the bank. Obviously, they know they have colleagues, and they know how things work, and they receive a very good service. So this -- and we might have -- but again, we're talking about cases less than in one hand.

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Dimitris Ch. Politis, EFG International AG - CFO [18]

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So let me take the other 2 questions, starting on costs, where your first -- the first part of your question, Daniele, was, are they fully in the P&L? Yes. They are fully in the P&L. When we calculate our achievement in cost synergies, we compare what we actually have in the P&L versus the previous years back to 2015. So the CHF 242 million has been included in the P&L.

Now having said that, we will not be stopping our cost management initiatives here. It's not the fact that we concluded the BSI integration and we stop. As we said, there are 2 main themes going forward, one is -- the one that has to do with our footprint internationally. And the second part is about optimizing our operations in the 8 core booking centers -- offshore booking centers that we have. So you should expect more cost management actions.

Furthermore, there are actions that were executed in the second half of the year. So FTE reductions in the second half of the year, which have not found themselves fully in the P&L, so that will also be something that will affect costs.

I know it is complicated with people coming in and out. But I think the sort of the 3 levels that I would try to look at, to try to gauge is, one is FTEs, and FTEs are down 4% year-on-year. So that -- as we go forward that -- now as we said, we hired a lot of CROs. A lot of CROs were also let go at the same time, so the net increase in CROs is not that big. Otherwise, obviously, our costs would have moved completely the other way. And then if I guide you to Page 36, where we show our underlying income statement. And if you were just to compare 2018 with 2019, excluding Shaw and Partners, what you'll see is, operating expenses from CHF 966 million to CHF 950 million. Some drop in personnel expenses. Bigger drop in other operating expenses, with (inaudible) going down, obviously, there is momentum in that direction. And I can assure you that on the other operating expenses, there's a lot of work being done to make sure that we don't spend where we don't need to spend. I think that takes care of the cost side of the question.

Going back to the capital point on the 0.9% drop because of nonunderlying, the difference here is because of the discrepancy between IFRS and Swiss GAAP, especially for the legacy position of life insurance. It's not about underlying, nonunderlying the way we report it in under IFRS, it's the difference between the 2 accounting standards. Under Swiss GAAP, the life insurance portfolio is held as a hold-to-maturity portfolio, so it's not revalued, but the interest rate hedge we have on it gets revalued. And the way interest rates went, it went the other way. That is one large component of that 0.9% negative. Obviously, the provision we recorded for legacy cases is also in there. That's about 20 basis points of the 90 basis points because that's about CHF 20 million.

Now is it recurring or nonrecurring? I would say, out of the 90 basis points, 1/3 could be recurring, and the remaining 2/3 are one-off items. So the 30 basis point is something that it is likely that we will see as a discrepancy because of the 2 gaps of the 2 accounting standards over time.

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Jens Brueckner, EFG International AG - Head of IR [19]

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Okay. Do we have any -- there was another gentleman here. Yes. Exactly. Please.

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Unidentified Analyst, [20]

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[Thomas Paul, AWP]. Just short questions on special situations. If you could explain a little bit how Brexit affects your business in Great Britain, your position? And just out of curiosity, maybe the coronavirus problem in -- does it affect somehow your Far East operations?

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Piergiorgio Pradelli, EFG International AG - CEO [21]

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In terms of Brexit, I would say that the impact is not significant. As you know, we have a second hub, I would say, always say, that we have 2 main hubs in our group. One is, obviously, Switzerland. And then we have a full-fledged operations in the U.K.

On the other hand, the majority -- the great majority of the clients that the U.K. operations is covering are not EU citizens. So there the percentage is very small. And so we don't see -- actually, as you have seen, the U.K. last year was the best-performing region in terms of growth when you look at the growth rate. So we don't see that as an issue now.

Coronavirus, it is very difficult in these hours to have any prediction. Clearly, what -- obviously, there are disruptions in the way the economic activity is working. Clearly, in Asia, we have ensured that we have always teams that are working remotely. Other teams are working in the office. And you make sure that using technology and all the tools we have at our disposal, you don't have disruption with interaction with clients and the normal processes of the bank. Clearly, what you have seen is that the risk appetite of clients is not -- is, for sure, more reduced than in the fourth quarter of last year. It is not like we have seen in the first quarter of 2019, but we have had some situations of clients deciding, for example, to close leverage positions because, obviously, if you are concerned about the future, and given the markets, how they performed, you take profits and you close your leverage position.

So now in terms of what we do as a firm, clearly, already back in January, we had the travel bans for China. This was implemented immediately. And now after the weekend outbreak here in Europe, we have decided basically to ban any nonessential travel globally. And again, we have contingency plans. And we ensure that using the opportunities that now technology gives, you can still conduct a normal business. I think that the usage of video conference that now everybody can have his own computer is all-time high. So from that perspective, my -- again, obviously, I don't think that anybody has a view. For me, the key issue will be how long this will last. If it is a V-shape situation that it will solve, hopefully, I don't know, spring, then I think that the impact would be relatively small. If it is more protracted, I think we'll have a bigger impact. But the visibility today, I think, is very, very limited.

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Jens Brueckner, EFG International AG - Head of IR [22]

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Okay. Thank you. Is there any other question in the room? I don't think we have -- Daniel again, and we take that one.

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Daniel Regli, Octavian AG - Senior Research Analyst - Financials [23]

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And again, Daniel Regli. Maybe just one follow-up question to Daniele's question regarding CRO hiring's and modeling of personnel expense. Obviously, your headcount was down in H2. So your front-to-back ratio, if you want to actually should be back-to-front ratio is down significantly. How should we think about this? Do you expect this back to front ratio to reincrease, so the back office people as relationship managers? Or will this continuously decrease because of technological innovations and so on?

And then maybe one second question, and I know this is maybe a little bit (foreign language) regarding your press release in December where you denied that there were any talks with Julius Baer. Can you comment on this, what drove you to release this major release and to comment on this media relationship if there wasn't any talks?

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Piergiorgio Pradelli, EFG International AG - CEO [24]

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Okay. So regarding the first point, I think is a very good point. Yes. Indeed, I believe that one of our actions is clearly to improve the ratio, basically front-to-back. As we mentioned, it's now the issue of the footprint a separate issue, but in particular, looking at what we want to do in the main hubs to rationalize, optimize, avoid duplications, this is all about making sure that this ratio improves. We believe that this can be achieved. Again, there is always a big debate about how firms technologically, in banking, in financial services are advanced or not. Clearly, we are all investing in order to have a platform which is more modern from that respect, and we are convinced that this will allow us to centralize a lot of processes, create center of competencies and then reduce the number of people to do activities that today technology can do. So absolutely, we want to improve that ratio. The other point is that, obviously, we want to increase the productivity of the CROs, because if you look at -- at the end of the day, if you look at all the competitors for every CRO, every RM, you have 3, 4 other people in the firm. And obviously, if you have bigger books per banker, then you need less of, let's say, of the support and control functions.

Again, I would like to underline what I said, what I said at the end, for us, one of the strategic prerequisite remains that in terms of framework and culture, in terms of risk and compliance, we are at the top of attention. And therefore -- also there, the only way to improve efficiency is only using technology. There are no shortcuts. So I don't know if I answered your question, but it is what we are trying to do.

Well, regarding Julius Baer, if I understood the question is why did we issue a denial? Is this the question, why did we issue a press release? Well, you are right because our policy is never to comment on market rumors. And if you recall, there were 2 instances where these rumors came out. The first was early December and we decided not to comment. It was a very vague rumor. And obviously, our policy, as I just said, is not to comment. The second was much more, how should I say, much more detailed. And as we clearly said, in the press...

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Dimitris Ch. Politis, EFG International AG - CFO [25]

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Included specific dates.

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Piergiorgio Pradelli, EFG International AG - CEO [26]

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Included specific dates, included specific people. And as we said in the press release, it was false, misleading and unfounded. And at the end, it's also -- we had to come out because it's to avoid destabilizing the clients, first of all, and the employees. And again, if there are rumors, you don't comment. But when it becomes very specific allegations, then I think it was the right thing to do. And I believe we were right, and they should die down immediately. And that's the reason.

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Jens Brueckner, EFG International AG - Head of IR [27]

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Great. Thank you. I believe there's no further questions in the room. We don't have on the phone. So I would say we come to an end. Thank you very much for attending, and have a nice day. Thank you.

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Dimitris Ch. Politis, EFG International AG - CFO [28]

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Thank you very much.

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Piergiorgio Pradelli, EFG International AG - CEO [29]

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Thank you.