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.
Operator
The next question is from Mrs. Fiona Swaffield, Execution. Please go ahead, ma’am.
Fiona Swaffield – Execution
Hi. On the costs, I wonder if you could be a bit more specific. I think you said you’d got to the 20 billion francs on run rate, is that below 20 billion francs? Could you talk a bit more? And I’m still very confused about Wealth Management and Swiss Bank? I mean, are you going to be more specific about the one-off revenues and the one-off costs in terms of what could be the true underlying base for Q3 versus the reported 792 million francs?
And then the last thing is on risk-weighted assets. At the Q2, in the Q2 slide pack you talked about Basel II add-ons adding I think 60 billion francs and then a net reduction in risk-weighted assets of 10%. So assuming the rest is 80 billion francs, I mean, how far should we see the reduction in risk-weighted assets? I think 28 billion francs, I think you put on the slides of de-risking. Is that comparative to the 80 billion francs? I mean, how far are we down the road on that? Thanks.
John Cryan
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