Question–and–Answer Session

Operator

The first question is from Mr. Jon Peace, Nomura. Please go ahead, sir.

Jon Peace – Nomura

Yes. Good morning. A couple of questions please. The first one just on the fixed income trading number. You used to give us an underlying figure which was 1.5 billion francs to 2 billion francs in Q1 and 1 billion francs in Q2. I know quite a lot has gone on with your accounting, so I just wondered if you could give us a kind of like-for-like trend so we can understand what the underlying momentum is that – on that business year-to-date?

The second question is just back to the Wealth Management business. Thank you for your guidance about revenue is likely to improve in Q4. I just wondered if you could kind of decompose that into net new money and margin and where we might expect to see those trends. Thanks very much?

John Cryan

Yes. In fixed income, I think somewhere buried in the quarterly report, there’s a statement that says that the 1 billion francs or so, that fixed income made, although there was some overs and unders was relatively representative of the underlying. It’s difficult to gauge because there were quite a few changes.

We refined a number of our estimations of carrying values in that division in the quarter, but the underlying looks as though it’s around about that level, if not a tad higher than 1 billion francs. And we would expect that to improve modestly. Your range of 1 billion francs to 1.5 billion francs should be where we are.

On Wealth Management revenues, one of the reasons why we’re confident that Q4 will be better than Q3 is we won’t have those one-off items that impacted the revenues in Q3. We’re also taking some steps, I don’t want to steal the thunder of my colleagues presenting in two weeks time, but there are a number of steps we’re taking, clearly we’re not just sitting by watching it happen, to improve the gross margin that we get on client assets.

The client asset balance is the key driver. The volume of client assets has held up, notwithstanding the outflows and we’ve seen some very good investment performance. And so long as the investment performance continues to hold, then we should see that management action to improve the gross margin by changing the way we interface with our clients, brings us higher revenues.

One of the ways, without, as I said, stealing too much of Jürg’s thunder next week or in two weeks time, would be that we would reprice some of our products and services because it’s fair to say we have been discounting a little during the crisis. But there are a number of actions that we intend to take.

On the flows, I don’t – I’ve said a little earlier on the call, we don’t have much confidence that there will be a quick and significant reversal of flows. There’s nothing we see in the pipeline that would suggest that that is the case. A number of the factors that are affecting our flows will obtain for some time.

I think a key one, and certainly in interfacing with some of our clients myself, is the question of our profitability. And we may successfully communicate that we’ve made a real underlying profit and operating profit when we’re talking to professional investors, but when the headlines are still negative that does impact our client base and it’s very difficult to dissuade them from the fact that we are continuing to clock up losses.

And so I think that’s a fundamental issue that we have and we need to solve that clearly. I think there are all sorts of other issues that impact our flows. I also highlight the additional scrutiny that I think the entire industry is undergoing at the moment by all governments. It particularly, I think, impacts us.

I think we have a confidence and morale issue with our client advisors. I think we have continuing attrition. As you know, we still have a number of client advisors who are still on our books and are in outplacement and they will come of the cost base in the coming quarter or two.

And then I think generally there’s a lower level of wealth creation, particularly in our strongholds in the emerging markets, which doesn’t help our gross inflows and as a consequence our net flows look mediocre. And as a consequence, obviously in recent quarters, we’ve been showing net outflows. So a whole range of factors, none of them I think likely to change in the coming quarter or two.

So we’re guiding to the fact that we may have outflows for a few quarters to come. Obviously, we’re working to make that not true but our best estimate is that that’s the case.

Jon Peace – Nomura

Okay. Thank you.