Recurring income increased 6% to 834 million francs. Managed account fees were higher as was net interest income, the latter largely because of the impact in Q2 of the special assessment fee of 17 million francs levied by the FDIC.
The proportion of total income represented by recurring income rose a further three percentage points to 61%. Personnel expenses decreased 15% quarter-on-quarter in Swiss francs terms. Excluding restructuring charges, personnel expenses would have declined 10%, driven by a 36 million francs credit from the release of an over-accrual of deferred compensation year-to-date and partly from lower salaries and recruitment costs.
Non-personnel expenses were down 35% on a reported basis and 19% quarter-on-quarter on an underlying basis, adjusted for restructuring charges in Q2. In Swiss francs terms, the gross margin on invested assets fell by one basis point to 79 basis points in the quarter.
The decrease comprised of a two basis point increase in the recurring income margin to 48 basis points. This corresponding to a strong 6% increase in recurring income and a three basis point fall in the non–recurring margin to 31 basis points.
Global Asset Management reported a profit for the quarter of 130 million francs on positive (jaws) of 9%. The improvement was mainly revenue driven. Performance fees, mainly in A&Q and portfolio management fees were generally higher, reflecting the higher average invested assets base. The cost to income ratio fell to 77.1% and is now broadly in line with that of competitors.
The gross margin on institutional assets rose from 37 to 40 basis points. In the wholesale and intermediary channels, it was two basis points stronger at 37 basis points, partly driven by the effects of the sale of Pactual on the managed assets mix.
In Q3, we saw further improvements in fund performance. We already see this feeding through to net inflows from third party institutions and would expect this positive lag effect to continue for several quarters to come.
Now, turning to the Investment Bank, revenues, before disclosed own credit impacts and credit loss expenses, of over 2.8 billion francs represent the best performance by the division for two years. The improvement stems from the significantly higher contribution from FICC which generated almost 1 billion francs of net revenues.
There were a number of factors that led to the better results from FICC. In credit trading, revenues improved following several key hires. Revenues in macro were stable with rates businesses picking up a little slack from the foreign exchange trading businesses which experienced narrower spreads, lower volatilities and seasonally lower trading volumes.
We rolled out systems to further refine our estimations of the impact of credit spreads on the carrying values of our derivatives portfolios under IFRS, the so called Debit Valuation Adjustment or DVA.
Under our previous approach, we measured our own credit effects on uncollateralized derivative exposures by calculating the fair value difference between discounting cash flows at LIBOR and discounting them with our senior debt curve. We recognized, however, that the custom and practice of our derivatives counterparties would be to hedge their exposure to us by buying credit protection in the form of credit default swaps, just as we do ourselves to hedge our exposure to them.
So we changed our approach and introduced the change in Q3. Our DVA calculation is now therefore consistent with our CVA approach which we adopted some time ago. So, under the new approach for all derivatives, we take into account all potential expected exposures and any collateral and netting agreements to determine our counterparty’s exposure to us.
We then use our own credit default swap spread to determine the theoretical cost of hedging exposure to us and add the derived amount to the fair value of the derivative. Had we not introduced this change, our revenues for the quarter would have been 260 million francs lower. This boost to FICC results was, however, more than offset by the negative impact of estimate improvements affecting other items.
During the early part of Q3, we commuted most of our remaining exposure to monoline insurers where the protection had been bought related to the value of RMBS CDOs.
You may recall that we adjusted Q2’s results for the insight the commutations gave us into the market value of these instruments. In Q3, we reconsolidated the CDOs, whose insurance we had commuted into a cash receipt. We’ve already substantially sold down the assets of these CDOs with little impact on the net results for the quarter.
Credit spreads on the monoline insurance sector rallied again in Q3. This enabled us to reset our CVAs to the amounts receivable under the remaining credit default swaps we had with the monolines. This yielded trading gains to FICC of around 0.5 billion francs in the quarter.
Finally on FICC, I’d like to mention an accounting effect that’s not reflected in our quarterly result. This relates to our reclassified assets.
In Q3, the increase in fair value of these positions was such that had we not reclassified them, we would have recognized additional trading profit of 1.8 billion francs. On this topic, generally we’ve improved our disclosure on the reclassified assets and set this out in the quarterly report and included a new summary slide at the back of the presentation pack.
Turning to IBD, total revenues were steady quarter-on-quarter at 700 million francs. Advisory revenues continued to be cyclically weak reflecting the slowdown in the global economy.
Capital markets revenues were down 13% to 670 million francs, despite a 14% increase in ECM revenues. ECM gained market share across all regions and saw significant pickup in activity in Asia.
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