Oct 29, 2014
Executives
Caroline Stewart - Sergio P. Ermotti - Group Chief Executive Officer, Member of Group Executive Board and Chairman of Global Community Affairs Steering Committee Thomas Naratil - Group Chief Operating Officer, Group Chief Financial Officer and Member of Group Executive Board
Analysts
Kian Abouhossein - JP Morgan Chase & Co, Research Division Kinner R. Lakhani - Citigroup Inc, Research Division Fiona Swaffield - RBC Capital Markets, LLC, Research Division Huw Van Steenis - Morgan Stanley, Research Division Andrew Stimpson - BofA Merrill Lynch, Research Division Andrew Lim - Societe Generale Cross Asset Research Jeremy Sigee - Barclays Capital, Research Division Jon Peace - Nomura Securities Co.
Ltd., Research Division Alevizos Alevizakos - Keefe, Bruyette & Woods Limited, Research Division Kilian Maier - MainFirst Bank AG, Research Division Stefan-Michael Stalmann - Autonomous Research LLP Robert Murphy - HSBC, Research Division
Caroline Stewart
Good morning, everyone, and welcome to our third quarter results presentation. This is Caroline Stewart, Head of Investor Relations for UBS.
This morning, Sergio Ermotti, our CEO, will take you through the highlights of our third quarter results; and Tom Naratil, our group CFO and COO, will take you through the results in more detail. Before I hand over to Sergio, I'd like to highlight the cautionary statement with regard to forward-looking statements, and I would ask that you read it carefully.
So I'd like to hand over to Sergio.
Sergio P. Ermotti
Thank you, Caroline, and good morning, everyone. For the third quarter, the performance of the group was strong with an underlying pretax profit of CHF 1.7 billion.
Our reported net profit of CHF 762 million includes CHF 1.8 billion charge related to provisions for litigation, regulatory and similar matters and a CHF 1.4 billion write-up of deferred tax assets. Our business has delivered a strong performance, with our Wealth and Asset Management businesses and Retail & Corporate delivering higher earnings quarter-on-quarter and year-on-year.
The underlying performance of the Investment Bank was seasonally strong, with profit before tax up 47% year-on-year. We continue to maintain our industry-leading capital position, with a fully applied Basel III CET1 ratio of 13.7%.
Our fully applied Swiss SRB leverage ratio was 4.2%. In the quarter, we had an excellent performance in our Wealth Management businesses.
Our assets, revenues and profits are all growing strongly. Together, these businesses delivered over CHF 1 billion of profits on almost CHF 2 trillion of investment assets.
Our franchise is unrivaled. We have the world's largest wealth management business, operating the fastest-growing, largest and long-established markets, and its performance is second to none.
Looking at the business divisions in more detail. Wealth Management delivered its best performance since the second quarter of 2009 with a profit before tax of CHF 767 million.
Net new money was almost CHF 10 billion and was positive in all the regions. Lombard lending and mandate penetration grew further, improving our recurring revenues, and the gross margins rose 2 basis points to 86.
These results show that we can deliver profit growth with gross margins below our target range. We have stated in the past that we are working to improve gross margin in the medium term, but we are not obsessed by quarter-to-quarter movement.
Our focus is on delivering sustainable performance and long-term profitable growth. Wealth Management Americas delivered another strong performance, with profit before tax of $267 million of record revenues and record financial adviser productivity.
Recurring income also reached a record high as management account fees and lending balances rose. Net new money was solid at almost $5 billion, again with a good mix of lending and other inflows.
Retail & Corporate delivered its highest quarterly pretax profit since 2010 at CHF 446 million. Overall, I'm very pleased with the progress that we are making in our own markets.
We continue to win back market share, and growth in domestic accounts is being supported by continued investment in our award-winning e-banking and mobile platforms. Global Asset Management delivered CHF 151 million in pretax profit, the highest in 6 quarters.
Net new money, excluding money market, was over CHF 3 billion. For the first 9 months of the year, Global Asset Management recorded over CHF 28 billion of net new money, excluding money market flows, with almost CHF 11 billion from our Wealth Management businesses.
This turnaround underlines a critical change to Global Asset Management strategy, and it's simply -- it's very simply recognizing and treating Wealth Management as its most important client. By working together, we are much stronger than the sum of our parts, and this applies equally to the rest of the group.
There is no change, however, to our open architecture philosophy in our Wealth Management businesses, where we aim to offer our clients the best products available in the market. Therefore, changes in our clients' asset allocation may create volatility inflows to Global Asset Management.
Strengthening internal relationship is just one element of the strategic changes at Global Asset Management outline at our investor update. We are making important changes to our distribution model, streamlining our product shelf to focus on strategies and capabilities that will drive profit growth, particularly in our excellent alternative and passive products.
All these measures support Global Asset Management CHF 1 billion pretax profit target. The Investment Bank reported an underlying pretax profit of CHF 494 million, delivering the best third quarter revenues since 2010, with CCS and equities showing robust growth year-on-year.
The IB continues to operate with a high degree of resource efficiency, with an underlying return on attributed equity of around 27% for Q3. During the quarter, we booked material provisions for litigation, regulatory and similar matters.
The Corporate Center -- in the Corporate Center, we reported a pretax loss of almost 800 million and reduced risk-weighted asset in Non-core and Legacy by 19% or CHF 10 billion. In October, we exited the second major asset category in the Legacy Portfolio this year as we closed the final trade on our student loan auction rates securities book.
At its peak, we had over $20 billion of exposure in this portfolio, which we had brought down successfully since 2008. With combined Wealth Management profit before tax in excess of CHF 1 billion and strong results across our businesses, our performance in the third quarter underlines the fundamental earnings power of the bank.
Our deferred tax asset write-up is a testament to that, and underlines our capacity for future capital returns. As you are aware, we booked substantial provisions related to litigation, regulatory and similar matters this quarter.
We are working hard to resolve open items, but given the complexity, particularly of industry-wide matters, the timing and impact of any settlement is difficult to predict. At this point, we believe that the industry continues to operate in an environment where penalties and fines from regulators and other governmental agencies will remain elevated for the foreseeable future.
While litigation matters are preoccupying the market, it's clear that they are not distracting our employees. Our results, not just this quarter, but since we accelerated our strategy, demonstrate consistent execution and underline the fact that we are fully focused on our clients and on the growth of the bank.
Our results also highlight why the investment case in UBS is even more compelling today not only in terms of our unique business model but also because of the attractive returns we have processed. Despite the challenging environment, our businesses are growing, and we continue to reduce our Non-core and Legacy Portfolio position.
Our management initiatives are gearing to a macroeconomic recovery and position us well for further meaningful future growth. We are improving efficiency in our businesses and at the same time, we are also absorbing significant costs associated with litigation and increased regulation.
The completion of our clean slate budgeting process has enabled us to develop even more granular plans to reduce cost and improve effectiveness. It will require us to make a substantial further investment in our infrastructure, including improvements in our front-to-back control environment, making them more stable and streamlined.
These changes will underpin long-term profit growth in a sustainable way. We are also in full execution mode in our share-for-share exchange offer to create a group holding company, which is an important step in improving the group's resolvability.
Once the process has been completed successfully, we intend to propose a dividend of at least CHF 0.25. This will come in addition to a payout of at least 50% of our earnings, assuming our fully applied CET1 ratio remains above 13% and our post-stress CET1 ratio is above 10%, and this is why we recommend that our shareholders to accept the offer.
Our capital position is very strong and remains ahead of our peers. This gives greater security to our clients, supports the bank as regulations continues to evolve, and allows us to remain committed through our attractive capital return target.
Three years ago, I laid out critical objectives for the bank: executing our strategy, delivering for our clients and unlocking our growth potential. Today, it's clear we have come a very long way.
We all knew there would be bumps in the road, and some of these challenge remains, but identifying, recognizing and managing issues that many in our industry face are all part of our transformation. The business we are -- we have today is far stronger.
Its earning power is much bigger, and our absolute and relative capital position speaks for itself. UBS has changed for the better, and we are proud of what we have achieved.
With that, I'd like to hand over to Tom. Tom?
Thomas Naratil
Thank you, Sergio. Good morning, everyone.
As usual, my commentary will reference adjusted results unless otherwise stated. This quarter, we excluded an own credit gain of CHF 61 billion, net restructuring charges of CHF 176 million and impairment loss of CHF 48 million and a credit of CHF 33 million related to changes to a retiree benefit plan in the U.S.
Due to the significant charges for litigation, regulatory and similar matters and other one-off items incurred during the quarter, we reconciled our underlying performance, with reported results on Slide 6. On an underlying basis, profit before tax was CHF 1.7 billion, up 10% quarter-over-quarter and 54% year-over-year, on strong performance in all business divisions.
This excludes CHF 1.8 billion in charges for provisions for litigation, regulatory and similar matters, a CHF 267 million net loss from the implementation of the funding valuation adjustment, or FVA, and a CHF 26 million benefit from other items. We reported a net tax benefit of CHF 1.3 billion, as we remeasured our deferred tax assets as part of the normal business planning process.
I'll provide more detail on this topic later. Wealth Management delivered a very strong performance, with the highest operating income since the third quarter of 2008.
Profit before tax was CHF 767 million, the highest since the second quarter of 2009. Higher recurring net fee and net interest income led to a 6% increase in operating income.
Expenses decreased 17% as the previous quarter included significant charges for litigation, regulatory and similar matters. Excluding these charges, Wealth Management showed continued cost discipline, with a slight increase in expenses from higher variable compensation on higher profitability.
Net new money was strong once again, at CHF 9.8 billion, an annualized growth rate of 4.2%. Mandate penetration rose 30 basis points to 24.5% as more clients were attracted to our mandate offering.
Net interest income increased by CHF 51 million to CHF 569 million on higher allocated Group Treasury revenues and higher income from Lombard loans as margins improved and volumes increased across all regions. Recurring net fee income increased by CHF 56 million to nearly CHF 1 billion, with contributions from successful pricing adjustment, strong mandate sales and invested asset growth.
This year, we continued to revise pricing in a range of product areas, and we're closely monitoring discounting practices globally. Together with our fundamental focus on client service, advice and delivering appropriate performance, we believe these initiatives can contribute to further sustainable revenue growth.
This quarter, 76% of revenues were recurring as management actions on pricing, lending and mandate sales more than offset the impact of continued cross-border outflows. We're confident that this improving trend is sustainable as our book transformation continues.
Transaction-based income increased slightly as higher FX-related trading income was partially offset by the implementation of client shifts and referral fees paid to Retail & Corporate. Gross margin increased by 2 basis points to 86.
In July and August, it was 85 and 83 basis points, respectively, and then peaked at 89 in September when transaction activity was higher, as market volatility increased and advisory clients review their asset allocations to better align them with our CIO's recommendations. As Sergio mentioned and as we've said in the past, quarter-over-quarter fluctuations in gross margin are not as important as the long-term trend, as we're focused on achieving our multi-year target of 95 to 105 basis points.
Net new money was positive in all regions, with the strongest contribution from APAC. 58% of net new money came from our ultra high net worth clients, and net inflows from our high net worth clients were robust, particularly in APAC.
In Europe, net new money was positive as continued cross-border outflows were more than offset by inflows, including a continued positive contribution from domestic onshore clients. As we look into the fourth quarter, outflows in relation to our voluntary compliance program may tick up as clients complete year-end housekeeping.
Wealth Management Americas delivered a profit before tax of $267 million on record income. Operating income increased to over $1.9 billion due to higher recurring net fee income and net interest income.
Recurring net fee income rose to a record $1.2 billion, mainly due to higher managed account fees. Net interest income increased on higher lending balances.
Expenses were broadly unchanged as charges for litigation, regulatory and similar matters remained elevated. Net new money was a healthy $4.9 billion, mostly from same-store financial advisers.
As a consequence of our focus on the high net worth and ultra high net worth segments, our FAs continue to be the most productive in the industry as we once again had a record-breaking quarter with annualized revenue per adviser increasing to $1.1 million and invested assets per FA equaling the record set last quarter of $143 million. We continued to grow lending balances, with period-end mortgages up 6% to $7.4 billion and credit lines up 4% to $32.1 billion.
Growing lending balances is a critical component of our strategy, and it's important to note that we're not compromising our standards for credit quality, as over 99% of the businesses' loan portfolio is collateralized. Retail & Corporate recorded its highest profit since the third quarter of 2010 at CHF 446 million, and all of its KPIs were within the target ranges.
Net interest income increased, and net interest margin expanded by 6 basis points to 164 basis points, reflecting higher income from Group Treasury and higher loan margins following the successful pricing measures we've implemented on new loans over the past 5 years. While we've seen a significant increase in new mortgages, especially in fixed-rate products, our overall growth rate remains deliberately below market levels.
Recurring net fee income was up slightly, mainly reflecting pricing measures for custody services. Transaction-based income increased CHF 20 million, mostly due to the client shift and referral fees received from Wealth Management.
Net credit loss expenses were CHF 33 million, up from CHF 8 million in the prior quarter. This increase reflects the small number of new workout cases and that a greater proportion of annual credit assessments for corporate typically occur during the third quarter.
We continue to manage our Swiss loan book prudently and at this point haven't seen signs of any significant deterioration in the overall portfolio of our exposure nor a noticeable rise in delinquency ratios. However, with such low credit loss experienced in the past few years, we may see a reversion to more normalized levels in the future.
Investments in our mobile and e-banking platforms are supporting growth in our Swiss business. The services are highly valued by our clients, and this is reflected in higher client satisfaction, greater loyalty and higher business volume growth.
The charts on the slide make it clear that the financials associated with clients who use our e-banking and mobile services are much more attractive compared to those who don't. When we look at our Wealth Management clients, the improvement in our financial metrics is even more pronounced.
Global Asset Management delivered a strong performance, with profit before tax of CHF 151 million, up 41% quarter-over-quarter as the prior quarter included CHF 33 million in charges for litigation, regulatory and similar matters. Operating income was up 5%, with higher net management fees driven by the sale of a co-investment in global real estate and higher invested assets.
Lower net performance fees in the O'Connor and A&Q business line were partly offset by traditional investments and global real estate. Investment performance versus peers was strong, with improvements in equity fund ranking.
Net new money growth was positive, with increased contributions from our Wealth Management businesses. With the volatility currently seen in the market and potential client asset allocation shifts, we believe that the typical fourth quarter uptick in performance fees may be more difficult to realize.
The Investment Bank delivered strong underlying results, with pretax profits up 47% year-over-year, which excludes charges for litigation, regulatory and similar matters of CHF 1.7 billion, and net losses of CHF 12 million associated with implementing FVA and other adjusting items. The underlying return on attributed equity was 27%.
Excluding charges for litigation, regulatory and similar matters, operating expenses increased 9% year-over-year partially due to higher variable compensation. Corporate Client Solutions revenues rose 46% year-over-year to $738 million (sic) [CHF 738 million], with increases in all regions.
Advisory delivered the largest increase as market share improved in EMEA, where we participated in a number of high-profile transactions. Debt capital markets revenues increased 15% as leveraged finance showed continued strength.
Investor Client Services revenues increased 3% overall. Equities delivered its highest third quarter revenues in the past 4 years, driven by strong equity finance revenues, which increased 50% year-over-year.
Last month, we were named Structured Products House of the Year and Corporate Derivatives House of the Year by Global Capital. While FX rates -- FX and rates improved, weaker credit revenues brought total FRC revenues down 7% year-over-year.
Reported pretax profit in Corporate Center - Core Functions was negative CHF 190 million. Net treasury income remaining in Corporate Center - Core included CHF 207 million in retained funding costs, which increased as we issued nearly CHF 9 billion of senior unsecured debt.
Retained funding costs also increased as we implemented an internal funding curve, which incentivizes a balanced funding position from a currency and tenant perspective. Reduced funding consumption across the business divisions also led to increased retained funding costs.
These results also included an owned credit gain of financial liabilities designated at fair value of CHF 61 million. Reported operating expenses increased to CHF 194 million from negative CHF 2 million, largely as the prior quarter included a net release of CHF 141 million for provisions for litigation, regulatory and similar matters.
There was also an increase of CHF 69 million resulting from the difference between actual cost incurred and the cost allocations charged to the business divisions and the Non-core and Legacy Portfolio. Non-core and Legacy Portfolio reported a pretax loss of CHF 603 million, including a net loss of CHF 252 million due to the implementation of FVA on uncollateralized and partially collateralized derivatives.
Further details on this topic can be found in Notes 1 and 10 of our quarterly report. The remainder of the negative revenues was generated by additional novation and unwind activity.
Reported expenses increased to CHF 280 million, including CHF 89 million in charges for provisions for litigation, regulatory and similar matters. In this quarter, we reduced risk-weighted assets by CHF 10 billion to CHF 42 billion and the leverage ratio denominator by CHF 15 billion to CHF 106 billion despite the dollar's appreciation.
The RWA and LRD reduction reflects the exit of the correlation book announced last quarter as well as lower incremental operational risk RWA. Excluding operational risk, Non-core and Legacy Portfolio RWA are now down by more than 70% over last 7 quarters.
Our ongoing efficiency measures are key levers to support profitability in an environment with low interest rates and rising cost of regulation, including both investigation and remediation. On a year-to-date basis, our cost reductions in the Corporate Center stood at CHF 300 million, consisting of CHF 100 million in Core Functions and CHF 200 million in Non-core and Legacy Portfolio.
Total Corporate Center operating expenses, however, decreased further as it incurred lower charges for litigation, regulatory and similar matters compared to the same period last year. We've successfully completed the vast majority of the clean slate budgeting and planning process, which provided transparency into the major cost drivers in the business.
This has allowed us to create more granular plans to deliver our CHF 2.1 billion net cost reduction target, as announced in May. As a result, we've updated our guidance on restructuring costs for 2014 and '15 and we've extended the horizon for guidance to include 2016 and '17.
We've also estimated additional cost-to-achieve of CHF 100 million for each of the next 3 years. For some of the restructuring charges, we recorded between 2011 and 2013 was around CHF 600 million lower than our original guidance.
Very broadly, we've rolled back, understand forward, into our new restructuring cost estimates for 2014 and '15. As part of the clean slate process, we identified our IT infrastructure as a key cost driver as historic acquisitions and numerous business growth initiatives led to a high degree of complexity and unnecessary costs.
That's why we're investing about 50% of our future restructuring costs in a common, simplified IT infrastructure and application portfolio. We've always said that our cost initiatives aren't just about efficiency but also about effectiveness.
The current plans present us with a unique opportunity to improve our control environment as we simplify our IT infrastructure and reengineer internal processes to achieve much greater front-to-back integration across our businesses. As an early example of this change, in the third quarter, we merged an integrated select teams from group finance and group risk into an existing team within group operations.
The tasks of these teams, which include product control, transactional accounting and data validation activities, will now be carried out by a single, unified, middle office team. This is just 1 example of the efficiency gains and improved controls, which can be achieved by further integration of front-to-back processes.
UBS is also part of the evolving industry trend with respect to the location of its workforce, and this is another source of further efficiency. We view this cost as investment in future growth, and they will provide us with greater agility to capture revenue opportunities, greater confidence in our controls, as well as lowering long-term operating costs and offsetting ongoing incremental regulatory cost.
In the third quarter, we remeasured our deferred tax assets as part of our annual business planning process. Given the greater confidence we have in the group's future earnings capacity, we've extended the recognition period from 5 to 6 years.
As a result, we booked a net upward revaluation of recognized DTAs of CHF 1.4 billion, which almost exclusively relates to the U.S. and was partly offset by tax expenses from subsidiaries and branches outside of Switzerland.
We recognized 75% of the DTA write-ups in the third quarter, and we expect to book the remaining 25% or approximately CHF 400 million in the fourth quarter. As a reminder, the recognition of DTA does not immediately affect fully applied CET1 capital since higher DTA recognition in the P&L is offset by an equivalent reduction in the capital account.
However, IFRS equity attributable to shareholders increases. In addition, the utilization of historical net operating losses against taxable income leads to reduced tax expenses, which should benefit CET capital and would create more capacity for capital returns.
Our future profits in the U.S., where we have CHF 16.4 billion of unrecognized DTAs, will be the main driver of recognition and usage of DTAs in the long term. We ended the third quarter with risk-weighted assets down CHF 7 billion to CHF 219 billion.
This is almost entirely driven by a CHF 7 billion reduction in the incremental RWA based on the supplemental operational risk capital analysis mutually agreed by UBS and FINMA. This quarter, we improved the methodology to allocate the incremental RWA to better reflect litigation risks in each business divisions and the Corporate Center, where we previously allocated the balance in proportion to the existing operational risk RWA.
Our Basel III CET1 ratio increased to 13.7% as the effect of lower RWA more than offset the slight decrease in our CET1 capital. Our fully applied CET1 ratio post-stress remains above 10%.
Our Swiss SRB Basel III leverage ratio was 5.4% on a phase-in basis and 4.2% on a fully applied basis. The fully applied leverage ratio denominator increased slightly to CHF 985 billion as a CHF 15 billion decrease in Non-core and Legacy Portfolio was more than offset by increases across the business division and in Corporate Center - Core Functions, partially driven by U.S.
dollar appreciation. We estimate that the LRD would have decreased to around CHF 975 billion, using constant currency rates.
Although rates, currencies and market indices influence resource levels, with the recently forecast appreciation of the dollar, we provided this slide with an overview of the currency exposures and sensitivities for RWA, LRD, attributable equity and CET1 capital. Our current mix of currencies and hedging activities significantly mitigates the impact of FX moves on our CET1 ratio, but our leverage ratio is more sensitive, as 46% of the denominator is in dollars.
Therefore, further appreciation of the U.S. dollar against the Swiss franc may make it more challenging for our businesses to operate within targeted resource levels.
When setting our targets, we noted that we may fine-tune targets for risk-weighted assets and LRD to ensure that they remain appropriate to facilitate our clients' needs should we see an extended period of significant U.S. dollar appreciation.
As we've said before, we're well positioned to benefit as interest rates normalize. Although rates remain at low levels, implied forward curves for the U.S.
dollar, in particular, reflect the moderate increase over the next 3 years. We have deliberately not extended duration in our replication portfolios, and this will pay off as we expect to benefit earlier in the interest rate recovery cycle.
However, the benefits of rising interest rates would only fully materialize over time. The immediate effect on shareholders' equity for UBS and for the industry as a whole would be adverse.
We've commented extensively on the trade-off between OCI, CET1 capital and future profits on a number of occasions. This slide shows updated sensitivity information based on 3 simple interest rate scenarios.
During the quarter, we commenced our share-for-share exchange offer. As a reminder, the offer is expected to take up to 3 months and is subject to a number of conditions, including the acquisition by UBS Group AG of at least 90% of UBS AG's outstanding shares.
Depending on the level of ownership achieved by UBS Group AG during the exchange offer, an extended squeeze-out period that could last several months may be required in order to achieve full ownership of UBS AG by UBS Group AG. Over the past few years, we've spent a considerable amount of time analyzing our options to improve resolvability and planning their implementation.
Our exchange offer is in the best interest of our shareholders as it is the most efficient way to implement the group holding company's structure to execute our current strategy and to return capital to our shareholders in the future. Other structural choices would require greater attention of capital and lower long-term returns to shareholders.
We recommend that shareholders accept the offer, and we encourage them to tender their shares promptly during the initial acceptance period, which ends on 11 November. Despite low client activity and elevated charges for litigation, regulatory and similar matters, our underlying performance was strong in all of our businesses.
We further improved our industry-leading capital position. We're fully committed to executing our strategic priorities, and we're confident in our future success.
Thank you. Sergio and I will now take your questions.
Operator
[Operator Instructions] First question from Kian Abouhossein from JPMorgan.
Kian Abouhossein - JP Morgan Chase & Co, Research Division
I have 3 quick -- 3 questions. The first one is related to Wealth Management Europe.
You have net inflows, and I was wondering if -- on Slide 9, I was wondering, is this something where you see a more structural change that we should expect that we're looking going forward more at actually positive numbers coming through? The second question I have is regarding DTAs.
Of the CHF 1.4 billion, how much would you argue is related to extension of duration? And how much is related to your budget change, which drove the CHF 1.4 billion increase?
And the third question is on cost on Page 21. I'm just trying to understand what you're doing because on the Investor Day, I had the impression that you're reviewing the Corporate Center, Corporate Center costs allocated to the division, the staffing levels.
You have one of the highest Corporate Center staff levels in the industry as a percentage of front office. Just wondering how we should read this because see -- I see further investments for higher costs, but I'm not hearing anything about how you're adjusting your Corporate Center costs.
I would have hoped to hear a little bit more about that.
Sergio P. Ermotti
Okay. Thank you, Kian.
I will take the first question. I think that, as you can see from Slide 9, in the last few quarters, we went through a lot of movement and changes in the net new money on the Wealth Management Europe.
I think there is a transformation, a structural change, going through, for sure. I think we've seen net outflows from booking center Switzerland as people regularized their assets.
We see inflows in our domestic operations. We also see an increase of share of volatile market shares that we are capturing as a consequence of our investment and efforts that are more than offsetting the outflows that are due to clients paying taxes with some of those assets.
I would say that to really see a major change, a major growth pattern in Europe, we still need to see wealth creation. I think that's, of course, we are working very hard to improve our penetration, share of wallet with existing clients, capturing also new clients, but when you look at the macroeconomic conditions in Europe, it's quite difficult to see where wealth is created, so a work in progress.
I wouldn't really expect that in the next couple of quarters, major deviation, as Tom just mentioned. This quarter will be also a quarter in which we may see a further acceleration of regularization of assets in Europe.
It's always a seasonal effect that we have, but over time, we are confident that we can operate more successfully in our onshore operations. And Tom?
Thomas Naratil
Great. Thanks, Sergio.
So Kian, on your question on the DTAs, it's roughly 50-50 on the CHF 1.4 billion in terms of the breakdown, which is extension of the year of the plan rolling already here and then the second half being tied to the extension of the time period from 5 years to 6 years. On your questions on cost, let's just make sure that we're clear, if I wasn't, in my remarks.
First, we're tied very consistently to our CHF 2.1 billion in cost savings targets that we had committed to at the last investor update. What the clean slate budgeting and planning process has allowed us to do is to get very granular on what are the activities that we need to execute in order to, one, take out those costs; but also, two, make sure, as Sergio has mentioned and I have mentioned, to improve our effectiveness and our overall ability to manage our operations that are on a front-to-back basis.
So when you look at these out of the extension of the time period into 2016 and '17, we've never given guidance on that restructuring previously. So if you look at '15, '16 and '17, there's a total of CHF 3 billion, of which half, or 50%, of it is an investment in our IT infrastructure and in our application simplification programs.
That investment in IT is necessary to get at the point that you're bringing up, which is how do we reduce overly manual processes and become more automated, for example, in areas like reconciliation; or how do we offset, which is clearly the industry trend for ongoing incremental costs associated with the regulatory changes and subsidiarization. I also mentioned in my remarks the labor location and the overall approach to our mix of the footprint of our labor force.
It's also something that we'll be considering and executing. So you shouldn't look at the IT investment as something that -- meaning that we're taking our eye off the ball in the original objective.
The original objective is clear. This is what we need to do to make sure we achieve it on a sustainable basis.
Kian Abouhossein - JP Morgan Chase & Co, Research Division
Yes, I hear you, but you're also increasing your 2015 number, which were clearly new in terms of the old guidance, and I would have hoped to hear, in the context of your additional investments, something regarding your 24,000 people, roughly, who sit in the Corporate Center will get allocated as an additional cost. So I would have hoped that, okay, you're spending more money, but something is also in return for shareholders.
Thomas Naratil
Right. I definitely think you see that.
I mean, first, what I would say, Kian, although we don't have headcount targets because at the end of the day, we're focused on the costs, clearly, there would be an impact on headcount. But I think if you look at the CHF 1.4 billion and run rate cost that we're taking out, 2015 versus 2013, full year, and you look at the cost-to-achieve, that, in total, on restructuring, of roughly for the remainder -- from now to the end of the year through 2015 of about CHF 1.8 billion from CHF 1.4 billion, if you look at any type of industry studies, that's pretty much in the middle of the range on what it costs to take out a cost base.
Sergio P. Ermotti
Yes. And also, Kian, I would just add that -- and as Tom already pointed out, that if you look at our cost base, it's increasing on a day-by-day basis due to ongoing incremental regulatory costs, and we are absorbing unexpected and huge amount of costs related to those items.
So I think that what we are trying to keep is the costs as low as possible while we are also improving our top line efficiencies.
Operator
Next question from Kinner Lakhani, Citi.
Kinner R. Lakhani - Citigroup Inc, Research Division
First question was on litigation and the operational risk RWAs. I was looking at the slide -- I think it's 33, which shows that there was a CHF 6.7 billion decrease related to the operational risk RWAs.
I just wanted to get a sense of what drove that decrease, to what extent it is linked to the higher litigation charges that you've taken. And on the litigation charges, if you could you give us some color as to what cases might have been driving them.
I have in mind FX, RMBS is the fixed [ph], et cetera. Secondly, just on the retained funding cost guidance that you previously provided, I think you had suggested about CHF 500 million in '14, CHF 100 million in '15 and negligible in '16.
How do I reconcile that with the fact that we've just seen a retained funding cost of CHF 200 million in the third quarter in Corporate Center? Just coming back on the restructuring point, my third question, would you be able to quantify what part of the incremental costs you were taking related to the new regulatory requirements, including subsidiarization?
That would be very helpful. And finally, on DTAs, 6 years is still very much at the low end of the industry range, which I think goes from 6 to 25 years.
A bank like HSBC recognized over 10 years. So what scope is there in the future to extend that further?
Thomas Naratil
Okay. Kinner, thanks -- thank you for your question.
On the operational risk, RWA supplemental amounts and its relation to higher litigation charges, one of the things we said and we've noted -- that although you may not see that happen exactly in the quarter, it occurs, and this quarter it did happen to happen, where we took a substantial amount of litigation charges in the Investment Bank, and you saw an offsetting reduction in the operational risk RWA. There's detail on the breakdown of that in pages 86 through 88 in the report itself.
We did also change the allocation methodology in the quarter to better reflect the actual litigation risks that remain in the individual divisions. But just to review the process, when we discussed this analysis within each quarter, it is a review of the matters that are contained in the litigation note and the tail risk assessment and the probabilities of those assessments.
So it is somewhat logical that if you saw a significant uptick in provisions that you should see a reduction in the RWA. Next, for color on the litigation charges and what they pertain to, I'd refer you in the note -- as you know, there's the table where we show the breakdown of the litigation charges by division and then we footnote the items in the litigation note that pair off against the individual business divisions.
For the Investment Bank, there are 4 items in the note that those charges could relate to. On retained -- on retained funding costs, one of the things that -- you correctly noted that there appears to be a discrepancy in the previous guidance that we've given, and I would comment on that very specifically by saying, as you know, we raised about CHF 9 billion in incremental senior unsecured funding during the course of the quarter.
We've mentioned in previous quarters that we've taken a more conservative view with regard to LCR. Our LCR rose to 128% in the current quarter; NSFR, up to 107%.
So we are carrying a larger amount of unsecured funding than you might normally expect. If we see changes in the environment that would allow us to reduce that amount of excess funding, including debt management activities, which we could execute.
Then, obviously, you'd see that retained funding amount reduced in the Corporate Center. Additionally, we do, as divisions reduce the utilization of long-term funding, we actually retain that carry cost in the Corporate Center because we don't want to incentivize carry trades by having divisions thinking they have lock-in funding that they just have to overcome.
And then finally, the last piece of that uptick was some of the benefits seen in the business divisions in Wealth Management, and Retail & Corporate, in particular, we introduced the new funds transfer concept, where we have a higher reward from Group Treasury for various specific currencies and various specific tender buckets. And so if the business divisions respond to that or our clients responds to that, then there obviously is a higher reward for that transferred onto the business divisions and, thus, a higher charge in the Corporate Center.
In terms of that reduction there for 2015, I'd say that CHF 100 million number is too low at this point in time, barring any changes in the amount of debt we have outstanding, as I mentioned previously. Restructuring.
In the discussions with various functions on our cost reduction, although we hear a lot about the increased regulatory costs, since we've focused on a zero-based budgeting approach, we've largely told people to figure out ways to self-fund those incremental costs. And we haven't really captured it.
We can feel the headwinds, definitely, you can see them, but I don't have an exact figure for you. And then last, on the DTAs, I acknowledge that your data on industry practices is in line with ours.
As we have mentioned in the annual report and our quarterly reports, we'll evaluate the time window under which we evaluate the DTAs as we go through our business planning process each year.
Operator
Next question from Fiona Swaffield, RBC.
Fiona Swaffield - RBC Capital Markets, LLC, Research Division
I had a few questions. Firstly, on the operational risk-weighted assets, you mentioned the FINMA charge went down due to provisions.
But is there a scenario that beyond that charge, the remaining operational risk-weighted assets charge can go up and offset over time as you settle? Could you walk us through that?
The second issue is on Wealth Management and the pricing increases. Could you give us some kind of metric on how far through you are there?
Any kind of percentage of repricing, something to do with that. And also, particularly on this managed accounts, how that's affecting -- how much that may have affected the recurring margins over time?
And then lastly, on the CHF 3.1 billion number that you gave on Page 83 of the quarterly report, so the potential capital loss from operational risk, could you talk about why you say it doesn't impact -- the charges taken this quarter hadn't impacted it? Are you trying to say that there was nothing in there for whatever you've taken this quarter?
And that CHF 3.1 billion, has it gone down on a currency-adjusted basis?
Thomas Naratil
Okay. So thank you, Fiona, for those questions.
On the -- first, on your question on the operational risk RWA, can it go up? It could certainly go up based on your analyses of the cases involved and also, the risks associated with them and the probabilities of those tail risk cases occurring.
And I think you've seen that in previous quarters, where we've had some slight upticks in that amount in line with our assessment and reviewed by FINMA. Looking at the AMA model and the impacts there, clearly, historical losses affect the amounts that you carry in AMA.
When you first provision, it runs through -- we run a time series on a historical data that goes back to 2002. So as we provision, the data goes into the historical model.
But because of the long-time series, individual items are somewhat smooth. When you crystallize that event, it -- if it sets a new standard beyond the base case, so a higher amount beyond the base case, then that would be incorporated into the scenario analysis and have a more significant impact on the uptick in the amount of operational risk RWA.
On the Wealth Management pricing increases, if we look through, and if you look at the commentary on the slide in the report, related to gross margin, I would say the initiatives that we've been executing over the course of the past couple of years -- you've been hearing us talk about pricing and pricing initiatives, it looks like there's a good 1 to 2 basis points of gross margin benefit that's coming from our pricing initiatives that we see in the P&L. Where are we in that?
Where are we in the process on that? If I was going to use a U.S.
baseball analogy, I'd say we're in the fourth or fifth inning out of 9, where we still have a good part of the game still to go. Finally, in your last question on, what about the capital analysis that we do, where we talked about the CHF 3.1 billion capital loss from items related to litigation and why didn't that budge and why we pointed out that the 1.8 -- CHF 1.8 billion litigation provisions didn't affect that.
And I think it -- these are points to think about, the relationship between litigation provisions, the FINMA operational risk supplemental analysis that we do and then the capital analysis. Those 3 can all move in -- differently, in different time frames and potentially, in different directions.
On the capital analysis that we do, it's a very statistical analysis. And so we map the litigation note items, so the items listed in Note 14, 2 different taxonomies in the AMA operational risk model.
In order for us -- and we run the statistical analysis on that. In order for that item to change in that analysis, it would have to disappear from the litigation note.
So if you're going to look at a topic like market conduct, the taxonomy category like market conduct, that would cover things that range from FX, LIBOR and benchmark rates, to CDS inquiries, to ATS. So in order for that category to fully disappear, you have to see all those items in the litigation note disappear before we drop it from the analysis.
So on the way out of a period of higher litigation, that would be the last item that would really move out.
Operator
Next question from Huw Van Steenis, Morgan Stanley.
Huw Van Steenis - Morgan Stanley, Research Division
Two questions. Back in May, you very kindly shared with us the implication of the stress test to your numbers, and I seem to recall it took about 3.3% of your quarter 1.
I was wondering whether, Tom, you'd be open to share with us what the post-stress test did quarter 1 would be today? And then, secondly, there's obviously many moving parts in regulation and you've always been very thoughtful about anticipating some of the changes in leverage ratios and beyond.
What are your current thoughts about the press discussions on GLAC and what that potentially may mean to additional costs for your capital stack?
Sergio P. Ermotti
Thank you, Huw Van. On the stress test, as we mentioned in the past, we will not comment on where we stand on a quarter-by-quarter basis unless we are below the 10%.
I would say that, in general, since it's a very actual topic, stress test, I have to say that although we were not part of the group of this European-wide exercise, we do feel that our stress test scenario are quite solid, and I would say that we remain comfortably above the 10% that we set as a target but, most importantly, we do feel this is -- the scenarios that we are using are, at least, as severe as the one used in the rest of Europe. So unfortunately that we made a decision not to go through and give an update on these levels.
I think the relevant point is that we are above 10%, and we are comfortable we will be above 10% at year-end. In respect of the ongoing discussion about GLAC, I think that we are all keen to find out at the end of the month, hopefully, more clarity about this topic.
I think that both from an industry and global standpoint -- view, but also in respect of the ongoing discussion of -- or future discussion in Switzerland, in respect of how to adapt the Swiss to be the favored regime at the new environment. We are -- we do think that we will be able to address those issues without substantial costs to our franchise.
If we would have unexpected -- at this stage, I would like to understand -- underline unexpected huge increase of big CET1 ratio or GLAC requirements. Of course, we would need to take appropriate measures to reprice our services to make sure that those further additional capital requirements or funding requirements are not diluting earnings.
And of course, we are making it very clear to also call those involved into discussions of the collateral costs for the economy and for households, and I'm talking about Switzerland, in our case, should a more stringent regulation come in. I think that Switzerland has already a very strong and successful regulatory framework.
We feel very good about our current capital position but, as I say, it's difficult to speculate. But I would say that we are well prepared for the topic.
Operator
Next question from Andrew Stimpson, Bank of America.
Andrew Stimpson - BofA Merrill Lynch, Research Division
Most of mine have been answered now. But on the net interest margin in the Wealth Management division, could you just split out how much of that came from the treasury, and how much came from better lending?
And then just staying on TLAC, slightly building on the last question there, and whether -- do you think TLAC's going to get -- eventually get pushed down to desk level? And if so, then which businesses do you think might struggle more from an industry perspective rather than, maybe, from UBS?
Sergio P. Ermotti
Well, let me take the last one, and following up, I don't believe that -- we will not push down TLAC and basically fronting strategic funding at that level, I think that we don't want to incentivize longer behavior in that respect, and we've managed centrally that issue. What we aim to is to make sure that we have appropriate capital allocation to all businesses, and making sure they are measured on a level playing field internally and externally.
But at this stage, I don't see this as being a necessity to keep good discipline. And Tom, why don't you take the...
Thomas Naratil
Yes. So Andy, on the first question, we're not disclosing the detail of that.
But I will say, we're instituting it and it gets a little bit to a question that was asked by you earlier about TLAC, it's in line with your TLAC question and desk level. What we're trying to do is make sure we -- making sure that we provide economic incentives for the business that align with the needs of the group.
And so one of the examples of that is being -- offering more attractive levels for certain currencies, certain tender combinations. And as a result of that, changes in behavior can reward the business properly on an ongoing basis for bringing us more valuable deposits in certain categories.
And so I think that this will be something where we're -- we're doing more and more work on this as we look at LCR, for example, and look at different ways to incentivize the businesses. So I would say, at this point in time, it's probably a bit premature because this behavioral pricing aspect is something that's developing on our radar.
Andrew Stimpson - BofA Merrill Lynch, Research Division
Okay, great. And maybe if I could just ask 1 housekeeping question as well.
How do we split the AFS impairment in the IB between FICC and equities, sorry?
Thomas Naratil
On that one, if you could give us a ring after the call?
Andrew Stimpson - BofA Merrill Lynch, Research Division
Yes, yes, sure. No problem.
Operator
Next question from Andrew Lim, Société Générale.
Andrew Lim - Societe Generale Cross Asset Research
The first one is just with regards to NII in the Wealth Management and Retail & Corporate divisions. I just want to make sure that, that part coming from the higher allocation from treasury, that that's actually due to high interest income on the invested assets and in line with what you saw from forward rates a few quarters back, and it's not actually a change in methodology, in how you allocate the NII in treasury income.
Is that a similar methodology to what's been adopted before? And then the second question is, you've given some nice information there on sensitivity to changes in interest rates.
But assuming that we just have, say, like a parallel shift in the U.S. curve, to what extent would we see those changes, those positive changes in NII coming through?
Would it presumably be still the case for the Wealth Management Americas division, but much less so for Wealth Management and the R&C division?
Thomas Naratil
Okay. So Andrew, if I can just go through the first question on the net interest income.
We did change -- I mean, as I mentioned, there are a few things that are impacting net interest income, all different variables. I think in both Retail & Corporate and Wealth Management, pricing activities are actually having a positive benefit for us, overall.
It's not a quarter-over-quarter type of thing, it's something that's been developing over the course of the -- over the course of a number of quarters and a couple of years, where the businesses have really focused on pricing as a way to counteract the overall secular effect of the decline in interest rates, the dramatic decline in interest rates. This funding, this change in our internal funding and funds transfer methodology is definitely an allocation methodology change, but it's not about moving X from Group Treasury to the business division on a static basis.
It's based on when we get deposits in a currency and a tender that are more attractive for us on a centralized basis, we pay more for that funding. And that's just the logical way to execute this.
So we're really doing -- you're seeing changes in the business practices of the division are rewarded via us paying more for the funding to them, because it has more value to us. So that is a very logical approach, and it's something we'll be continuing to do.
So rather than having a nonbehavioral-based approach to the way that we pay for deposits in our funds transfer methodology, you'll see us be more responsive to where we need money. And as a result, the figures may bounce around a bit more based on that, depending on how divisions respond to that.
On the change in interest rates and impacts on other divisions, the -- since the AFS portfolio for the past year has been managed centrally by Group Treasury, any impact on the change in the value of the AFS portfolio, for example, in the Utah bank, UBS Bank USA, would be reflected in the P&L of Group Treasury when we crystallize the losses on the AFS portfolio. But if you look -- going back to the breakdown of the different scenarios that we've laid out, if you look at the Stifel [ph] -- Stifel, as a parallel or the flat in our case [ph].
Obviously, the OCI impact doesn't hit any division. It's a group-wide number and reg cap is largely a de minimis number, since the vast majority of our exposure is a macro cash flow hedge.
Operator
Next question from Jeremy Sigee from Barclays.
Jeremy Sigee - Barclays Capital, Research Division
I just wanted, like, 2 follow-ups on litigation. I realize you may not want to comment, but just in case.
So firstly, on the FX cases, you say you're in talks with both U.S. and U.K.
regulators. I just wondered if you can give any steer on, firstly, potential time frame of settlement, and secondly, whether you think they're likely to be a coordinated outcome or separate parallel tracks.
So that's the first question. Second question was also litigation, just on the French Wealth Management case, I can see on Page 145 that you're not taking extra provisions in the quarter in Wealth Management despite the obvious setbacks that happened in the court case, and I just wondered if you could comment at all on that.
And then the third question was really on your geographic detail of Wealth Management gross margin disclosure, Slide 9, where you saw quite a jump in the quarter in Asia and emerging markets. And I just wondered if there's any specific factors driving that or any change of behavior or any particular transactions that caused that in those 2 regions?
Sergio P. Ermotti
Okay. Thank you, Jeremy.
In respect to the litigation matters, you're right, we cannot really make further comments on this issue. I do say that, in general, those topics are industry-wide topics.
I think that it's always difficult and it's not even possible for us to predict the timing, the financial impact and the non-financial impact of those actions and settlements. For sure, we are in no position to understand if there are any coordinated efforts.
It's -- we are not part of this kind of discussions. And also, it's -- it could well be that you have a one-off settlement versus contemporary settlements by several banks.
At this stage, it's really -- we can't really add much more comments other than the fact that we are making progress, and we are keen to resolving, in a fair way, those kind of issues, but again, the timing is very, very difficult to predict. On the French case, I think that the [indiscernible] is basically a formal starting of an investigation.
I think that the fact that we were asked to put a bail against this [indiscernible] is one of the process, which we already made comments officially that we think it's not proportionate and not at all aligned with the discussion we had with the French authorities. Now the matter will now be a matter of years and not months.
I think an investigation is starting and, again, we're not controlling the depth and where they want to go with this investigation. I can only say that we feel that there is no proportion about what is being discussed but we, of course, are going to look into how to try -- how to get into a solution wherever it's possible.
But if -- it looks like now the course is going towards an investigation and, therefore, as I mentioned before, it's a matter of years rather than months. I mean, maybe, Tom, let me start and you can complement, but I would say in the APAC in the quarter, first of all, I would highlight that if you look back into the previous quarters in general, but also particularly in Asia, the amount of the transactions and volumes were subdued compared to historical standards.
So what we saw in the third quarter is clearly a pickup that was somehow correlated to increased volatility in financial markets, particularly, the effects -- the effects side of the equation. And I think that there is no fundamental change.
I would say that, once again, I would just -- in general, for Wealth Management, how quickly you can get -- although we are still below the 95, how quickly on a month-to-month basis you can get closer. You have a chance of 4 to 5 basis points just on increased volume, that I wouldn't really describe as being spectacular or stellar, it's just increased from almost a paralyzed environment into a normalized environment.
And -- but I would look at Asia more as a subdued volume in the second quarter rather than being exceptional in the third quarter.
Thomas Naratil
If I could just add to Sergio's comments, Jeremy, I might say, one, as he noted, volatile gross margin overall from 85, 83 to 89 during the months in the quarter. In APAC and EM, in particular, we did see an uptick in some FX revenues, following the uptick in volatility at the end of the quarter.
We saw some benefit from net interest, so a response to those behavioral pricing aspects that I noted. We also had some investment banking-type deals coming through our corporate advisory group, and then there were other products, of course.
So it's pretty well spread across the spectrum in both APAC and EM. Going back to your French question, there's just one thing I would note, just that if you want to find the bail deposit in the balance sheet, it is in Note 13, Page 143 of the quarterly report.
There's a new line -- new row that's been added to the other asset category, called bail deposit, and that's where you'll see the entries.
Operator
Next question, from Jon Peace, Nomura.
Jon Peace - Nomura Securities Co. Ltd., Research Division
Two questions, please. The first is just a follow-up on litigation.
Your litigation provision increased from around CHF 2 billion last quarter to CHF 3.5 billion. And I know you don't put a precise figure on the contingent risks, they're more than remote bucket.
But I noticed the verbal guidance is still that it substantially exceeds the current provision. And without putting a figure on it, I just wonder if you could give us a figure of how it's moved.
Has it reduced because of the increase in provision or has stayed the same? Or should we even think of scaling it up with the environment?
And then the second question is with regard to your cost guidance and the increased regulation -- increased cost you've flagged to this next year, do you still feel with the cost/income ratio guidance of 60% to 70% for 2015, you'll be within that range on a reported basis?
Sergio P. Ermotti
Yes. I mean, let me tackle the last one.
I think that it's pretty clear that we are sticking to all our targets and that would be our real focus. So absolutely no doubt about that.
And maybe, Tom, why don't you pick up this... the litigation efforts?
Thomas Naratil
The litigation question? Yes, sure.
So Jon, I think, again, you're correct, the language that we have is that it substantially exceeds, and I think that's pretty logical just understanding what is required and permitted under IFRS that you only accrue when something is probable and estimable. That certainly creates a gap between the ultimate outflow in the accounts.
I think you need to take a look at 3 -- the 3 components of litigation provisioning and then, obviously, the information contained in the note. The operational RWA supplement amount that we agree with FINMA.
And then finally, the amount that we run on a statistical capital analysis that Fiona brought up in her question. And I think if you look at those 3, they all move differently based on different factors.
The OR -- RWA analysis with FINMA does include an assessment of some of the tail risks that we expect in the litigation portfolio and the probabilities assigned to those. And as you've seen, that can go up or go down in any quarter.
This quarter, in response to a large provision, it's not surprising that you'd see a reduction in that amount. But I do think looking at those 3 in consort is probably the best way to triangulate the issue.
Operator
Next question from Al Alevizakos from KBW.
Alevizos Alevizakos - Keefe, Bruyette & Woods Limited, Research Division
Effectively, the thing I'm trying to understand is the thing that we talked about regarding the treasury allocations already. I can definitely see the uptick in NII, both in Wealth Management and Retail & Corporate.
And Retail & Corporate is a bit more apparent, with basically 6 basis points of NII increased in the quarter. Tom, you just said that it relates -- given some incentives for the divisions to operate under certain currencies, if I understood that correctly.
However, first of all, I don't understand why that is important, and then I don't understand how it can be both important for the Wealth Management in Asia Pacific because that's where I see the gross margin going up. And also, it can be important on the Swiss franc as it is on the Retail & Corporate.
Thomas Naratil
Yes, so that's one -- to your question, it can be beneficial to both, because there could be very specific buckets, so we might be incentivizing a specific tender bucket, let's say, in Swiss francs that Retail & Corporate could respond to. And we could be emphasizing a particular dollar bucket in Wealth Management that they also could have also responded to.
So it's just how they respond to the different incentives that we provide for the different categories of deposits, both in currency and in tender, and I'd really emphasize the tender piece. When you look at NSFR, that -- clearly, when you look at LCR, overall, we're trying to match up both the currency and tender bases and balance the gaps both on a group-wide basis but also in very specific subsidiarized entities.
So the fact that it was positive this quarter in both divisions could be due to the fact it's newly introduced in both of the divisions, and maybe their performance will vary more as we move quarter-over-quarter.
Alevizos Alevizakos - Keefe, Bruyette & Woods Limited, Research Division
And I'm just going to try the same question that somebody tried it before. For example, for Retail & Corporate, the increase from 158 to 164 in the NII, what would it have been if you haven't really introduced this new treasury allocation?
Thomas Naratil
So you -- be as equally successful on asking the question. Just to give you some -- but just to give you some background on it, it's not the only component of the uptick, obviously.
And I would really make a point about the business division's focus on pricing and thinking about how they're pricing to the market and pricing to their client base, it's just something else that also gets reflected in funds transfer pricing because they ultimately reflect the deposit pricing to the market. But I think it, overall, it fits into this category of being far more focused.
And Sergio mentioned it in his remarks when he talked about TLAC. The way we have to manage the business in the future, we have to be far more responsive on, really, a hair-trigger basis to changes in either the regulatory environment or the implications of the regulatory environment on all the different ratios we have to manage.
And I think that, that's -- when you look at the job of a treasury function today, it is significantly more complex than it's ever been because you're managing multiple ratios that have offsetting effects on each other, and you're trying to get to an optimal point in a space. And so I think providing these incentives directly to the business so they can do a better job pricing to their clients is the best way to manage that.
Operator
Next question from Kilian Maier, MainFirst.
Kilian Maier - MainFirst Bank AG, Research Division
Yes. I have a quick question on litigation and how FINMA looks at it.
And so if I take the CHF 25.8 billion of additional risk weighted assets as of Q2, and then divide that by 7, that gives me CHF 3.7 billion. And a reduction of 7 cost you CHF 1.8 billion, so that would imply an overall charge of around CHF 6.6 billion on a FINMA perspective, CHF 1.8 billion up to this quarter.
That would imply remaining charges, from FINMA perspective, of CHF 4.8 billion. Would that be a kind of way like FINMA looks at it as well or is that too arithmetic?
Thomas Naratil
So Kilian, I would say it seems a little too arithmetic to me because you're dealing with -- you're dealing with -- I think it's more of a [indiscernible] analysis that you'd have to do because you're dealing with tail risk events and certain types of probabilities, rather than a certain amount. So it's not like the provision itself, a probable and estimable amount which might be better done through a linear analysis.
I don't think a linear analysis is the right way to approach this. If I could just add -- going back to the previous question as well, the 1 thing that I forgot to mention was, in a very low to negative interest rate environment, we obviously have to be even more responsive than we ever have been in terms of providing the right incentives because there's a significant drag in terms of the impacts of the low to negative interest rate environment.
Sergio P. Ermotti
The sensitivity is very active.
Thomas Naratil
Yes. Sergio's right, the sensitivity component on small changes is very significant.
Operator
Next question from Stefan Stalmann, Autonomous.
Stefan-Michael Stalmann - Autonomous Research LLP
I have 3 questions, please. The first one relates to the extension of the non-prosecution agreement in the U.S.
Could you maybe give a bit of color as to why that has happened and what the practical implications are of having this additional 1 year period on this NPA? The second question, with respect to this CHF 3.1 billion potential operating loss.
That's a statistical exercise, if I understand it correctly, and it measures with a 99.9% confidence effect that the losses are not higher than CHF 3.1 billion over 1 year. But now we have CHF 1.8 billion of litigation expenses already in 1 quarter.
Isn't that model in case of recalibration? And the last question, the additional to CHF 2 billion restructuring expenses in 2016 and '17, could you give a rough guidance of how they will be split up among the divisions?
Sergio P. Ermotti
So let me -- on the NPA, I think that extension is a consequence of our ongoing discussion with the Department of Justice, and has no further implication other than the extension under the similar conditions that we have had in the past and had been fully disclosed in our disclosures. So I think it's a fairly normal process that we have been seeing also being applied to other banks as they go through discussions and settlement discussions.
So there is not -- no more implication other than the obvious ones that are already there. Tom?
Thomas Naratil
So Stefan, I think your question on the statistical model that we use in the capital analysis, I think the appropriate thing to do is, as you noted, I would say, the analysis is done to a 99.9% confidence interval. But as you know, the tail on that could be any number of data points on the curve.
And I'd also say, we'll have to see as you look out over the course of the year, whether or not that's something that will be recalibrated as a result of the AMA model, recalibrations that will be associated with actual losses incurred, not just the provisioning amounts that we take. Finally, CHF 2 billion for '16 to '17, as I mentioned in my remarks, we're almost entirely done with the clean slate budgeting and planning process, and so we've got the framework on the restructuring costs, the activities, the investments that we want to make in infrastructure and our simplification program, in aggregate.
We're currently reviewing the actual portfolio of activities, and that will determine the ultimate allocation to the business divisions. So I think by the time we do our next quarter results, we should have better guidance on that.
Operator
Next question from Robert Murphy, HSBC.
Robert Murphy - HSBC, Research Division
Just a couple of things. I want to come back to Slide 21 again, because I think these restructuring charges have now averaged about CHF 750 million per annum, if you project forward.
And if I look back through my model, I'm really struggling to see a dramatic improvement in underlying cost/income ratio. And I know you've had, obviously, a number of headwinds in terms of markets and currencies.
And so, I guess the point is sort of, when do you have confidence we're going to see you actually getting towards your target on cost/income ratio? And to what -- and what are you factoring in there in terms of interest rates at that point?
And then my follow-up question is on FX in the Investment Banking, you seem quite -- your performance seems quite weak versus peers, and I just wondered if you could explain that?
Thomas Naratil
So Rob, on the first item, and to the extent that I' don't give you enough color, you can always follow-up with us after the call. One, I think you mentioned a very important piece, when you're looking at the cost/income ratios, your projections, I think, are clearly a very significant component of that.
So we use implied forwards in the various currencies. We also include, obviously, the different initiatives, business initiatives that our divisions have in the roll-forward in the plan years.
I mentioned in my remarks a number of times today, positive implications of pricing, so I do think that, that's a factor in it. I think the other point that I'd make is that our -- that the targets that we've presented, you should take a look at how they're presented on an adjusted basis to make sure that we walk through those numbers with you in detail.
Robert Murphy - HSBC, Research Division
I guess the point is, when are we actually going to see a major move towards your target? Is it going to be second half of '15?
I mean, I just -- because it sounds like we keep getting more restructurings.
Thomas Naratil
Well, I think '15. I mean the main thing to think about in '15 is the cost target.
Taking out CHF 1 billion -- we said in our investor update, take out CHF 1.4 billion on a run-rate basis, exiting '15 [ph] versus '13. So I think what you see in 2015 is the investment we need to make, to make sure that we get those costs out in '15 so you come into '16 with a very good amount of momentum, coming out of a much lower cost base.
And as you know, we've talked about our ROE target with an eye on '16, and I think these restructuring costs now put us in a better position to be able to fully execute on the cost takeout so we enter '16 properly.
Sergio P. Ermotti
In respect of FRC, I would say that -- so 2 observations. First of all, I would say that our FX and rates business performed in line with the industry.
Actually, I would say that I'm very pleased with the results. I think our credit business has performed below industry, but I have to say, this is -- it goes back a little bit into what we are expecting and what you should expect because we made very clear about our strategic provisioning of those businesses within the context of how we run the Investment Bank.
So it's totally to be expected, but I would disagree that our FX performance was below industry standard. Actually, it's reflective of higher volatility, as we mentioned before in Wealth Management but also in DIB, we saw higher customer activity, particularly, in the last part of the quarter.
And it's totally in line with what we expect, I would be concerned to see something different.
Caroline Stewart
At this point, we have no more questions from the line. Thank you very much for joining us for the results call today.
And what we're going to do is close the program to our listeners and we're going to start the media call.
Operator
Ladies and gentlemen, the Q&A session for analysts and investors is over. Any listening investors may now disconnect their lines.
In a few moments, we will start the media Q&A session. Thank you.