Credit Suisse Group AG (CS) Q2 2019 Earnings Call Transcript

Credit Suisse Group AG (CS)
Q2 2019 Earnings Call
July 31, 2019, 2:15 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. This is conference operator. Welcome and thank you for joining the Credit Suisse Group's second-quarter 2019 results conference call for analysts and investors. As a reminder, all participants are in a listen-only mode and the conference is recorded. You'll have the opportunity to ask questions after the presentation. If you wish to register for a question, please press *1 at any time during the conference call. Should anyone need assistance, please press *0.

I will now turn the conference over to Adam Gishen, Group Head of Investor Relations and Corporate Communications. Please, go ahead, Adam.

Adam Gishen -- Head Investor Relations 

Okay. Thank you, operator. Before we begin, let me remind you of the important cautionary statements on Slide 2 including the statements on non-GAAP financial measures and Basel III disclosures. For a detailed discussion of our results, we refer you to the Credit Suisse second quarter 2019 financial report.

With that, I will hand over to Tidjane who will run through the numbers. Thank you.

Tidjane Thiam-Chief Executive Officer

Thank you, Adam. Good morning, everyone, and thank you for joining our call. With me is David Mathers our chief financial officer. Together, we will present Credit Suisse's results for the second quarter and the first half of 2019. We look forward to answering your questions a the end of the session and discussing our results in more detail. So, let's begin please with slide 4.

2Q 19 marks the second quarter after the completion of our three-year restructuring program on December 18. As we continue to execute our strategy with discipline, we are accelerating our profit growth and have been driving returns higher. Let's look at our 2Q performance in more detail on the next slide, please.

So, two quarters post our restructuring, we believe that the operating leverage which we created in those three years is starting to bear fruit. We were able to achieve a pre-tax income of 1.3 billion CHF in Q2, up 24% as you see here year on year and our highest quarterly PTI in the last four years. As you can see here, our profit growth has accelerated against the first quarter where our revenue environment was very unsupportive. We achieved this during the second quarter when markets remained challenging as we will see on the next slide, please.

So, while equity market on the left in green here has performed strongly in the first half of 19 and are at or near all-time highs globally, credit spreads on the right remain at elevated levels compared to the same period in 2018 even if they started decreasing in June. Client activity levels, particularly across primary markets, remain muted with leverage finance issuance down 41% with the secondary market struggling as well. You can see here EMEA equities down 22%, APAC equities down 16%. So, still a challenging environment. Against this backdrop, we believe we have demonstrated an ability to flex our cost base as we will see on the next slide.

We are executing against the cost actions outlined at our 2018 investor day on December 12th last year with operating expenses down 5% year over year. We believe that the sustained reduction in fixed costs that we have achieved lowering crucially our breakeven point and our continued focus on productivity improvements leave us well-positioned to benefit from improving market conditions with any uptick in revenues dropping directly to our bottom line.

So, let's move to the operating performance of our businesses in more detail and I'll start with general comments about our Wealth Management franchise and performance. In Wealth Management, our revenues have remained resilient in difficult markets reflecting the strength of our diversified franchise and the effectiveness of our ultra-high net worth focus. We have been able to mitigate through pressures on our recurring revenues in NII by increasing materially our transaction revenues for a number of specific actions and initiatives. Solid and resilient client relationships are built by supporting our clients on their full balance sheet helping them manage both their assets but also their liabilities. Our broad range of capabilities gives us various options to generate client revenues which have proven very valuable in challenging markets as we have seen in Q1 and Q2.

Let's look now at our asset flows on the next slide. We have been able to build on our strong first-quarter inflows in light blue here and generated 9.5 billion CHF of net new asset in the second quarter in dark blue here. So, cumulatively 19.1 billion CHF of NAA in the first half. In 2Q 19 we, therefore, delivered an industry-leading 5% growth rate for a player of our scale. This represents the 11th quarter in the last 14 quarters where we were able to achieve a growth rate of 5% or more in our Wealth Management businesses. Our inflows have been broad-based and diversified with growth across all regions and client segments. In Switzerland, we experienced strong inflows as you can see here in our private loan business with 4.5 billion CHF of inflows in 1H representing a 5% growth rate. In IWM, we attracted 5.5 billion CHF in Q2 and close to 7 billion CHF in 1H, a record level with broad inflows across Europe and emerging markets. And in Asia, we have grown at 8% in 1H 19 attracting 7.8 billion CHF of NAA of which 2.8 billion CHF in 2Q. Next slide, please.

So, stepping back. Looking at the totality of our assets at the end of the first half of 19 we achieved record-level Groups assets under management of 1.5 trillion CHF, 1.489 trillion CHF exactly, an increase of 113 billion CHF since the end of 18. So, over the last six months, we have been able to add 59 billion CHF of net new asset across the Group a reflection of the strength of our client franchises. To put this performance into perspective, we have added organically the equivalent of a mid-sized asset manager or private bank for asset inflows alone.

Let's look now at the development of our Wealth Management net revenues on the next slide, please. Since 1H 16 we have grown our half-year Wealth Management related revenues by more than 900 million CHF, 946 million CHF exactly. This again represents a CAGR of 5% over the last three years with a strong contribution from each of our Wealth Management businesses. Let's look now at how this has translated more importantly not only in earning but also in pre-tax income on the next slide.

Over the last three years, we have grown our Wealth Management related pre-tax income at a CAGR of 15% achieving a pre-tax income of 2.6 billion CHF in the first half of 19. A key driver of our progress in Wealth Management has been our integrated approach across Wealth Management and Investment Banking. Simply put, we believe we are doing more with our clients offering them a solutions-based approach covering both their wealth and business needs. Next slide, please.

I'm sure you remember this slide from our investor day 2018. We often refer to this as the Credit Suisse Model. So, what is it? It is our fully integrated approach to ultra-high net worth client coverage leveraging the full suite of capabilities that we possess inside the bank. This provides you with a window into why we believe our margins remain stable even in a challenging environment. As you see on the right here, we believe that we can more or less double the revenues with an ultra-high net worth client that are pure pay Wealth Manager would generate in dark green here. ITS, our new initiative, plays a key role in this. For our integrated approach, we have found that client assets are also more sticky given the broad range of asset and liability solutions that we are offering them and our connection to both their assets and their liability side as I said earlier. In APAC, for example, we have evidence that more than 90% of client assets remain with Credit Suisse if an RM leaves the firm. We think that is a very, very good piece of evidence of the strength of this franchise. We keep 90% of the assets when an RM leaves.

Let's look at a real client example on the next slide. This slide illustrates the interest of our integrated one-stop-shop approach with a case of a leading Asian ultra-high net worth entrepreneur client whom I've met many times and who has become increasingly active with us as his business has grown exponentially over the past years. You see on the left here we did actually two IPO for him to successive over five years and the success of this approach is visible if you look at the revenue growth we have been able to achieve with such a client. Up 40% in 2018 year on year and further accelerating this year up 250% in 1H 19 year on year. We have NNA of about 300 million CHF in 2018.

Let me summarize these Wealth Management results on the next slide. In Switzerland, on the left here we are able to fully leverage our universal banking model which we think is very powerful. Its breadth and diversification combined with the efforts over the last three years allow us to produce a best-in-class performance in our home market. We have achieved a 20% on regulatory capital which is our highest 2Q since 2014, so in five years, with NNA of 4.5 billion CHF in H1 and a growth rate of 5%. A good performance, we believe, in what is considered a mature market. Moving on to IWM, we delivered a resilient performance with strong net new asset inflows across both private banking and asset management delivering a return on capital of 29% at the bottom here of the page. We also added in 1H 19, and this is important, 70 experienced RMs. This is the first time since 2015 that we do so and roughly 2/3 of those are focused on emerging markets to accelerate our growth going forward and this may explain to some of you why the costs in IWM were up year on year, 70 RMs hired.

In APAC we had a strong quarter with revenues up 9% both year on year and sequentially for Wealth Management and Collective. We saw higher revenue growth across all of our three business, Private Banking, IBCM, and Financing, with APAC private banking delivering its second-highest revenue quarter ever. In APAC IBCM we achieved the 11th consecutive quarter with revenues above 200 million CHF and we were ranked number one in advisory and underwriting for APAC ex-Japan as well as for the first time ever number one in the share of wealth for greater China. Finally, ATS, the newly created ATS, APAC Trading Solutions, our regional setup to deliver asset and liability solutions for our ultra-high net worth clients is off to a good start with already five deals in the quarter and a high level of client engagement across the region.

You can see here, we have generated strong results across all our Wealth Management businesses in 2Q and as you can see on the next slide we believe there are significant further growth opportunities. Please, allow us here to make a rather more macro point about the strategy. In Wealth Management, as you know, we are following a balanced approach between emerging markets and mature markets. Looking ahead, we believe there are significant further growth opportunities in a number of sizable economies where we are already active and we put a few of them on this slide. And where we believe for a leading Wealth Manager, we punch below our weight in Wealth Management.

You can see here, Mexico, Brazil, Australia, Korea, India, Japan. There are a number of G20 countries on this slide which we cover across IWM and APAC. Total GDP of these economies is 14.6 trillion CHF, almost 15 trillion CHF, and that's about the size of a Chinese economy and wealth growth average is 5% to 6%. So, if you want to put this into perspective, you can see that our private bank in Switzerland, which is an economy with a GDP smaller than any of these economies, manages more AUM than we do across all these countries combined today. So, we believe there is still a significant upside potential available to us and we are focused on delivering over a medium-term on this. We have both people and plans in place to grow over time in each and every one of these markets. Enough of Wealth Management.

Let's move now to IBCM. IBCM continues to operate in a very challenging market environment. We have a notable slowdown in advisory and underwriting activity year to date as we showed you earlier. As you can see on this chart, which is a sequential chart of average quarterly income, we have seen a strong sequential rebound from a very depressed Q1 up 27% in Q2. So, if we go in more detail on the next slide, our advisory revenues, to be honest, were down in Q2 in large part because of a number of deals which did not materialize in the quarter, either got annulled or moved to another quarter. But we have outperformed the Street in leveraged finance and in IPOs where we have achieved a top-five rank advising on seven of the ten largest IPOs in the US and three of the six largest IPOs in EMEA.

IBCM is a strategically important business for us. We've said this many times. Over the course of 19, we will continue to invest, hiring senior bankers focusing particularly on technology and healthcare two sectors with very significant long-term potential. On the outlook for the balance of 2019, the second half, our IBCM bankers are cautiously optimistic.

Let's move now to Global Markets, next slide. This is a slide that we've shown you many times since 2015 and adding bars for 16, 17, and 18. But since 15, it was our belief that revenue pools for the Global Sales and Trading industry would continue to be challenged. So, on the next slide having defined a clear strategy of being the leading Wealth Manager with strong investment banking capabilities, we believe that having a strong Global Markets business was key. We undertook a deep restructuring of our business to right-size and de-risk our footprint while investing in talent and preserving our key franchisees in fixed income and equities. At the end of 18 at our investor day, we said that our aim having completed this restructuring would sustainably grow revenues and increase our returns in GM.

Next slide, please. On that day, if you remember this slide, we presented a path to improving our returns in Global Market and identified a number of initiatives to achieve this. Namely to increase collaboration with Wealth Management for ITS, to benefit from our invigorated equities platform, and lower funding costs. You can see that the benefits of these actions are starting to come through in our Q1 performance and even more so in our 2Q performance on the next slide.

Looking at the second quarter, we have been able to grow revenues in both equities and fixed income and sales and trading and outperforming the Street and gaining market share. Equities sales and trading revenues were up 3%, a good performance against a continued challenging backdrop for the asset class. 2Q 19 marks, we believe, the fourth quarter in a row since Q3 18 where we believe we have been able to gain market share in equities. We are making progress in expanding our client franchise across all product. We are reestablishing our historic electric trading relationships and adding new prime mandates.

Moving on to Fixed Income Sales and Trading revenues were up by 11% in 2Q with a strong performance from our leading products which benefited from lowest rates and credit franchises. Moving to profitability on the next slide, Global Market has delivered positive operating leverage in 2Q. We have grown revenues by 8% in the quarter and I would like to highlight these numbers include no benefit from a trade with IPO which we recognized in 4Q 18. We maintained our focus on cost discipline with operating expenses down 7% as we are executing on ongoing efficiency initiatives to continue to optimize our Global Markets cost base. This operating performance has driven a significant improvement in the profitability of our franchise. We achieved a PTI of $359 million in 2Q which represents our best quarterly performance since 2Q 15 when we had more capital and a different risk profile.

We said that post-restructuring the return to Global Market would increase and they have as is presented on the next slide. In 2Q 19, Global Markets achieved a return on regulatory capital of 11%. Keep in mind this is a return on leverage. The return on RWA as you can see is 17%. We've often commented over the quarters that return on RWA was actually quite strong and it was a return on leverage that we needed to grow because we've decided three years ago to take the worst of to measure return on capital and to measure return on capital under constraining measure of capital which is leveraged in this case.

So, to summarize, performance in Global Markets in 1H is evidence that the Global Market Model is working. We are continuing to drive closer collaboration with Wealth Management. We are gaining market share in key products and we are driving returns higher.

To wrap up here, I wanted to pause to congratulate our teams across the globe and highlight some of the recognition they received for our client-focused integrated approach. We have received a number of industry awards across a wide range of divisions. Just to name a few, World's Best Bank for Wealth Management, the first time in many years, Best Bank and Best Investment Bank in Switzerland for the second year in a row, Asia's Best Bank for Wealth Management, etcetera, etcetera. So, on the next slide just three quick points.

One, we have delivered continued profitable growth in Wealth Management. Two, our Global Markets franchise is now performing strongly post-restructuring. And three, we have been driving Group returns higher. With that, I will now hand over to David.

David Mathers-Chief Financial Officer

Thank you, Tidjane. Good morning, everybody. I would now like to take you through our financial results in more detail.

For the second quarter, Credit Suisse had net revenues of 5.6 billion CHF broadly flat against the same quarter of last year. I would note though that is an increase of 4% against the first quarter of 2019 when net revenues stood at 5.4 billion CHF. Our Wealth Management related revenues increased by 4% compared to the second quarter of 2018 a reflection of strength across all three divisions. Revenues in our Markets activities rose by 3% year on year while our IBCM division continued to suffer both from the reduced industrywide levels of primary issuance and from the bias in M&A closings toward the final quarter of the year. This lead to a 30% reduction in revenues.

If we turn to costs, as we said before, we remain committed to delivering year on year productivity increases across our businesses and our operations, with the pace of reinvestment depending on the market and economic environment. Our total operating expense in the second quarter stood at 4.3 billion CHF, a 5% reduction compared to the same quarter a year ago. Overall, we generated a pre-tax income of 1.3 billion CHF in the second quarter, an increase of 24% compared to the second quarter of 2018.

Our effective tax rate for the quarter was 28%, marginally less than that of 29% for the first quarter, but substantially lower than the 38% that we incurred in the second quarter of 2018. Our guidance remains that we would expect our tax rate to be at around 30% for 2019 as a whole, including an estimate of 2 percentage points for the marginal impact of the BEAT legislation in the United States. We have accrued for BEAT at this level in the first half, however, I'd caution that we're still awaiting final guidance on this point which is now expected in the autumn. Including the benefit of the reduction in the tax rate, net income attributable to shareholders stood at 937 million CHF in the second quarter, up by 45% year on year. That equates to a return on tangible equity of 10% for the second quarter, bringing our year to date return on tangible equity to 9%.

In the appendix, I've included the usual walk across for RoTE showing the major variables related to our RoTE for the second quarter and for the first half of 2019. I won't cover these in detail now, but I think you can see that we've continued to deliver on all of the key strategic initiatives that we announced at the investor day last December.

Let's turn now to slide 29 and look at capital, please. Our CET1 ratio for the second quarter was 12.5% compared to 12.6% at the end of the first quarter. I'd remind you that as is our normal practice, we delivered our share awards to employees in the second quarter which reduced our CET1 ratio by 12 basis points. We also continued our share buyback program and so far this year we've repurchased 570 million CHF worth of shares. We turn to leverage ratios at the end of the quarter, the CET1 leverage ratio was stable at 4.1% which remains well in excess of the Swiss 2020 requirement of 3.5%. Our Tier 1 leverage ratio increased to 5.3% at the end of the second quarter. Again, well above our target level which as you know is to exceed 5%.

Looking at risk-weighted assets, they increased by 1 billion CHF to 291 billion CHF at the end of the second quarter. Just reconciling the moves, we saw increases of 2 billion CHF from net business growth across our divisions and 3 billion CHF of the regulatory-driven model and parameter updates. Those being offset by currency-related moves due to the quarter ended fall in the US dollar against the Swiss franc. I'd reiterate that we continue to expect thin related model and parameter updates to have a total adverse impact of approximately 6 billion CHF to 7 billion CHF in 2019 as a whole.

Our leverage expose at the end of the quarter stood at 898 billion CHF, marginally lower than 902 billion CHF at the end of the first quarter. That includes an increase of 8 billion CHF primarily in our Wealth Management related divisions, offset by 12 billion CHF of currency moves.

Let's turn to cost, please, on slide 30. Although we completed our three-year restructuring at the end of 2018 improving the productivity of Credit Suisse's operations remains a core focus for management. In the second quarter, total operating expenses amounted to 4.3 billion CHF, a reduction of 5% year on year. As you can see, for the first half of the year that equates to total operating expenses of 8.5 billion CHF of which 8.3 billion CHF would be our adjusted operating cost base stated on average 2018 currency rates. Just to put that in context, that equates to a 65 reduction from the first half of 2018.

Let's turn to our divisions, please, on slide 31. The Swiss Universal Bank generated 1.48 billion CHF of revenue, up by 4% year on year including the gain from the real estate in the quarter that Tidjane referred to. In terms of underlying business trends compared to the second quarter of last year, we saw some improvement in transaction revenues offset by weaker recurring revenues as well as some pressure on net interest income. Compared to the first quarter, though, our revenues increased by 7%. Included in the Swiss real estate game, that resulted in a pre-tax profit of 654 million CHF for the second quarter of 2019, equivalent to a return on regulatory capital of 20%. Without the real estate gain, our adjusted pre-tax income was 570 million CHF against 580 million CHF in the same quarter of 2018. Operating expense was reduced by 2% to 812 million CHF with a cost-income ratio of 55%.

Let me turn now to net new assets. We saw a further good performance in terms of net new asset accretion in both our private clients and our corporate institutional client businesses across the first half of the year. In private clients, we've seen total inflows at 4.5 billion CHF of net new assets in the first half including 1.2 billion CHF in the second quarter which took assets under management to 215 billion CHF at the end of the second quarter. We've also continued to see substantial pension fund inflows into our corporate and institutional client business. We've seen 36.5 billion CHF of net new assets in the first half, including 8.9 billion CHF in the second quarter. That's lifted CNIC assets under management to 411 billion CHF up by 15% year on year at the end of the second quarter.

Let's turn to slide 32 to look at International Wealth Management. Our IWM division delivered a robust second quarter with revenues of 1.37 billion CHF an increase of 2% year on year and a 3% increase in pre-tax income to 444 million CHF. The quarter also saw a record NNA level in IWM's private banking segment with 5.5 billion CHF of net inflows in the second quarter. If you look at the whole division including asset management, our net new assets totaled 14.1 billion CHF. Overall operating expenses increased by 1% in part as a result of the investment in growth regions. Whilst we remain very focused on continuing to increase the productivity of relationship managers both in terms of revenues and assets under management, I would note that since the fourth quarter of 2018 we've expanded by a net of 70 relationship managers. I'd also remind you that in the first quarter of 2019, IWM's operating expenses were reduced in part by the release of certain litigation provisions.

Private banking revenues were stable reflecting continued robust client activity and a higher dividend from SIX offset by a lower net in interest income and recurring fees as we saw clients move away from alternative assets to more risk-averse products such as fixed-income similar to the trends that we saw in the Swiss Universal Bank. The 5.5 billion CHF of NNA equates to an annualized growth rate of 6% largely from ultra-high net worth clients with solid inflows in both emerging markets and in Europe.

Now, turning to asset management we saw strong net new asset inflows of 8.6 billion CHF across both traditional and alternative investments. Revenues were up by 8% year on year with 5% growth in management fees. I think the continued strong inflows that we are seeing in our asset management business is extremely noteworthy at what is a difficult moment in this industry. This reflects the strength of our asset management model particularly in alternatives and its collaboration with our Wealth Management divisions.

Let's turn to slide 33, asset for Asia Pacific. Net revenues in our Asia Pacific division were broadly stable at 913 million CHF in the second quarter while pre-tax income increased by 9% to 237 million CHF. If we look at Wealth Management in connected, we saw a continued strong performance across our main businesses, private banking advisory, underwriting, and financing. Our transaction-based revenues in private banking increased by 15% compared to the second quarter of 2018 with private banking revenues up by 6% in total while advisory, underwriting, and financing revenues were 16% higher. Overall, we made a pre-tax profit of 216 million CHF in WMC, an increase of 29% compared to the same quarter of last year.

In private banking, we saw net new assets of 2.8 billion CHF in the second quarter following on from the 5.0 billion CHF that we received in the first quarter to take the total to 7.8 billion CHF for the first half of the year. That leaves us with total assets under management of 219 billion CHF for the Asia Pacific region.

Our Markets business continued to be adversely affected by the weakness in trading volumes across the Asian markets. On a US dollar basis, equity sales and trading volumes fell by 9% year on year while fixed income sales and trading fell by 29%. That's notwithstanding a stronger performance in our Asian credit franchise. However, combined with a cumulative benefit of the cost measures that we undertook during the quarter of 2018, we reduced total operating expenses year on year by 7% in our Markets operations leading to a pre-tax income of $21 million for the quarter.

Let's turn please to slide 34 and the Investment Banking and Capital Markets division. Our IBCM business continued to suffer from the industrywide fall in the primary activity that started in the first quarter and that's been exacerbated by the continued concerns over Chinese/US trade tensions slowing GDP growth as well as further macroeconomic and geopolitical friction as a result of the ongoing Brexit process in Europe. As you've already seen, fees across the Street fell by 23% in the second quarter compared to the same quarter of last year and our advisory business was impacted by a reduction in the number of transactions that we closed in the period. If we look at the progression during the quarter, we achieved revenues of $455 million which compares to $650 million in the second quarter of 2018 but is notably higher than the $357 million that we saw in the first quarter of 2019. It's noteworthy that our business continues to achieve strong rankings particularly in IPOs and in leveraged finance. I'd return to what we said last quarter, our investment bankers remain cautiously optimistic about the outlook and we continue to have a significant pipeline of deals to close albeit it is likely that the revenue recognition from these deals will be weighted toward the end of the year.

Clearly, given these market conditions, IBCM remained very focused on cost discipline. We reduced expenses by 15% year on year to $447 million and this combined with the increase in revenues quarter on quarter resulted in a return to profit in the second quarter.

Finally, let us conclude, please, with Global Markets. The significant momentum that we saw in our Global Markets business in the first quarter following the end of our 2015-2018 restructuring program has continued in the second quarter. We have continued to make further significant progress toward our strategic goal of leveraging our market and such activities into our Wealth business through our ITS joint venture between GM, IWM, and the Swiss Universal Bank. In particular, I would note that there are a number of successful joint product developments last quarter and these helped to improve our structured product penetration from 3.6% a year ago to 4.6% this quarter. We saw good momentum across all of our business, which combined with continued discipline in terms of expense and capital resource usage as well as the benefit of the reduction in funding costs that we talked about last year. Total revenues increased by 8% to $1.6 billion delivering a pre-tax income of $359 million. That's up from a $149 million in the same period of last year. That means that total pre-tax income for the first half of 2019 for GM came to $642 million.

Looking first at fixed income, we saw trading revenues in GM up by 11% which compares to an average decline of 7% in US dollar terms so far posted to the close of last night by American and European peers. It was a good performance credit overall but particularly for our securitized product operations where we continue to see further opportunities to grow this business. In equities, which you know has been a core area of investment for the last three years, we have seen a further improvement in our key sales and trading businesses. Equity trading revenues in GM were up by 3% compared to the 10% decline posted by our US and our European peers again to the close of last night. Like our peers, we did see lower revenues in equity derivatives but this was offset by an improved return on assets in our prime business and by market share gains elsewhere.

Turning to costs, we continue to see the benefits from our past restructuring measures with total operating expenses falling by 7% year on year to $1.2 billion for the quarter. We've remained very disciplined with the deployment of capital to the GM business with RWA and leverage uses similar to the level seen in the second quarter of 2018 and that resulted in a return on registered capital of 11% for the quarter and as Tidjane has mentioned 17% in terms of the return on risk-weighted assets.

With that, I would like to hand back to Tidjane to close the presentation, please.

Tidjane Thiam-Chief Executive Officer

Thank you, David. The next slide is a slide which we showed you at Q1 and that we have rolled forward for the first half to give you a more accurate and fuller idea of the revenue environment and the level of client activity in Q2. As you can see here, the close of 19 year to date has been punctuated by periods of low client activity with two sharp rebounds in risk appetite based on macro related use flow, namely trade tensions in central bank actions in March and June. Navigating through these markets requires our teams to stay close to our clients executing on transactions when windows of opportunity present themselves.

On the next slide, in the environment we just described, we have continued in Q2 to grow group net income, as you can see here, reaching 937 million CHF in the second quarter. And this takes our bottom line close to a billion CHF for the quarter with a 45% year on year increase and it is our highest quarterly net income since 2Q 15 four years ago.

On the next slide, you remember that at our 2018 Investor day we outlined a path to drive our returns higher even in a challenging revenue environment. This was based on executing against a number of known actions and we had said that we expected that we could achieve 10% return on tangible equity in a flat revenue environment because we didn't want to embed any strong revenue assumptions in our assessment. On the next slide, we have achieved a return on tangible equity of 10% in 2Q 19 which we said we could do with flat revenue which is more or less what 2Q was after a Q1 that had seen a year on year fall in revenue.

So, on the next slide, in the first half of 2109, we have been able to return about 1.3 billion CHF of capital to our shareholders. We have successfully launched our share buyback program and have bought back 570 million CHF worth of shares year to date and we have distributed 695 million CHF for no cash dividend which we remind you we plan to grow sustainably by 5% per item. Our capital position has remained strong with a CET1 ratio of 12.5% and a Tier 1 leverage ratio of 5.3% having absorbed significant regulatory RWA inflation.

I would like to close this earnings presentation with some perspectives on the current trading environment. We are seeing healthy levels of client engagement in 3Q to date so far July. Now, whether this translates into activity and deals remains dependent on prevailing market conditions. We expect the usual slowdown in revenues in 3Q as a result of a holiday season in many parts of the world. Regarding growth, we expect Global GDP to continue to grow for the balance of the year albeit at lower levels than previously expected. We expect market sentiment to continue to be impacted by geopolitical uncertainty and punctuated by periods of lower client activity that will not surprise anybody.

Finally, before we take your questions, Adam Gishen has asked me to make one more announcement. Please mark first the day the 12th of December in your diaries for the 2019 Credit Suisse Investor Day in London as usual. Our IR team will follow up shortly with more details. With that, I thank you for your attention and we are looking forward to taking your questions. Thank you.

Questions and Answers:

Operator

Anyone who wants to ask a question may press *1. If you change your mind and wish to remove yourself from the question queue, please press *2. Anyone who has a question may press *1 at this time.

The first question comes from the line of Andrew Simpson from Bank of America. Please, go ahead. Your line is now open.

Andrew Simpson -- Bank of America -- Analyst

The first question is on slide 37. It's good to see that things improved right at the end of the quarter. This disclosure is very helpful. But I just wanted to know is there anything that's always booked at the end of the quarter that we should look out for? Or is this actually pretty reflective of is this on a like-for-like consistent basis across all the months? And is that mainly in IB or is that broadly across all your businesses including Wealth as well?

And then, in APAC, you said that transaction revenue are up, deleveraging had stopped but recurring fees had dropped as clients still got more cautious as to allocation. So, it seems a bit conflicting there, whether clients are more confident or not. So, if you could talk around that a bit more, please, and whether there are any lumpy items in there that we shouldn't expect to repeat. NII in APAC looked particularly strong within the Wealth Management section. Thank you very much.

Tidjane Thiam-Chief Executive Officer

Okay. Thank you, Andy. Good morning. Yes, we hesitated to produce slide 37, because it does raise this question. But I think it's helpful to you to see also sometimes with caution. Because inside these quarters, things look very different, on each of these data points, January, February, March, then April, May, June. To answer your question the rebound in June was pretty broad-based. It was a much better month across-the-board.

And it's not surprising, if you go back it's really the resumption of U.S.-China talks combined with the kind of a reversal of feeling on the dovishness of lack of hawkishness of central banks. And we saw a big bump in the risk on sentiment and that benefited the businesses across geographies.

And the thing about the setup is that we have a lot of offsets. Diversification is really a good thing. There are points in the cycle where sometimes that's criticized but every time the cycle turns you find that achieving diversified is good. For instance, you can see that the decreasing spread has helped our SP, our securitized product business, very much in the U.S. because people refinanced mortgages and that has been very good for us.

So, we like the footprint. We think that we can do reasonably well across these variations, but this intra-year profile is quite, quite unique. In each of these quarters, we've had really bad months and really, really good months. Both March was the best month in 39 and June was the best month in 42. So, it is quite extreme, within a period of six months and it's a reflection of the environment. That's all I can say at this point.

Yeah, APAC, APAC has been a really interesting story. I think if you look sequentially -- first of all one thing. The makeup of revenues is quite different as you know. Transaction revenue is a much bigger component of Asian revenues than any other region. That's just completely structural. And net interest income is a smaller portion of it's like one-third, one-third, one-third. That's quite unusual. So, if you look at what happened, actually net interest income has gone up a lot sequentially kind of 15%. Transaction income has gone up 12%, and recurring is about flat at 1%. It reflects our strategy. I mentioned that we did this bundled leverage product. In Q1 we had a lot of discussions, Helman and the team, because transaction revenue was weaker and also with the PB teams to say how do we drive transaction revenue up? We run at kind of 2 million CHF per day average trading revenue. And we've gone to 2.2 million CHF. We've also put in place ultra-high net worth trading initiatives. That's also with Ivana's arrival. And that's been quite helpful.

And then we also took specific initiatives. We saw the U.S. dollar being very strong in Q1. We saw a lot of our clients wanting to come out of the U.S. dollars in Q2, so we did a lot of FX in Q2 particularly into cable and to other currencies. That generated tens of millions of revenues. We sold call and puts that worked very well because as markets were very volatile people wanted to sell on via buy on the dips and that have generated comfortable revenue.

We've got good revenues in Fixed Income and I could go on and on and on. It's a myriad of initiatives that we take, but we're quite confident that given the quality of the relationships, we are able to do this in various market conditions. So, that strength in transaction revenue we think is there to say. Recurring we have also changed now the incentives for the RMs, and we're starting -- we saw that actually between July, -- but we're starting to see an improvement in mandate sales which have also been stronger. So, the recurring will come back. And the NII and AFG had a very strong quarter, second best I think our financing group.

So, overall, we have broad relationships. Yes. The environment moves around us, but we take advantage of it. To be transparent we are aware things are more difficult on the Markets side, where really, you've seen the numbers you've seen the Equities and the volume going down. That remains a challenge.

Andrew Simpson -- Bank of America -- Analyst

Okay. Perfect. Thank you very much.

Operator

Thank you. Your next question comes from the line of Jernej Omahen from Goldman Sachs. Please, go ahead. Your line is now open.

Jernej Omahen -- Goldman Sachs -- Analyst

Good morning from my side as well. I have three questions, please. The first one is on the outlook statement and I think the outlook statement covers a lot of topics, but it doesn't make a reference to what are likely to be lower rates globally in the second half of the year. I wanted to ask from your perspective, what is the ability of Credit Suisse to pass on lower rates, particularly in Switzerland if they're cut again to your customers? And can you broaden the scope of customers to which negative rates are charged?

The second question is on Page 35, just on the equities results. So, the US banks I think were down 8% in equities year on year on aggregate. Credit Suisse has outperformed here again. What portion of this outperformance is driven by these ITS revenues?

And then just a simple question. I think David made a reference to the penetration of structured products rising by a percentage point from 3.6% to 4.6% within 12 months. Is your expectation that this continues? Do you see healthy demand for this product? And can you just remind us exactly what the definition of this 4.6% actually is? Is it as simple as taking the balance of structured product to AUMs or is it more new ones?

And the last question is just very straightforward. So, litigation in the first half of the year was 55 CHF, restructuring was zero as far as I can tell. For the second half of the year, is it fair to extrapolate these two figures? Thank you very much.

Tidjane Thiam-Chief Executive Officer

Okay. Thank you, Jernej, and good morning. I did count four questions, but that's OK. It's three. On the outlook, as you know if you look at NII, first of all, we have been less exposed and we are less dependent because of our strategy and footprint for yield curve and interest rates than many of our peers which hurt us when the yields weren't going up, but protects us when the yields are going to go down. So, that's one.

Two, if you just look at the numbers where NII is a major component of our income is in Switzerland as you rightly pointed and there we have a number of things we can do. We are going to take measures to protect the NII that will concern deposits and that will be announced by the Swiss bank. We'll do that in a responsible way and quite targeted, but we are going to do that and that will help the NII. The second one is what we did in Q2 which was tactical which is to sell some real estate assets, but we think that is a perfectly acceptable answer in a negative interest rate environment that drives real asset prices up because people are looking for yield.

So, we think that in sub we have a good strategy to defend the NII. I've talked about APAC, but APAC is the smallest and I think it's important to take this regional approach when we talk about NII for us because it's very different from one business to another. But there also, we have very strong relationships. We think that the NII is going to remain strong. Where we have the most like some of our peers is in IWM which is largely a dollar business. But you've seen also there that we have something you mentioned which is ITS and that we have a really, really strong ability to generate large deals which protect the income.

And I'll make the same comment I made earlier, the costs in IWM have gone up mostly as a result of the investment that we're making which is deliberate in the RMs. So, overall, yes, you've seen the numbers. NII under pressure, but we have an ability to drive that up again. If you see sequentially, it's up everywhere including in Switzerland Q1 to Q2. So, that shows you the measures starting to come through. And our strategy is a broad one, so it's not just yield curve dependent.

David Mathers-Chief Financial Officer

There's one other point which I think is worth reiterating. I think you've obviously focused on net interest income, but if we actually look at our total net interest build, you should remember obviously that we went through a very substantial restructuring of our AT1 instruments last year and the savings from that I think we guided to being at least 700 million CHF. I'm not going to give an update today, but will it exceed 700 million CHF. So, I think a lot of the things we're doing ourselves, as Tidjane has referred to already, will actually benefit us.

Tidjane Thiam-Chief Executive Officer

Then you asked what's the role of ITS in the equities progress. Well, it's one of the components. If you look at the equities story, we've said we want to be a top-five. We're very close. We've been closing the gap to the top five. You're talking a few million now versus 200 million or 300 million CHF a year ago and we've gained market share across the board. We've done better in prime. I mean, last time I went in detail over the measures what we did to optimize the balance and you saw the leverage go down in prime. We've picked up new balances in the last quarter in Q2.

We now put the derivatives, yes, things have been less favorable, but still we believe are gaining share and ITS clearly plays a role in that. And if you look at the first six months, yes, ITS has been a significant component of our progress. It's really progress across the board. Keep in mind we're number four in Asia. We're number four in prime in Asia. So that strength in Equities we think is there to stay.

And one last comment is on AES, our automatic trading platform which we've really revamped and we're regaining market share. So, clearly, during the restructuring, we have lost share. We've come back with a completely different business. I think we've rotated 50% of the MDs in equity also 40% or 50%. Its new people. The leadership team is new, new technology, and we've been gaining share almost with every client. We do these reviews. We can see how year over year we ranked higher and higher and we expect this to continue and ITS is a portion of that.

Penetration, yes, it's up. When we gave you guidance, we said that 8% was a reasonable penetration rate and we're tracking toward that level. But David you want to give the definitions we use?

David Mathers-Chief Financial Officer

Yes, I think it comes from a report which is produced annually by shall we say a well-known management consultancy. And essentially, the numerator clearly is the products that were actually sold to manufacturers. The denominator includes sales through our external asset management base, excludes retail and that obviously includes the NAB Bank, Neue Aargauer Bank as well. So, it's a consistent definition. As Tidjane said, at the Investor Day, I think we talked about top quartile being 8%. So, I think the answer is yes, we would expect it to continue and it was one of the core objectives for the ITS formation.

Tidjane Thiam-Chief Executive Officer

And I think the last point, Jernej, was on litigation. Look we've been explicit that we would work hard to try and get adjusted and reported close from there. I think adjusted is 1273 million CHF? Yes, 1273 million CHF to 1302 CHF. So, 29 million CHF is the closest we've been. So, we've moved in that direction. As you noted litigation was low. We do have a pipeline of legacy cases that are still being dealt with. You can pick that up from time to time in the media. So, I wouldn't want to make a forward-looking projection, but from time to time it will be higher than it's been in this first half.

Jernej Omahen -- Goldman Sachs -- Analyst

Just a short follow one. On this ratio of 4.6%, is the ratio on revenues or on AUMs?

David Mathers-Chief Financial Officer

No. It's revenues.

Jernej Omahen -- Goldman Sachs -- Analyst

Revenues. Thank you very much.

David Mathers-Chief Financial Officer

It's revenues.

Tidjane Thiam-Chief Executive Officer

I'm sorry on litigation. Just one thing on restructuring, also from time to time we will have some restructuring charges, but we will take them through the P&L because restructuring is finished, the official restructuring and we'll go for a normal P&L. Yeah. Okay.

Operator

Thank you. Your next question comes from the line of Kian Abouhossein from JPMorgan. Please go ahead. Your line is now open.

Kian Abouhossein -- JP Morgan -- Analyst

Yes, hi. I have two questions. One is IBCM first-half revenues down $30 million costs minus $5 million. You're going from an ROE the year on year first half. You're going from a 15% ROE to a loss. You indicate the environment getting better, but let's assume it turns worse. How much cost flexibility do we have in this business considering that you're more or less done with your restructuring as you state?

And then the second question is on WM and IWM, really more of a geographical factual check that I wanted to do. How much ultra-high net worth net inflows have you seen? And what are the cash positions in these regions? Thank you.

Tidjane Thiam-Chief Executive Officer

Okay. Thank you, Kian. Good morning. On IBCM, we've been quite transparent about the dynamics. We've frankly done well in some portion, and I think when you do -- some of your peers do, but -- when you do a general global analysis of IBCM at a bank's level, our share of wallet is about flat year on year at around 8%. You can redo the calculation that's what you'll find because we've been number one in Asia, number one in Switzerland, and have had a few unfortunate situations in M&A.

What's happened is we've had a higher proportion of our deals canceled or postponed than other players. That's all that's happened. Always we had our natural share of announced deals, and when you get to that level of granularity in a given quarter, all those movements can happen. So, we don't read too much into this number. As I said, we're in the top five globally on IPOs. We did six of the top 10 IPOs in the year. So, we don't see anything broken here.

Now, on the structure economics of the business, as you know yourself, it's a relatively high-cost income business, because it's a people-intensive business. Therefore, the answer to your question is yes, there is flexibility, and you'll see that in the comp accruals. We have pressed down pretty hard on the comp, but we've taken few measures also already on headcount in July that you see coming through that Jim took, some rightsizing. So, really, we are, I think expenses from memory were down 14%.

David Mathers-Chief Financial Officer

15%.

Tidjane Thiam-Chief Executive Officer

15%. Okay. So, it's significant in a business of that scale. We're doing what we can to flex the cost, but this franchise is absolutely vital. There are ultra-high net worth clients a lot of them as through IBCM. It's really the kind of figurehead of a bank, the kind of deals in which we participate. Our ECM capabilities are our key to a relationship.

If you take the flows, just to mention one if you take the flows in Switzerland, a large part of the flows that Thomas had are on the back of IPOs and the connection between IBCM and the ultra Wealth Management business is extremely strong. IBCM in Asia referred more than 1 billion CHF net of NNA to the Private Bank in Q2. So, really there are synergies everywhere.

And IBCM, as we presented, supports very much what we're doing in APAC and IWM. We see it as a core franchise. As I said in my remarks, we will invest. We're not thinking of cutting anything. We're investing in technology and healthcare, and I think we're going to invest 20 million CHF to 30 million CHF over 2019 in recruitments, a number of which have already been made. So, we're quite good.

The second one is IWM. Actually, a high proportion of the flows structurally are ultra in IWM. I think 60% or 70%, we can say, yeah? And sometimes higher even up to 80%. So, very high. And actually, the other thing on cash is that actually for us, we've seen the cash balances go down one-point Q1 to Q2 from like 30% to 29%. We have not seen what others have claimed. Our clients have put their money to work. We focus on that very much, and that's what you can read in the transaction revenue being up so strongly in both IWM and APAC. So, we have not seen the level of cash that others have seen.

Kian Abouhossein -- JP Morgan -- Analyst

May I just ask also the same for Asia WM?

Tidjane Thiam-Chief Executive Officer

Sorry, Kian, what about Asia?

Kian Abouhossein -- JP Morgan -- Analyst

Yeah. Sorry, the same numbers if I may just in terms of ultra net new money and in cash wealth management.

Tidjane Thiam-Chief Executive Officer

It varies from one quarter to another, but yeah. I think two-thirds, yeah, 70%, 80%, yes, absolutely. That's why we keep talking about it because it's really core to the strategy and the performance and that's also where our emphasis on trading capability, execution platform, Global Market, IBCM, really makes sense because for all the ultras it's extremely important.

David Mathers-Chief Financial Officer

And cash balances in Asia was 26%. That compares to 27% for 2018.

Tidjane Thiam-Chief Executive Officer

Okay. So same trend.

David Mathers-Chief Financial Officer

Yeah. Same trend.

Kian Abouhossein -- JP Morgan -- Analyst

And very briefly lending pressure, we hear from peers there's some pressure on lending margins in the Wealth Management businesses. Do you see similar trends, because you've been very resilient from what I can see?

Tidjane Thiam-Chief Executive Officer

No. We haven't seen that, Kian. We've heard that comment. The only place, to be transparent, where we've seen funny behaviors is deposits when people chase deposits. Particularly in Asia, we've had clients call us. We've had about 2.8 billion CHF is after about 2 billion CHF of ARPUs, and these are what we call deposit rates. People who pay above-market rates for deposits, and we do not participate in that. We think that NNA only makes sense accompanied with PTI. And if I relax the PTI constraint, I can achieve any level of NNA.

So, it's NNA and PTI. And I say in my remarks, I believe our PTI at 164 million CHF in our Private Bank is the highest in Asia in absolute terms this quarter, although some players are much bigger than we are. So, that can maybe give you some indications of the level of financial discipline that's present.

Kian Abouhossein -- JP Morgan -- Analyst

Very helpful. Thank you.

Tidjane Thiam-Chief Executive Officer

You're welcome.

David Mathers-Chief Financial Officer

One clarification to Jernej's question by the way. The 4.6% is the percentage of asset under management, not revenues, please.

Tidjane Thiam-Chief Executive Officer

It's AUM. Yeah.

David Mathers-Chief Financial Officer

AUM.

Tidjane Thiam-Chief Executive Officer

Sorry, Kian. Yeah. The penetration is as a percent of our AUM.

David Mathers-Chief Financial Officer

Yes. Correct.

Operator

Thank you. Your next question comes from the line of Daniele Brupbacher from UBS. Please, go ahead. Your line is now open.

Daniele Brupbacher -- UBS -- Analyst

Yeah. Good morning and thank you. I wanted to ask about the 2019 targets and then also on funding cost. On the target, you obviously showed us slide 39 with a 10% and if I recall correctly that implies a stated net profit of around 4.4 billion CHF, which itself I think implies an average run rate for the remaining quarters of around 1.2 billion CHF. So, I was just wondering, how you feel at this stage about this target and whether you still think it's achievable? Just in your mind, is it mainly driven by probably costs trending further down, or is it more on the revenue side, bearing in mind seasonality, and that's really on the targets for 2019?

And then, briefly, David, during your prepared remarks you mentioned reduced funding costs in the context of GM and then you also briefly touched upon the $700 million. Could you just tell us how much of that is already in the number as a run rate and for the Group, overall, and specifically, within Global Markets I think a bit less than half of the $700 million was supposed to show up within Global Markets? Thank you.

Tidjane Thiam-Chief Executive Officer

Okay. Good morning, Daniele. Look, the target, we took a philosophy, which is why our slide, whatever it is, 39 is a bit different from others, because we had a lot of discussions internally. The problem you have as a bank is how do you give an ambition, I prefer to say ambition than the target, that doesn't have an embedded revenue assumption. So we said, we should guide the market to a number that is achievable without making any assumptions about the yield curve or revenue, etcetera. I wanted a very clean ROTE ambition. And that's how we came up with 10% and we showed you the walk-through. We don't really want to call it a target, because we never said that we could do 10% irrespective of market conditions, it's 10% with flat revenue.

If there's a bit of a tailwind, definitely more, 2019 compared to 2018, to be fair. And if there is a bit of headwind, a bit less, which is what you saw in Q1. Of course, we work hard to mitigate any revenue loss. We showed you in Q1, reflects with cost down. We mitigated a portion of revenue, but we also have to keep an eye to the franchise, etcetera, etcetera. And it cannot be one for one.

So, 2019, I'm not going to give you a revenue forecast for H2, because that's the only way to answer that question effectively. So I think, if revenue, overall, is flat year on year, which is a possibility, we should get close to 10%, but if there was a big lag down somehow in revenue, we would do, of course, our best flex with cost base, do all those good things to protect the bottom line. But then 10% probably would not be achieved. I think that's the most I can tell you at this point in time.

Daniele Brupbacher -- UBS -- Analyst

Yes. No, that's good.

Tidjane Thiam-Chief Executive Officer

Yes. I'm sure you'll ask me again at Q3 and I hope I can be more precise.

Daniele Brupbacher -- UBS -- Analyst

Of course. Okay.

Tidjane Thiam-Chief Executive Officer

Okay. David, funding?

David Mathers-Chief Financial Officer

Yes. I think your second question was on funding cost. I think what we said last year is that the restructuring measures we took, together with the runoff of certain positions within the SRU would reduce our group's funding cost by at least $700 million, of which at least $300 million would actually be in the Global Markets division.

I'm not really going to add to that now. I would merely say that we will exceed both of those numbers, both in total and for the Global Markets division. And in terms of the run rate, yes, it was in from the beginning of this year. As you may recall, we completed the majority of those measures in the third and fourth quarter of last year.

Daniele Brupbacher -- UBS -- Analyst

Thank you. That's very clear.

Tidjane Thiam-Chief Executive Officer

Okay. Thanks, Daniele.

Operator

Thank you. Your next question comes from the line of Andrew Coombs with CITI. Please, go ahead. Your line is now open.

Andrew Coombs -- CITI-- Analyst

Good morning. First one technical question and one broader question on Global Market. The technical question will be looking at the gross margins, you gave quite a lot of detail on the improvement in Asia. If I look at the improvement in the Swiss Universal Bank, the vast majority of the improvement in the gross margin appears to be due to other revenues, which has gone from 30 million CHF to 87 million CHF. If you could just clarify what's driving the increase there and whether that's one-off in nature?

And then my broader question on Global Markets, you've talked a lot about the changes you've made in equities. You're clearly taking share there. Perhaps what's a bit more surprising is that you're also continuing to take market share in fixed income. Obviously, you have more of a bias toward credit and securitized products, but could you just elaborate a bit more on how you see the outlooks for those businesses going forward, particularly, if we do have a more dovish central bank environment across both the US and Europe? Thank you.

Tidjane Thiam-Chief Executive Officer

Okay. Good morning, Andrew. Thank you. David, do you want to take the gross margin?

David Mathers-Chief Financial Officer

Yes. I think, Andrew, I mentioned it actually in my comments that we had an 87 million CHF real estate gain in Switzerland here in the second quarter. It's also, we gave a breakdown in the MD&A as well. So, if you actually look at the margin trends on page 48, if you actually exclude that -- and, by the way, I think, it's very important to focus on net margin, not gross margin. Net is what really counts. The net margin will be flat at 51 basis points compared to 2Q 18.

Tidjane Thiam-Chief Executive Officer

Okay. And your next question, I think, was on GM. And I think you're right, yes, we've been gaining shares both in equities and fixed income. If we were to give you more color on fixed income if you wish our Global Credit Products, which we call GCP, has had its healthy revenue quarters since 1Q 18. It was the best investment-grade trading quarter since 1Q 16, and that was largely driven by franchise investments. We were a top-three leveraged finance capital markets player, despite the declines you've seen in leveraged loans and in single-B issuance.

And if you move to securitized products, we saw a continued rotation from the private label into financing and agency businesses. The health agency revenues we've had since 1Q 17 was driven by the low volatility of rates and also more dovish statements from central banks. And that is why I talked about offsets in our portfolio, but people don't always take into account and that's why we like our footprint despite all the pushback on securitized products, we've kept it. It's a very good franchise. It's high returns and it complements very well what we have. And it's had its 10th consecutive quarter of year on year revenue growth driven by strong new issue volumes.

And finally, the kind of fixed income, linked to wealth management also did OK despite a very high comparative in 2Q 18. Those higher insurance, we were number one ranked in structured product for 1H 19, and we benefited from increased volatility in EMEA. So really, I mean, it's a long list of things. I know people had a bearish view on credit. A lot of times a lot of bears on our stock but it didn't turn out to be the case. I mean credit has been a strength for us rather than a source of weakness.

Andrew Coombs -- CITI-- Analyst

I mean, I'd assume a more dovish environment would be supportive for credit but I just wanted to check in on the prepayments on the securitized products side because I guess that's one area of risk?

Tidjane Thiam-Chief Executive Officer

No. I think it's not a big issue for us.

David Mathers-Chief Financial Officer

I think, Andrew, the business is perhaps more diversified than is necessary. It's way beyond just being a mortgage servicing business.

Tidjane Thiam-Chief Executive Officer

Exactly. We like that footprint. I mean, it really allows us to ride the cycle. I think we showed that at Investor Day, the performance of the business through various cycles. And we have changed the balance. We've been trading and financing revenues, and we can flex that across the cycle. I think that's one thing people often don't take into account enough. We're not static. The business has proven its ability to really change significantly depending on the prevailing conditions.

Andrew Coombs -- CITI-- Analyst

Okay. Thank you.

Tidjane Thiam-Chief Executive Officer

Okay. Thank you, Andrew.

Operator

Thank you. Your next question comes from the line of Magdalena Stoklosa from Morgan Stanley. Please, go ahead. Your line is now open.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Thank you very much, and good morning. I've got a little bit more of a kind of a longer-term question because I don't want this to focus only on 2019 although I will kind of reference the slide 39. When we look at the normalization of your return on tangible post-restructuring, of course, we've got this really nice path from the perspective of what helps the SRU the funding cost that we've run through. But there is a significant part kind of going forward which kind of has to be operational on a PTI level across the businesses so they will have to execute against your client penetration goals, your growth goals, your asset accumulation. Of course, ITS helps across the business as well.

But, Tidjane, when you look at the last six months, what is your assessment of more of that kind of business operational side of your normalization of return on tangible that you've delivered versus still a quite tough environment in terms of kind of client engagement and markets? And to a degree how do you see it going forward? Again, where are the kind of the operational business from the perspective of that normalization of return on tangible not this year, but let's just say throughout this year into 2020 as well? So, that's my first question.

And the second question is really about the efficiencies that you continue squeezing out on the operating cost side. How do you see it from here because, I assume that it gets tougher, but you still continue to talk about that 2% to 3% annual efficiencies which you're aiming for? Thank you.

Tidjane Thiam-Chief Executive Officer

Okay. Thank you. Thank you, Magdalena. It's an important point. How do we think about the kind of long-term in the operations? I think we really have a lot of things. I start on the Wealth Management side and I start with AUM. It's really, really important. 59 billion CHF is a record NNA for H1. 59 billion CHF is a record, the best we've ever done. It's the size of a reasonable player in Asset Management and we are very focused on that because we think that's the biggest profit driver. If you get a sense, I know we claimed 797 million CHF of AUM, I think we need to get to 1 trillion CHF. That's kind of the ambition because that will add sufficiently to the bottom line so that the RoTE becomes less volatile. So, that's something we're absolutely focused on. Keep the positive leverage because to go to PTI, we showed you that we've been growing revenue CAGR at 5% in Wealth Management. It's a very good number, a very powerful number. And I think we can continue doing that maybe not every quarter but over two, three years we can continue doing that and that's going to be very, very, very useful.

ITS, yes, plays a huge role in that because at the margin we outperform, and we can produce quarters like Q2 because of the unique things we can do particularly for ultra clients and that's a huge success. It's a very promising thing in Asia. And I hear your frustration about the fact that we don't disclose the numbers, but ATS is already having an impact in Asia in terms of new products, new flows, AUM, NNA, and that's going to continue. So, all these elements are long-term trends that are going to continue.

The GM also the platform is a big upside. You start to see now the economics and please don't go raise the H2 GM numbers too quickly. But you start to see the economics of that coming through. I think having a really efficient platform and then bringing on revenue, it's again operating leverage plus 8% revenue plus/minus 7% cost. There is more we can do in Asia in markets. We all know that we're not quite where we should be and there's a lot of thinking also there about how to grow revenue. There are things we can connect better versus prime in Asia, prime in Global Market need to work better together and equity derivatives too. That's kind of an ITS/ATS story we need to work toward better. There's a big upside there.

IBCM has an upside. Remember we have 200 million CHF lower revenue in IBCM this year versus last year. That will be added to the bottom line. So, as we invest in technology and healthcare, which are really crucial. Just look at the structure of the economy today. We have to be stronger in those two fields and Jim is very focused on that.

And finally, I would add the kind of 2% to 3% that you mentioned productivity improvement, which is the core and probably may lead to a next question which really is, how we make our budgets. For a very simple reason, that's kind of the rate of productivity increasing for world economy and we believe that if you are not at least doing that you're falling behind as an operation. So, we build that in our plans. It's a very tough discipline, but we build that in our plans. And as you saw this quarter when necessary we can go beyond that. We don't necessarily want to go beyond the 2%, 3%, 4%, but we made 5% this quarter because the environment was what it is. So, sorry for the long answer, but really a lot of very important long-term trends.

And there's also that slide G20 slide that we showed you. There are a number of countries where actually the pivot we've done for the Group is not completed yet. If you take Australia, people see us as an investment bank and we want to be a wealth manager with strong investment banking capabilities, and I see Helman nodding in the room. We have absolutely a plan to do that in Australia. That's a big upside. If you look at how much AUM we have there today, it's out of whack. Korea, it's the same thing. It's a great wealth management market and we haven't done really much there. Not to say, nothing. Japan, same thing. We have negative interest rates and the willingness of wealthy Japanese to diversify and go abroad. We have capabilities. We're investing. We're recruiting. We're investing in a private bank there.

India, the same thing. We're doing a lot of business with the NRIs, but we could do more. Brazil same thing, Mexico. So, there is also just more of the same using our formula and extending it to underpenetrated territories, which we believe should also generate a lot of growth. I don't know if that answers your question. Those are kind of the things we think about two, three years down the road.

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Perfect. Thank you very much.

Tidjane Thiam-Chief Executive Officer

Okay. Thank you.

Operator

Thank you. Your next question comes from the line of Jeremy Sigee from Exane BNP Paribas. Please, go ahead. Your line is now open.

Jeremy Sigee -- Exane BNP Paribas -- Analyst

Thank you, good morning. These are just follow-ups actually on a couple of specific points. So, the first one was you mentioned the cost in IWM Private Banking are a little heavier quarter on quarter and you linked to RM hires. Are there any one-off elements in that or is that a new base level with those people onboard? That's my first question. Secondly, in IBCM, you talked about you've been a bit unlucky with some of your announced deals being canceled or postponed. Do you get a sense that you go into the second half with a bigger backlog than peers because of those deals that are sort of carrying over or are most of them gone and not likely to come back?

Tidjane Thiam-Chief Executive Officer

Okay. Thank you, Jeremy. Good morning. On the cost, David, you want to comment cost of IWM?

David Mathers-Chief Financial Officer

No. I don't think you should see as any particular one-off fees. As I said when I spoke, I think the focus across all of our Wealth Management businesses has been to improve RM productivity, whether we think about that in terms of revenues per RM or in terms of assets under management. But I think, as Tidjane said, and we just had the slide up slide 16, we do think about our Wealth Management business on a country-by-country basis and what we can actually do in each country and that does basically mean occasionally we need to add to our RM salesforce to actually build that business. And that's what we did, and I think we'll carry on doing it selectively as we look at the markers that we highlighted on page 16. But there were no particular one-off payments or anything like that.

Tidjane Thiam-Chief Executive Officer

No. And also on RM just to add to that. This is something we track very closely, and I can tell you we've been hiring in IWM quite a bit, but we were also pruning at the same time. So, you haven't seen a net increase. It's the first time you see a net increase, but we track very closely the performance of the people we hire, and we bring them on a very stringent term. And I can tell you that the ones we hired since 2016 have generated more than 20 billion CHF of NNA in IW.

So, by any measure, it's been a high return on investment spend. So yes, it shows up in the cost, but it's really, really an investment, and we treat it as a business investment that has to meet a certain return and it has been very good for us. On M&A and IBCM, we are skewed toward 4Q based on kind of my discussion with Jim. And I think so that's where you're going to see hopefully a better revenue. Yes.

Jeremy Sigee -- Exane BNP Paribas -- Analyst

On the IWM point, because I think as you referenced, you went through a phase where the investment was self-financing. You managed to find savings to offset investment spend for much of the last year or two. Is that sort of phase less relevant now? Is it now more sort of net increases in cost as you make investments with attractive returns?

Tidjane Thiam-Chief Executive Officer

Yes. No. Look it's a fair point, but what I really look at is the return on capital. So, what I've done is I've given up three points of return on capital. When you have a very high return business, you have to be careful not to kill it. And for me going from 32% to 29%, perfectly acceptable. If that's a price I have to pay to make sure that the business continues to be attractive, it hires good people, it's way, way, way above the cost of capital. I just tend to think of our business as longer-term than just like a quarter. Then, there's a point where when you've driven profitability that high, it's sensible to invest also. I think that's kind of how we look at it.

Jeremy Sigee -- Exane BNP Paribas -- Analyst

Very much.

David Mathers-Chief Financial Officer

I would just keep this in proportion. If you actually do look at the detailed numbers on page 45, it was 640 million CHF in the second quarter of 2018 and it's 642 million CHF in the second quarter of 2019. If you're comparing to the first quarter, you may remember I did note that the first quarter benefited from the release of certain litigation provisions. So, I think please put this into context. As I said, I think the IWM team has done and is doing a fantastic job in terms of driving net new assets and improving productivity. There's plenty of opportunities there in terms of what we can actually continue to do. I think it is noteworthy that the RM count was up by 70 net in terms of those numbers, but do keep it in the context on page 45, please.

Tidjane Thiam-Chief Executive Officer

Yes. But it will remain a high return on capital business, which is really how we drive the business. Maybe another general point about the strategy. We've told you before we're really focused on PTI, absolute PTI and return on capital. So, if you take something like the ultra strategy, in the short-term, it dilutes the margin because every time an ultra brings you 500 million CHF. I mentioned 300 million CHF of NNA of the ultra in Japan, a kind of margin-focused strategy would tell you don't take that 300 million CHF because it will definitely dilute your margin in the short-term. But we believe that the benefits and the money and the revenue we can make from them is really worth it. And really, it's very accretive over time. So, we look at the return on capital. We look at PTI and margin possibly over the long term, but not necessarily quarter-by-quarter because that can really lead to a wrong decision.

Operator

Thank you. Your final question comes from the line of Benjamin Goy from Deutsche Bank. Please, go ahead. Your line is now open.

Benjamin Goy -- Deutsche Bank -- Analyst

Yes, hi, good morning. One on capital and one on loan growth. Can you speak a bit more detailed about the outlook for H2? Is there anything you can do on the management side of the RWAs to improve the CET1 ratio? And also, you mentioned the FINMA impact for 2019, it seems like we have already a significant external amount or impact in H1, so maybe you can reveal what is kind of left from FINMA for H2 because I guess not everything on H1 was FINMA driven?

And then secondly on loan growth, now with the different interest rate outlook, is there a bigger focus for you on loan growth? And then, is it also from the client-side is there more demand for structured lending solutions here? Thank you.

Tidjane Thiam-Chief Executive Officer

Okay. Good morning and thank you.

David Mathers-Chief Financial Officer

Yes. The first one, you're correct. We've taken a cumulative over the first quarter and the second quarter external methodology driven by FINMA changes of 5 billion CHF across the Group and our guidance remains for a total of between 6 billion CHF and 7 billion CHF for the year. So, you've seen most of it actually in the first half. That's not particularly surprising. You may remember, when we spoke, I think it was a couple of quarters ago at the fourth-quarter numbers, the majority of the changes were actually phase as well as an up-front component. So, it's more exactly what we would have expected. That's all I'd say at this point.

Tidjane Thiam-Chief Executive Officer

And if I can just make a comment in passing on capital and CET1. It's important to look at CET1 but also at the absolute amount of capital because we will have short memories and often we forget that the definition of CET1 keeps changing. If you look at the total capital, CET1 capital, it's higher and higher and we actually believe that we have the highest in Switzerland in absolute terms.

So, we can't just look at the ratio because if you look at cumulatively, we've taken 47 billion CHF of RWA increase out of 291 billion CHF. That's enormous. So, when you see a decrease, a noticeable decrease in the CET1 from 13.3% three quarters ago to 12.5%, it's largely a function of methodology changes. It's not a weakening of our capital position because our absolute capital is actually higher. And on the old basis, we're at 14.9% CET1, not at 12.5%. I have said that I'm not always very focused on the ratio, but it's worth when you analyze the strength of the respective companies looking at the absolute amount of capital that really matters too. We've added a lot of absolute capital and that's not always reflected in the CET1.

David Mathers-Chief Financial Officer

I mean just to confirm the number at the end of the second quarter 2019 which you will find on page 57 of the financial report was 36.4 billion CHF, which as Tidjane said, we believe to be the highest CET1 of any bank in Switzerland.

Tidjane Thiam-Chief Executive Officer

And we don't have a CET1 ratio in Switzerland, but we have the highest CET1 capital. So, it's always good to keep in mind that that ratio doesn't tell you the whole story. Leverage is very important, and you don't see any reduction in our leverage ratio over the quarter.

David Mathers-Chief Financial Officer

Which we increased to 5.3%.

Tidjane Thiam-Chief Executive Officer

It's actually increased. Anyway. They always tell me not to make this point, but I still make it. It's really important. It's really important. CET1 is a metric that changes every three months. So, one point of CET1 is not always one point of CET1 if you understand what I mean. So, what I'm saying is fine, let's focus on CET1, but let's not forget absolute capital because absolute capital matters and we have the highest capital of all banks in Switzerland.

David Mathers-Chief Financial Officer

And as Tidjane said, the Tier 1 leverage ratio is independent of that. 4.1% CET1 leverage.

Tidjane Thiam-Chief Executive Officer

It's 5.3%.

David Mathers-Chief Financial Officer

5.3%.

Tidjane Thiam-Chief Executive Officer

Loan growth.

David Mathers-Chief Financial Officer

Loan growth? I think in terms of our strategy on loan growth, it is part of how we actually think about a client. When we offer loans to our client's part of the overall service we actually do. I think we've seen some releveraging now particularly in the Asia Pacific from where we were a year ago. You may recall, we did talk about deleveraging and we've seen that return to more normal levels and that's been part of the reason why NII growth has been higher in the Asia Pacific than elsewhere.

But we don't set targets per se for loan growth. It's part of what we look to offer our clients. We offer them wealth management advisory. We offer them financing to support them in what they're doing. And clearly, we offer them all the products through ITS and ATS to support their businesses, but we don't chase loan growth. I don't think that's part of our strategy.

Tidjane Thiam-Chief Executive Officer

Absolutely.

Benjamin Goy -- Deutsche Bank -- Analyst

All right. Thank you, very much.

Tidjane Thiam-Chief Executive Officer

Thank you. Thank you.

Adam Gishen

Okay. That brings us to the conclusion of the presentation. I guess, we'll hand over to the operator just to close things up formally.

Operator

That concludes today's conference call for analysts and investors. A recording of the presentation will be available about two hours after the event. The telephone replay function will be available for 10 days. Thank you for joining today's call. You may all disconnect.

Duration: 93 minutes

Call participants:

Adam Gishen -- Head Investor Relations 

Tidjane Thiam-Chief Executive Officer

David Mathers-Chief Financial Officer

Andrew Simpson -- Bank of America -- Analyst

Jernej Omahen -- Goldman Sachs -- Analyst

Kian Abouhossein -- JP Morgan -- Analyst

Daniele Brupbacher -- UBS -- Analyst

Andrew Coombs -- CITI-- Analyst

Magdalena Stoklosa -- Morgan Stanley -- Analyst

Jeremy Sigee -- Exane BNP Paribas -- Analyst

Benjamin Goy -- Deutsche Bank -- Analyst

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