Huw Van Steenis – Morgan Stanley
Yeah, morning. Two questions, just returning to the buffer, you’ve obviously said that it started to be run down in the fourth quarter but I don’t think you said from – to what amount. Could you sort of just somehow try and quantify either P&L impact or total impact of how much more you could potentially right size that into next year?
And then secondly, just returning to the question about revenues and cost base. So you’re now below your 20 billion francs target, it sounds like you really need to reinvest for growth. What is the sort of new feel for – what’s the right run rate of cost into next year? I see that you’re indicating you’re going to get rid of another 4000 odd staff but it sounds from the tone of the conversation that that really won’t materialize into much more on cost. Perhaps, you could just clarify the push me pull me on the cost side?
John Cryan
On the liquidity buffer, if you want to be a real accounting nerd this time, you can turn to page something in the balance sheet. And you’ll see that the assets that we hold available for sale have mysteriously started to increase. They used to be about 5 billion francs or 6 billion francs and they’ve gone up to 50 billion francs something, I think. And the reason that that’s the case – I’m shuffling through the papers trying to find the balance sheet to prove I’m right.
The reason that’s the case is that we are moving the liquidity buffer. We’re moving it out of the Investment Bank into Corporate Center and the reason we’re doing that is that the Investment Bank now is pretty much self–funding. All of our divisions self–fund and so holding the liquidity buffer is really a function of the fact that we are not – still not profitable on the full IFRS basis, although obviously on an underlying basis and because it’s just prudent always to hold something of a liquidity buffer. Now, you’ll see that in the balance sheet, the assets – let me just find it, get the number. Financial assets – financial investments available for sale, it was 5 billion francs, 5 billion francs and then it’s become 59 billion francs.
Huw Van Steenis – Morgan Stanley
Yeah.
John Cryan
And that’s part of the process of moving the buffer from the IB to Corporate Center. Now, you can’t move it, because they’re being reclassified as – or being classified as available for sale, so you have to let the reverse repos go off.
Huw Van Steenis – Morgan Stanley
Yeah.
John Cryan
And then you have to buy new assets and reverse repo them somewhere else. But we’ll move that up to something of the order of 75 billion francs or so and I don’t think it needs to go much higher than that, maybe even a tad lower. But that’s the reason for that increase is that’s where we’ve been moving the liq buffer.
Now, the cost has come down quite a lot because essentially we try to borrow for nine months to a year and then invest it very, very short time, overnight, two nights. And the yield curve has flattened so much that the cost of doing that has fallen away considerably and I think the cost in Q3 was only of the order of about 300 million francs, a lot less than the 800 million francs or so, whatever it was, in Q1. And of course, during Q3, after the settlement in August, we started to bring down the buffer. So the run rate is probably now lower than the 300 million francs.
Huw Van Steenis – Morgan Stanley
On the Group costs?
John Cryan
On the Group cost – on the Group cost, I think you’re right. I think there’s a bit of teeming and lading. On the Group cost, the headcount still has to come off the balance sheet and the associated multiplier effect on cost is still there. And therefore we’re confident that we can bring the cost base today, given actions we’ve already taken, way below the 5 billion francs per quarter. However, you’re right, we’re now going back into growth mode, gently.
We have to pursue revenues and profitability and we have been hiring but we’ve been hiring in key strategic areas, not across the board. And the hiring has therefore been with relatively moderate cost compared with what we’ve been able to save year to date. So I still feel confident that our costs are under control, that we will maintain this level below 20 billion francs annually. If we don’t, it’s because there’s been significant improvement somewhere in the business that has warranted us investing more in that particular business. But at the moment, that looks like the right cost base for the market and for our capacity to exploit the market to make profits. So, I wouldn’t expect to fail that target.
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