Nov 3, 2015
Executives
Caroline Stewart - Global Head Investor Relations Sergio Ermotti - Group Chief Executive Officer Thomas Naratil - Group Chief Financial Officer and Group Chief Operating Officer
Analysts
Andrew Stimpson - Bank of America Merrill Lynch Fiona Swaffield - RBC Europe Ltd. Andrew Lim - Société Générale SA Huw van Steenis - Morgan Stanley & Co.
International Plc Jon Peace - Nomura International Plc Jeremy Sigee - Barclays Capital Securities Ltd. Alevizos Alevizakos - KBW Amit Goel - Exane Ltd.
Jernej Omahen - Goldman Sachs International
Operator
Ladies and gentlemen, good morning. Welcome to the UBS Third Quarter Results 2015 Conference Call.
All participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be two separate Q&A sessions.
Questions from analysts and investors will be taken first, followed by questions from the media. [Operator Instructions] The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to UBS. Please go ahead.
Caroline Stewart
Good morning. It's Caroline Stewart here for UBS Investor Relations.
Welcome to our third quarter results presentation. This morning, Sergio will provide an overview of our results and Tom will take you through the details.
Before I hand over to them, I'd like to remind you that today's call may include forward-looking statements. These statements represent the firm's belief regarding future events that may, by their very nature, be uncertain or outside the firm's control and our actual results and financial condition may vary materially from our belief.
Please see the cautionary statement included in today's presentation on the discussion of risk factors in our annual report 2014 for a discussion of some factors that may affect our future results and financial condition. Thank you.
And with that, I'll hand over to Sergio.
Sergio Ermotti
Thank you, Caroline. Good morning, everyone.
For the first quarter, we reported a net profit attributable to UBS shareholders of CHF 2.1 billion, which included a net tax benefit of CHF 1.3 billion largely due to the revaluation of deferred tax assets and a provision of CHF 592 million for litigation, regulatory and similar matters. Adjusted profit before tax was CHF 1 billion.
This result led to a 5.4% quarter-on-quarter increase in tangible book value per share to CHF 12.7. We also made further progress in our cost reduction program despite the cumulative impact of incremental permanent regulatory costs which annualized - with annualized net cost savings reduction of CHF 1 billion so far.
The macroeconomic backdrop for the quarter was very challenging, as events in China and the expectation of a Fed hike, followed by the Fed's decision not to raise rates elevated levels of uncertainty and volatility. These issues added to the typical seasonality and client activity levels, it [indiscernible] particularly in Wealth Management.
Given this exceptionally challenging environment, our results were solid. I'm most pleased with our performance because we managed risk effectively for our clients and shareholders, both when markets were booming and also when markets fell.
Despite the extreme market volatility that during the summer prompted four times the normal level of margin calls in the quarter in Wealth Management, we did not record credit losses. We remain the best capitalized large global bank with a Basel III fully applied CET1 ratio of 14.3%.
Our fully applied Swiss SRB leverage ratio increased to 5% and our BIS fully applied leverage ratio increased to 3.9%. Achieving a 5% leverage ratio under the current rules equates broadly to the requirement under the new rules and underlines our view that we never had a leverage ratio issue, but instead a definition issue.
Turning to the business divisions, Wealth Management delivered a resilient performance with around CHF 700 million of high quality pre-tax profit. Recurring income increased reflecting continued success in our strategic initiatives.
However, transaction activity declined substantially, as clients reacted to extreme volatility. Costs are being carefully managed.
And through the targeted front office headcount reductions we have already implemented, the business is freeing up capacity to invest in long-term growth. Our balance sheet and capital optimization program is a great example of this, and we are very pleased with the results.
It was a win-win result for our client and for the bank. The vast majority of the clients chose to invest in products with more attractive returns for them, at the same time, improving our economic profitability and reducing our leverage ratio denominator.
Adjusted for the program and including almost CHF 4 billion in outflows mostly related to deleveraging in Asia, net new money was CHF 3.5 billion with positive inflows in all regions. As I said in the past and just explained, while net new money is an important indicator of growth for the business, quality is far more important to us than quantity, and our focus remains on sustainable long-term profitability.
Wealth Management Americas delivered pre-tax profit of USD 287 million on record recurring income. Net new money was $500 million and our advisor remains the most productive in our peer group with continued low attrition rates.
This quarter was an excellent example on - of how consistent client engagement, especially with the benefit of our insight and advice has helped clients navigate difficult times. Our clients have benefited from our disciplined focus on active risk profiling, strategic asset allocation and diversification, all of which help mitigate the impact of the severe market volatility.
At UBS, Wealth Management is not just a business we are in, it's part of our DNA. As the only truly global wealth manager in the world, we are benefiting from the strong long-term fundamentals of this business and we'll seek opportunities to continue to capitalize on any dislocations the industry may experience.
Retail & Corporate delivered its best first nine months since 2010 with a very solid pre-tax quarterly profit of CHF 428 million. Retail client assets and loans continued to grow.
And once again, all KPIs were within their target range. Once again, these results reflect the significant investments we have made in our home market over the last four years, and they underline our leading positioning in and commitment to the Swiss market.
Asset Management delivered a pre-tax profit of CHF 137 million on strong management fees. The business experienced net new money outflows of CHF 8 billion, much of which related to low margin passive products, reflecting elevated client liquidity needs.
The Investment Bank delivered very good results both on absolute and relative basis, with a pre-tax profit of CHF 614 million and strong performance in all areas. Equities delivered its best third quarter since 2010, and revenues and FX, rates and credit were up 37% year-on-year.
We participated in several notable transactions, including lead financial advisor on Anthem's acquisition of Cigna, financial advisor to Ladbrokes on his merger with Coral, and joint sponsor and global coordinator for the China Reinsurance IPO to name a few. The IB again delivered high risk-adjusted returns within its allocated resources, underlying the success of its client centric, low inventory business model, which is absolutely the right one for UBS.
So, overall, I'm pleased with the quarter. We stay close to our clients in a very challenging environment.
Disciplined execution and our diversified business model allowed us to deliver strong returns for our shareholders while continuing to invest in our future. The Swiss Federal Council recently proposed stricter capital rules for global systemically important banks, making the Swiss regime, by far, the most demanding in the world on a relative basis.
Tom will take you through the details of the proposal, but I can confirm that UBS will be compliant with the new rules at inception and we intend to use the four-year period to fully implement the new requirements. Compliance with the new requirements will come at a significant additional cost, which will have an impact on returns on tangible equity of up to 300 basis points.
We will continue to work hard to offset these headwinds through further balance sheet optimization, executing our existing efficiency program and by reflecting the increased cost of capital in the pricing of our products and services. At the same time, the market environment has become more challenging.
Implied forward rates are materially lower than previously expected. We continue to operate with negative interest rate in Switzerland and Europe, and market returns are lower than long-term averages, which has impacted invested assets levels.
At UBS, targets do matter as we believe we cannot run a successful business and create the appropriate accountability without that. They encourage management to take the right actions, and despite very challenging markets, have helped drive our successful transformation.
In the real world, things do change. And as I just described, regulation and the macroeconomic environment have changed materially.
So, we need to adjust both our actions and our expectations accordingly. But what must remain constant is our discipline and determination to deliver what we have promised in areas which we can control.
Despite some of the challenges I've mentioned, we have generated an adjusted year-to-date return on tangible equity of 14.5%, substantially above our target of around 10% for the year. We firmly believe our business model can generate adjusted returns on tangible equity of greater than 15%.
But due to the macroeconomic and regulatory environment and substantial DTA write-up in the past two years, it's only realistic to temper our expectation in terms of timing. Due to regulatory inflation, we expect the group's risk-weighted assets to trend to around CHF 250 billion in the short to medium term.
This represents de facto no overall change in our risk-taking capacity. The group LRDs is likely to trend around CHF 950 billion providing models additional capacity for our businesses.
This may seem like a counterintuitive reaction to a higher leverage ratio requirement, but is a quite logical as the rules have now been clearly defined. So, this is now simply reflecting tools and other minor adjustments and the fact that it would be impossible to deliver long-term sustainable growth and attractive and increasing capital returns by cutting our resources further.
As I've said in the past, our strategic transformation is complete. We have the right strategy and shrinking to greatness is not part of it.
But let me absolutely be clear about two issues. First, there will be no change in our capital allocation philosophy and our discipline around limits, therefore, the Investment Bank, for example, will continue to represent no more than 30%, 35% of the group's total LRD and risk-weighted assets.
Second, while for the foreseeable future, leverage ratio will be the binding constraint, we will continue to manage the risk of the bank based on risk-weighted assets under advanced models with leverage and stress test as additional components. We believe this is the most appropriate approach to prudently manage risk for a bank like ours and to produce sustainable risk-adjusted results.
Most importantly, our commitment to our capital returns policy is unchanged and we will continue to target a payout ratio of at least 50% of net profit subject to maintaining a fully applied Basel III CET1 ratio of at least 13% and 10% post stress. Thank you and I will now turn it over to Tom for detail on the quarter
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 32 million, a gain of CHF 81 million related to our investment in the SIX Group, foreign currency translation losses of CHF 27 million from the disposal of a subsidiary, net restructuring charges of CHF 298 million, and a CHF 21 million credit related to a change in - to retiree benefit plans in the U.S.
Profit before tax was CHF 1 billion and net profit attributable to UBS Group AG shareholders was CHF 2.1 billion, including a net tax benefit of CHF 1.3 billion. Return on tangible equity was 19.5% for the quarter and 14.5% year-to-date.
Our Wealth Management businesses delivered another solid quarter with a combined profit before tax of CHF 1 billion, bringing us to CHF 3.1 billion year-to-date at a compound annual growth rate of 14% since 2012. As always, our focus is on long-term profitable growth and we're targeting a combined annual pre-tax profit growth rate of 10% to 15% through the cycle where the combined business is.
Wealth Management delivered a profit before tax of CHF 698 million, as continued growth in recurring income was more than offset by lower transaction-based revenues. Recurring revenues increased on higher net interest income, which rose 6% to CHF 600 million on higher lending and deposit revenues.
Recurring net fee income declined slightly as the benefits from our strategic initiatives to increase mandate penetration and improve pricing were more than offset by the impact of lower invested assets. Transaction-based income declined to its lowest levels since the financial crisis as high volatility led to a substantial reduction in client activity, primarily in APAC and Europe.
The business demonstrated solid cost control with expenses down 1% to CHF 1.2 billion. The cost income ratio was 64% within our target range of 55% to 65%.
We're pleased with the quality of net new money we've delivered so far this year. Internally, we measure our performance using return adjusted net new money.
On this measure, we've seen an improving quality of flows in the quarter and year-to-date. Mandate penetration increased by 70 basis points to 27% as the business delivered CHF 4.8 billion in net new mandates with balanced distribution across regions.
Loan balances were down marginally, as positive currency translation effects were more than offset by the impact of deleveraging. Invested assets declined for the third consecutive quarter which last occurred at the onset of the Eurozone crisis.
Monthly gross margin trended down throughout the quarter from 86 basis points in July to 81 basis points in August and to 80 basis points in September. Fourth quarter revenues will be affected by invested asset levels at the end of the third quarter, as well as the gross margins in September.
Adjusted net new money was positive in all regions despite client deleveraging. Operating income was down slightly in Switzerland, but gross margin increased on a lower invested asset base.
Operating income increased in emerging markets, while decreasing in Europe and APAC, with sharp declines in transaction-based income. Wealth Management Americas delivered a profit before tax of $287 million, up 24% on record recurring income and lower expenses, partly offset by lower transaction-related income.
Operating income was $1.9 billion with recurring income increasing 2% to $1.5 billion, accounting for a record 80% of total income. Strong recurring income reflected record net fees, which increased 1% on higher managed account fees and also record net interest income, which increased 3% on growth in lending and deposit balances.
Operating expenses decreased by 4%, mainly due to lower net charges for provisions or litigations, regulatory and other matters, as well as lower legal fees. Net new money was $0.5 billion driven by an influence from advisers who've been with the firm for more than one year.
Invested assets declined to just under $1 trillion, mainly due to negative market performance. Managed account penetration increased by 20 basis points to a record 34.4% of invested assets.
Both gross and net margins were up 2 basis points in the quarter. Gross margin was steady for most of the quarter, but fell slightly in September to 75 basis points.
Wealth Management Americas' fourth quarter would be impacted by the closing level of invested assets from the third quarter, which is 5% lower than for 2Q. FA productivity remained industry-leading with annualized revenue per FA of over $1.1 million and invested assets per FA of $142 million.
Since 2009, our revenue per FA has increased at a compound annual growth rate of 9.4%. Loan balances continued to grow as they increased $200 million to $47.5 billion.
Average mortgage balances increased 4% to $8.4 billion and securities-backed lending balances were up 2% to $33.5 billion. Retail & Corporate delivered another strong quarter with profit before tax of 3% to CHF 428 million and all KPIs within their target ranges.
Year-to-date, the business has delivered CHF 1.3 billion in profit before tax, the highest since 2010. Operating income increased 1% mainly due to higher net interest income from lending and deposits and also from lower credit loss expenses.
Net credit losses were negligible as we saw no new material cases in the quarter. Notwithstanding the continued low levels of credit loss expenses, we're closely monitoring developments of the Swiss economy, where we remain mindful that the continued strengthening of Swiss franc could have a negative effect on the economy and exporters in particular, which may impact some of the counterparties in our domestic lending portfolio.
Annualized net new business volume growth for our retail business remained solid at 2.5%. This was driven by growth in deposits and, to a lesser extent, growth in lending balances, which is consistent with our strategy to grow our high quality loan business moderately and selectively.
We continue to attract new domestic clients with year-to-date net new client accounts rising to a record of over 22,000, up 35%. Wealth Management Switzerland has recently undertaken a review of its client portfolio and identified relationships which would be better served by the retail business.
As a result in the fourth quarter, Retail & Corporate will pay a one-time acquisition fee of approximately CHF 50 million to Wealth Management for anticipated annual revenues of CHF 30 million and new business volume of around CHF 4 billion. The CHF 50 million fee will not be treated as an adjusting item and there will be no significant impact on net new money in Wealth Management or net new business volume in Retail & Corporate.
In Asset Management, operating income increased by 5% to CHF 502 million on higher net management fees with increases in traditional investments in global real estate. Performance fees increased slightly to CHF 23 million as investment performance continued to be subdued in O'Connor and hedge fund solutions and very challenging market conditions for alternative asset managers.
Expenses were CHF 365 million, up 7% of higher personnel expenses and net charges from other business divisions in corporate center. Net new money excluding money markets was negative CHF 7.6 billion as the third quarter included CHF 15 billion of outflows mainly from lower margin passive products, driven by client liquidity needs.
The combined annual revenue loss from these large outflows is only about CHF 5 million. Excluding this small number of clients, net new money was positive CHF 7.4 billion.
Net new money from our Wealth Management clients, excluding money markets, was around CHF 300 million and was positive for the seventh consecutive quarter. The Investment Bank delivered a very strong quarter with profit before tax of CHF 614 million.
Operating income was up 6% year-on-year to CHF 2.1 billion, the highest it's been in a third quarter since 2012. ICS revenues increased 13% to CHF 1.4 billion.
FX rates and credit revenues were up 37% driven by a strong flow rate and credit performance and only partially due to a comparatively weak 3Q 2014. The business continued to carefully manage inventory, operating at a high velocity and managing within tight risk and balance sheet limits.
Equities revenues were up 4% with strong performance in cash equities. Regionally, the Americas saw increases in all business lines, particularly in derivatives.
Corporate Client Solutions revenues declined by 4%, as strong performances from DCM and ECM were more than offset by lower revenues from financing solutions, advisory and risk management. We performed better than the market fee pool across our capital markets businesses.
Operating expenses decreased 54% year-on-year as the prior period included substantial charges from litigation, regulatory and similar matters. Excluding these charges, expenses were down 2%, reflecting positive operating leverage and continued improvements in cost efficiency.
The IB's cost income ratio was 70%; at the bottom-end of our target range of 70% to 80%. Our model focuses on our clients and it's designed to capture client flows with limited mark-to-market risk in order to deliver strong risk adjusted returns.
Our resource utilization has been consistent. And we've delivered industry-leading returns on RWA, and average revenue per unit of VaR of around CHF 180 million over the last 11 quarters.
Our teams in the Investment Bank achieved good productivity in the quarter, despite the extraordinary market volatility and we continued to operate with comparatively low levels of VaR and RWA. Profit before tax in corporate center services was negative CHF 255 million, roughly unchanged from the prior quarter.
Operating expenses before allocations decreased due to lower personnel expenses and occupancy costs. Profit before tax in Group Asset and Liability Management was negative CHF 116 million compared with negative CHF 127 million in the prior quarter.
We saw a loss of CHF 201 million from interest rate derivatives used to hedge our high quality liquid asset portfolio. Declining U.S.
dollar interest rates resulted in losses on these derivatives, which are mark-to-market through P&L, whereas the respective high quality liquid assets are held as available for sale with unrealized fair value gains recorded in OCI. Profit before tax in non-core and legacy portfolio was negative CHF 803 million.
Operating income of negative CHF 126 million included valuation losses of CHF 20 million and higher losses, primarily in rates, from ongoing novation and unwind activity in addition to re-hedging costs. Operating expenses increased by CHF 510 million as net charges for provisions for litigation, regulatory, and similar matters increased.
Once again, we had a significant reduction in LRD in the quarter and the balance now stands at roughly 20% of what it was when NCL was created in 2012. We achieved an additional CHF 100 million of annualized net cost reduction in the Corporate Center, bringing the total to CHF 1 billion based on the September exit rate versus full year 2013.
Savings in the quarter were driven by decreases in corporate real estate and services, operations, and non-core and legacy. Regulatory demand continues to be a headwind, amounting to an estimated CHF 1.1 billion for 2015, including approximately CHF 400 million of a permanent nature and CHF 700 million of a temporary nature.
We'll continue to work hard to offset permanent regulatory costs in order to achieve our targeted net cost reductions. We've taken out CHF 1 billion of cost in the Corporate Center since 2013 and we're committed to taking out an additional CHF 1.1 billion by 2017.
In the third quarter, our net tax benefit included a net increase in recognized deferred tax assets of CHF 1.5 billion. This included CHF 1.3 billion related to the net upward revaluation of U.S.
DTAs, reflecting updated profit forecast, which contributed approximately CHF 200 million and an extension of the recognition period for future profits from six to seven years, which contributed the remaining CHF 1.1 billion. We recognized 75% of the expected full year DTA write-up in the third quarter and we expect to book the remaining 25% or approximately CHF 500 million in the fourth quarter.
Our future profits in the U.S., where we still have over CHF 15 billion of unrecognized DTAs, will be the main driver of recognition and usage of DTAs in the long term, reinforcing the value of our U.S. franchise.
As a reminder, the recognition of tax loss DTAs does not immediately affect fully applied CET1 capital since higher tax loss DTA recognition in the P&L is offset by an equivalent deduction in the capital account. However, the utilization of tax losses against taxable income over time leads to reduced tax expenses which will benefit CET1 capital.
As we look to 2016 and beyond, our internal threshold to extend the recognition periods for U.S. DTAs become more challenging.
And at this point in time, we expect no further extension in the recognition period. We currently expect a net upward reevaluation of tax loss DTAs of approximately CHF 500 million for 2016.
We continue to improve our leverage ratio, increasing our fully applied Swiss SRB ratio by 30 basis points to 5% on increased CET1 capital and AT1 issuance. Fully applied CET1 capital increased by around CHF 700 million to CHF 30.9 billion, mainly reflecting operating profit from the quarter.
Previously, we flagged that our SRB and BIS spot LRD would converge at year-end. At this point in time, we're likely to see BIS LRD slightly lower than SRB on a spot basis at year-end.
Our fully applied CET1 ratio remained the highest among large global banks at 14.3% despite a CHF 6 billion increase in RWA. Sergio already touched on the Swiss Federal Council's proposals for higher capital requirements for Swiss global systemically important banks, which are required to be fully compliant by the end of 2019.
We intend to use the four-year transitional period to implement the new requirements. The proposal sets out a required going concern leverage ratio of 5% of the BIS leverage ratio denominator in order to qualify as well capitalized.
Of the 5%, at least 3.5% must be held in CET1 with the remainder in high-trigger AT1. The corresponding risk-weighted requirement is 14.3% with at least 10% from CET1 and up to 4.3% in high-trigger AT1.
The going concern element in both ratios includes a progressive component, driven by the bank's total exposure and market share. The bond concern requirement mirrors the going concern requirement at 5% of LRD and 14.3% of RWA, which is to be met with bail-in eligible instruments.
This amount may be reduced by up to 2% of LRD and 5.7% of RWA, depending on the bank's progress and implementing measures to improve its resilience and resolvability. As we've made significant progress in addressing our resolvability, we're confident that we'll qualify for a meaningful rebate and we look forward to further clarifications on the process in due course.
The TBTF proposal also includes transitional arrangements for existing capital instruments. AT1 low-trigger instruments can be counted towards the AT1 high-trigger going concern requirement until their first call date, which can be after 2019.
Tier 2 capital will be recognized as AT1 high-trigger going concern until the earlier of its first call date or the end of 2019, and has gone concern capital thereafter. We'll be compliant with the new roles at inception and we're well prepared to meet the final 2019 requirements.
We have the best capital position among our peer group and we operate a strong, successful and highly capital-generative business. Our CET1 leverage ratio already stands at 3.3% and we can achieve the required 3.5% by retaining a further CHF 2 billion of CET1 capital through earnings over the next four years.
Based on our current BIS exposure and under the grandfathering proposals, we've met the 1.5% high-trigger Tier 1 going concern requirement. We also continue to plan in issuing around CHF 2 billion of high-trigger AT1 to our employees through our deferred contingent capital plan, bringing us to a sustained balance of CHF 2.5 billion.
And we expect to replace maturing grandfathered instruments with group-issued high-trigger AT1 over the transition period. As for the gone concern requirements, we completed our inaugural TLAC issuance in September, successfully placing CHF 4 billion of bail-in debt out of UBS Group AG.
And today, we've announced our road show for our inaugural euro TLAC issuance. We currently have CHF 6.5 billion of Tier 2 low-trigger capital maturing after 2019, which will count towards gone concern leverage ratio on a grandfathered basis until first call date, even after the full phase-in as an requirement.
We have CHF 33 billion of senior unsecured debt and covered bonds, which will mature through 2019. Any remaining gone concern requirement will be met by replacing this maturing UBS AG debt.
We expect to absorb the TLAC requirements without the need to increase the overall funding for the group. We estimate the new proposals to have a combined RoTE drag of approximately 270 basis points, reflecting higher tangible equity and additional funding costs.
A response to increased capital requirements could be to attempt to drive RoTE higher by robotically slashing resources. However, we think it's more appropriate to manage our resource levels to balance increasing returns on tangible equity with growing capital returns to shareholders.
Since we announced our targets in 2012, group operational risk RWA have increased by around CHF 20 billion, mostly from the FINMA add-on. In addition, regulatory multipliers on credit risk are estimated to add approximately CHF 30 billion of increased RWA.
As a result of current and known future regulatory inflation, we expect our current RWA to trend to around CHF 250 billion in the short to medium-term. This represents no increase in usable RWAs and no change in our risk appetite.
There is certainly future upward pressure in the regulatory pipeline, but we don't believe that RWA should increase the binding levels. And as a result, leverage ratio will likely remain the binding constraint for UBS.
Earlier, Sergio walked through our updated expectations after taking into account new capital requirements and the current market environment. Next year, we expect our adjusted return on tangible equity to be around the same level as full year 2015, with an increasing towards 15% in 2017, achieving the target in 2018.
In addition to these revised expectations on returns, we also expect our cost/income ratio to be around 65% to 75% for the short to medium-term; potentially above our target range, as we absorb regulatory costs and macroeconomic headwinds. Our expected LRD and RWA mix among our business division remains the same.
And the investment bank is expected to have RWA of around CHF 85 billion and LRD around CHF 325 billion in the short to medium-term. As for the non-core and legacy portfolio, since its inception, we've reduced LRD by around 80% and RWA by around 70%.
Our objective is to continue to reduce exposures while actively optimizing shareholder value. On a personal note to the analysts on the call, this is our 18th quarterly result together and I appreciate the challenge, questions, advice and insight you provided over the years.
You're left in the hands of Caroline Stewart and her superb Investor Relations team and a very capable CFO Designate, Kirt Gardner. Hopefully, our paths will cross in the future.
Now, I'll pass it back to Sergio who will provide some concluding remarks.
Sergio Ermotti
Thank you, Tom. So the strategic change we initiated four years ago was driven by our desire to focus on our core strength and expectations of more demanding regulation.
So having completed our transformation, we have the right business model today with no need for further radical change to comply with the strict new too big to save proposals and with the competitive landscape. This puts UBS in a unique position among our peers.
Therefore, we can capitalize on our early mover advantage built on our execution track record and continue to implement our strategy to better serve our clients, drive shareholder value and grow capital returns. In the current macroeconomic and regulatory environment, our commitment to our remaining cost reduction program and our efforts to drive operational excellence remains resolute.
But we also have a strategy for growth. We will modestly increase balance sheet capacity for our businesses to support sustain long-term growth in a disciplined way, and we will continue to invest both in technology and digitalization, strengthen our position in Switzerland, Asia Pacific and the Americas, and ensure we have the right people to drive our future success.
You will have noticed that we announced changes to our leadership team today. Let me start by thanking Bob, who will continue to play an important role working with clients and on strategic priorities, as well as Phil and Chi-Won, not only for their tremendous contribution to the firm, but also for working with me for the last few months in order to allow me to align the changes to the right time, I believe, is the right one for the firm.
I welcome Kathy, Sabine, Axel, Kirt and Christian to the Group Executive Board and Tom in his new role. And also on my side, I'd like to thank Tom, particularly, for an outstanding job he did over the last 18 quarters.
Following the completion of our strategic transformation earlier this year and as we continue executing our plans, this team will help take the firm to the next level providing the right mix of expertise and continuity. Back to our results, we reported another set of solid numbers, which once again demonstrated strong risk control and discipline.
For the past four years, we have demonstrated that our business model works for our clients and investors, and we will continue with the same determination to execute our strategy in order to create sustainable value to our shareholders. Thank you.
And now, Tom and I will take your questions. [Operator Instructions]
Operator
The first question is from Mr. Andrew Stimpson from Bank of America Merrill Lynch.
Please go ahead.
Andrew Stimpson
Good morning, guys. You've said there - on the balance sheet expansion that you've announced, you said there's no increase in the risk-taking or the capital allocation.
But it looks to me like you're leaving potentially quite a lot of room there to increase the balance sheet in the IB again. You've got 30% to 35% range, which implies that you could be growing the IB to up to CHF 333 billion in leverage or 15% higher than it is today.
And I see on a later slide, you've set about CHF 325 billion, but that's still plus 12% from today. So, why do you think that's the best thing to do for your shareholders?
And is that a reaction to the growth ambition of some peers or - and maybe what areas of the IB you think are really attractive for deploying that leverage exposure? And then secondly, you've said in the past you wanted to get ahead of the new rules as soon as possible, and your stock clearly was rerated as a result.
So, what - I didn't hear anything there just on what the strategy is to get above this target, the new minimum [indiscernible] as soon as possible this time and when you think you would get there, you said sometime over the next four years, but obviously, that would be vague, maybe something more specific would be helpful. And lastly, client advisors are still getting down in Wealth Management and inflows light of what consensus was going for.
So, maybe you could talk around what the drivers were of the advisors going down and also good luck to Tom for the future.
Sergio Ermotti
Thank you, Andrew. Let me take the second question first.
I think when we look at the new regime and you look at our actual capital position today with a 14.3% CET1 ratio, and you look at inception point, we're going to be well above the 5%. We don't think that there is any value at this stage to accelerate and go at a level that's in any case the 5% qualifies you for a well-capitalized status.
It's not a minimum standard. There is no added value at this stage to accelerate like we did in the past.
It was a completely different environment that we were starting with a fully applied CET1 ratio of 6.3%, if I remember correctly, and it was clearly our strategic desire to have a very strong capital position. But, today, we already have a strong capital position, and we are compliant from day one, well above the standards, we're going to be north of 5% on January 1.
Therefore, we should take a balanced view between growth, fulfilling capital requirements and the ability to have a balanced capital return policy to our shareholders. And so, that's the policy.
And we intend to use the maximum flexibility of the four years. And of course, market condition may change, but this is our current plan and we have no hurry to rush into that.
I leave it to Tom to answer the second question. I think there is a definition issues you may have on our leverage ratio numbers.
Thomas Naratil
Okay. Thanks, Andy.
Thanks for the question. On the LRD target for the Investment Bank, previously, we had a funded asset target of CHF 200 billion.
And what we found is that since LRD has become the binding constraint, we think it's more appropriate for us to have a public expectation for the IB on LRD. Previously, we've been operating the IB that CHF 200 million funded was roughly around CHF 300 million in LRD.
So, the increase is from CHF 300 million to CHF 325 million. If you look at where FX levels were back when we announced the acceleration of our strategy that roughly adds about CHF 13 billion to the CHF 300 million.
So, the real growth is about CHF 12 billion in leverage ratio denominator. I think if you look at some of the transactions that Sergio highlighted in his remarks earlier where we've been able to do a very good job for our clients with prudent risk-taking, I think that gives you the best example of how we might use that to LRD in the future.
Going to your question on client advisors account, I think one of the consistent themes that hopefully you're hearing from us around wealth management in all of our metrics is that we believe in quality, not quantity; quality not quantity on net new money, but also quality not quantity on advisors. And so, we do take the time to make sure that we're looking to prune the lower-end of the spectrum and also look to recruit advisors that have the capacity to deliver strong results for us.
So, it's a productivity-based strategy and approach.
Andrew Stimpson
Thank you.
Operator
The next question is from Fiona Swaffield from RBC. Please go ahead.
Fiona Swaffield
Hi. I have a couple of questions.
Just going to the RWA CHF 250 billion versus your current number, when you say short to medium-term could you be a bit more specific on where we could get there? And then on operational risk, I had thought that there could be potential for the FINMA multiplier to come down over time.
Are you just saying the operational risk will stay where it is today? And then lastly, how does the CHF 250 billion look under Basel IV?
Is there anything baked in there at all or do you think some of the CHF 30 billion multipliers already takes potential Basel IV effects into account? Thanks.
Thomas Naratil
Thanks, Fiona, and Happy birthday, by the way.
Fiona Swaffield
Thank you.
Thomas Naratil
So, on risk-weighted assets, the CHF 250 billion target short to medium-term, by that we mean one to three years. On the operational risk question, what I would say is that our expectations have changed around that FINMA add-on.
And at this point in time, the visibility that we see based on the trends that you know of in terms of move towards standardized OR approach is that that is not going to be coming down. Finally, last on your question what does CHF 250 billion look like under Basel IV.
I think in the same way that as the TBTF 2 debate was unfolding, we refrained from speculating on what the results would be. I think it's really premature to try to do that on Basel IV as well.
I think it's outside of the range of the short to medium-term expectations when that will finally be implemented anyway.
Fiona Swaffield
Thanks. And all the best in your new role.
Thomas Naratil
Oh. Thank you.
Operator
The next question is from Mr. Andrew Lim from Société Générale.
Please go ahead.
Andrew Lim
Hi. Good morning.
Thanks for taking my questions. And good luck for the future, Tom.
Thank you for your help as a CFO. So my questions are regarding slide 23, first of all.
You've given an indication or an illustration of 150 basis points impacts on the RoTE from the additional CET1 capital requirement, but your - you're already at 3.3% CET1 leverage ratio. So, I'm wondering how come you guide to such a large impact here even if it's illustrative and you get from 3.3% to 3.5%?
And then, just following on from Fiona's question on the RWA inflation, we've had some pretty hefty RWA inflation guidance from two competitors of yours, and a big chunk of that is from implementation of [indiscernible] and I'm just wondering how that comes into your guidance and where that actually - if we think about the longer-term asset as to how this might be then implemented, say 2019, 2020, whether in fact we should be looking towards that 250 actually going up even more as we get towards that timeframe? And thanks.
Thomas Naratil
Thanks, Andrew. So, first on your slide 23 question around what does this represent, it's just to make sure that we have it clear.
This isn't an illustration of impact on UBS, this is a - if you take TBTF 1 to TBTF 2, what would be the impact on a bank that was running to a 15% RoTE target if it chose to run at the regulatory minimum, so that's why you see such a big cost related to the additional CET1 capital. It's obviously not the move from 3.3% to 3.5% in our CET1.
The second question, continuing on with Fiona's question on what about - what's beyond the short to medium term, what about Basel IV? I think what we should note here is that we're in a series of QIS processes and the purpose of a QIS process is to gain an understanding of the impacts of new regulation.
And so, to some extent, you could run your QIS process and say, well, if these were implemented at this level, this would be the impact. But the point of the QIS process is to point out some of the weaknesses and some simplistic assumptions on regulation.
So, there's a whole process to go through and it's just our view that it's premature to speculate when you haven't gone through that process and have the normal type of regulatory dialogue and discussion that you'd have around the introduction of new regimes.
Andrew Lim
Okay. That's great.
Thank you very much, Tom.
Thomas Naratil
Thank you, Andrew.
Operator
The next question is from Huw van Steenis from Morgan Stanley. Please go ahead.
Huw van Steenis
Good morning and, Tom, many congratulations. Two questions, one, could I just come back to the operational risk?
If I understood your guidance correctly and the extra CHF 20 billion plus CHF 75 billion you've already got, operational RWA as the percentage of the total would be about 38% or the highest of any bank on the planet. Is this just a reflection that UBS just had a really bad crisis and, therefore, this is the sins of the past?
Or are there something specific about current and foreseen processes that are causing FINMA to be much more aggressive on you than any other bank on the planet? I'm just trying to understand, because normally with op risk you'd imagine over three to five years, some of these issues would start to fade from your models, but obviously maybe you're signaling to us that there are other bigger issues that we haven't thought about so far.
And then second in the Non-core portfolio, I think I saw - noticed that RWAs were actually up in the Non-core Legacy Portfolio probably for the first time in 16 quarters. Could you just maybe talk us through what's going on there and whether that's also a taste of things to come as well?
Thanks very much.
Sergio Ermotti
So, Huw, let me take that first question and then - so, first of all, I think that when you go back into the regulatory issues that - and find we had over the last few years, time has been demonstrating that this was not an idiosyncratic UBS issue. I think if you look at the time series of every other global banks and which kind of operational risk issues they had over the last four years, you will find comfort in that number.
The second issue that I want to highlight is the fact that as we are running a low-risk model, of course compared to our credit and market risk utilization, because we have a different business model, the percentage of risk goes up to a level which I would agree is higher in percentage and we still have expectations that could be mildly corrected. But the fundamental delta of CHF 20 billion is coming from the fact that when we set the target of CHF 200 billion, that was before the add-on.
And as this add-on is not disappearing at least completely, hence the adjustment. It's not a further new CHF 20 billion, it's the one that we have embedded in our actual numbers versus the 2012 announced targets.
Thomas Naratil
Yeah. Thank you, Sergio.
Huw, if I could just continue on just on Sergio's part and then I'll move into the NCL portion of the question, we're currently at CHF 216 billion versus the CHF 200 billion target. When we looked on this on a month by month basis, there was a point at which we actually, using the same measurements we had back in 2012 when we set the targeted RWA levels of CHF 200 billion, there actually was a point when we achieved that on a same-store basis.
I think, as Sergio said, you've just seen the inflation. And our old view on - we agree with you, we thought our density on OR was extremely high relative to our entire risk-weighted asset base.
We thought over time we'd converge closer to others in the industry. Unfortunately, for the industry, I think we're all going to be converging at a much higher level in particular under some of the standardized approaches.
Your question on Non-core and Legacy, if you go to page 108 in the report, there's a delta on the quarter-on-quarter for our Corporate Center Non-core and Legacy. The two biggest upticks that we had were on central counterparties on the standardized approach and then an add-on for risks not in VaR.
And then if you look, I think you'll find that most of the downticks that get it to the net of the half are really continued reductions and exposures. Now, I do think the other important thing to remember too as we go forward bringing back to that topic of OR, out of our CHF 32.1 billion of risk-weighted assets, we have CHF 20.4 billion in operational risk.
So, that's clearly very sticky. The other component of that, I think that we need to remember is, as we continue to have settlements of litigation in those areas, in particular related to RMBS, you'll continue to see that OR component tick up in the NCL Portfolio based on the experience.
Huw van Steenis
That's very helpful. Can I just ask one clarifying question, because I think it's quite important in terms of delta?
Sergio, mentioned of the CHF 20 billion increase in operating risk is really versus your old target. You've currently got CHF 13.3 billion as the incremental add-on out of your CHF 75 billion.
What we're really saying is that CHF 13.3 billion doesn't now go, maybe there's another X billion more for - once you've settled the DOJ mortgage and so forth, so you're really going to be running CHF 75 billion, CHF 80 billion rather than CHF 75 billion plus CHF 20 billion. Would that be the right way to interpret what you were just saying?
Thomas Naratil
I think the right way to interpret it would be that the CHF 13 billion doesn't go away and based on the experience that we've had since 2012, we've actually had the uptick of a CHF 7 billion already, so the CHF 20 billion is already baked in. The incremental pieces mostly come from the multipliers.
Huw van Steenis
Okay. Super.
That's very helpful.
Thomas Naratil
Almost entirely, Huw, from the multipliers.
Sergio Ermotti
Almost CHF 196 billion - if you looked at our - at the current quarter, we would be on a pro forma without operating risk adjustment at CHF 196 billion of risk-weighted assets.
Thomas Naratil
Yeah. That's another way of looking at, absolutely.
Huw van Steenis
So this is - okay. That's super helpful.
Thank you.
Operator
The next question is from Mr. Jon Peace from Nomura.
Please go ahead.
Jon Peace
Yeah. Thanks for taking the question.
In the longer term, how much of your earnings do you think you need to keep back to support growth of the business, sort of 20%, 30% what sort of ballpark do you imagine? And what I'm trying to get backwards towards is on a longer-term basis, I know your dividend policy is greater than 50%, but how high might that reasonably go?
I can see that consensus expectations of payouts in 2016-2017 are in the range of 75% to 80%. And is that a level that's maybe a little but imprudent by the analysts?
Thank you.
Sergio Ermotti
Yeah. I think that clearly it's anything between 49.9% and zero since our dividend policy is above 50%.
So, I would say that as we face the implementation of the new regulation, we take in account growth for the business, we take in account cyclicality of the environment, and we take in account potential other risks associated with our business, and we determine how much we need to keep for the bank and accruing book value rather than returning capital to shareholders. So - but it's not appropriate for us to comment on your job.
And you do your job, you come out with your own forecast. And we deliver based on what we believe is the right thing for the firm.
But, clearly, we want to have a capital return policy that is predictable based on our baseline dividend that should grow over time. And then, we enhance this baseline dividend policy with appropriate other forms of capital returns depending on the market environment and what is the best for shareholders.
Jon Peace
Okay. Thank you.
Operator
The next question is from Jeremy Sigee from Barclays. Please go ahead.
Jeremy Sigee
Good morning. Thank you.
Firstly, just a clarification on the Basel IV risk-weighted asset inflation question and then a couple on Wealth Management. So, on the Basel IV point, your comment was that you didn't think RWAs would become the binding constraint even with that.
Is that comment based on the 10% minimum? Because if I use your 13% target, RWAs would become binding at about CHF 256 billion.
So, actually, there isn't much headroom at all if I'm using your 13%. So, is your comment based on the 10% regulatory minimum CET1 ratio in RWAs is question one.
And then two questions on Wealth Management, one is could you talk a bit more about further flow impact, whether European regularization or whether your own optimization, how much more impact should we expect in the next quarter or two? And then, final question again on Wealth Management, could you talk a bit more about Asia?
The gross margin was weak in Asia in the quarter, but you've been making some comments that remain confident about Asia, and I just wondered if you could talk what we're seeing there in terms of client behavior in the near term.
Thomas Naratil
Okay. So, Jeremy, thanks for the questions.
Going back to your first question, I'll give you two answers on the RWA inflation. But the first intent of my comment was to point out that in the short to medium term, the binding constraint will continue to be leverage ratio, so that's pre-Basel IV.
As you start to get to Basel IV, I think your [indiscernible] exercise that you've gone through shows - if you're changing your measurement from Fahrenheit to Centigrade and you're not changing any of the risk that you're taking, in our view, there may be a point in time at which you have to take a look at whether you're basing that judgment on a 13% or a 12.5% or 12% or a different number. But that's a decision that's out beyond the range of the short to medium term.
Your next question on the flows, our net new money target for Wealth Management is 3% to 5% and includes all the effects that we've spoken about. Any further work we do on improving the quality of deposits that we have or deployment of the balance sheet in the business or any further regularization related to automatic exchange of information.
But as exactly as Sergio said and that's the same as the way we treated in the past. If you then take a look at APAC, I think it's important to separate comments that we might have about short-term fluctuations in markets or in client sentiment in the region versus our long-term bullish view of the APAC region for Wealth Management.
Certainly, if you follow a quarter like the one that we saw, and our outlook statement reflects this, clients do have caution on their minds. However, as we look out in any of our planning, one of the reasons why we've been able to develop the number one Wealth Management business in the region is the fact that we've been consistent in our commitment over five decades.
And that's the way we view the business over the longer term and we'll continue to invest for the long-term in Asia.
Jeremy Sigee
Thank you. And sorry, just on the middle bit, the optimization, are you likely done?
So we had two quarters of impact, is that largely done on the planned optimization that you had launched?
Sergio Ermotti
Yeah.
Thomas Naratil
Yes. The program is complete.
Jeremy Sigee
Great. Thank you very much indeed, and congratulations on your new role.
Thomas Naratil
Thanks, Jeremy. Thank you.
Operator
The next question is from Al Alevizakos from KBW. Please go ahead.
Alevizos Alevizakos
Hi. I've got a quick question for you.
It's regarding the new profitability target that was moved from 2016 to 2017. What I'm trying to understand is you reduced the target for 2016 because you're thinking that you're going to have additional expenses for the debt issuance that you need to meet the new Swiss leverage target.
Because you said effectively that you're going to be waiting for the existing to mature before [indiscernible]. You say that it's going to be lower than that 15% and it's going to be probably in line with the 2015 target.
But where do you think it's going to be between 10% and 15% in terms of the final target? Then also, do you kind of take into account that the market is probably going to be weaker compared to when you first announced the target?
Sergio Ermotti
Yes. Thank you, Al.
I think that you are right. And as part of - what we are saying is that we expect our RoTE for next year to be at around the levels we had this year.
And what is contributing to that is clearly the cost of issuing additional high-trigger Tier 1 instruments as we start to absorb the cost of the already-outstanding TLAC bonds and the one we issue more. That's clearly a new target.
We have been making a re-evaluation of deferred tax assets in the last two years, this year last Tier 1 and this year as we just announced three quarter of what we're going to do this year about. So, as we take into consideration that plus the fact that the consensus on forward rates, you look back into a year ago and this year, forward rates consensus on U.S.
dollar alone is 120 basis points lower than last year. So, if you add on all those costs and changes in regulation and the macroeconomic environment, and, last but not least, remember that we still have euro/Swiss franc at around 5%, 6% lower than we had last year.
So, we have higher costs also due to forex translation. So, all those factors are really putting headwinds to RoTE targets.
Thomas Naratil
And, Al, if I could just add to Sergio's comments, I think there are a few of couple other things to think about. One is as you look at - when you look on slide 19 which is the DTAs, we included in our return on tangible equity that we've achieved so far for the year is the DTA write-up of CHF 1.5 billion, and then we have the other half that's coming in the fourth quarter.
Next year, we've guided you only for CHF 0.5 billion write-up during the DTA, so, obviously, since we're going to be steady on the return on tangible equity, we're obviously making that up somewhere. And one of the places we make that up, restructuring charges are only going to be CHF 1 billion next year versus CHF 1.5 billion that we expect for this year.
And obviously, then there's the - they're both the beta analysis assumptions that are in the business. But I can only emphasize Sergio's comments about the differences between when we set that target for 2016 and that changes that we've seen and implied forward across all currencies and market levels as a whole.
Finally, you asked, well, where is it going to end up between 10% or 15%? I think if you look at consensus implied for the fourth quarter that gives you a reasonably decent way to estimate it.
Sergio Ermotti
Yeah. Let me also a quick comment since the topic of targets is a very popular one nowadays.
I like to point out that we have changed four targets out of 21. And we achieved the vast majority on all other targets over the last few quarters.
So, I think that is very important to put what we described changes driven by alpha and external factors versus what we believe - sorry, yeah, that in our control versus the beta factors that are external, like rates like the one we just mentioned. So, we will really want to stay accountable and focused on mandate penetration increase the lever on cost savings, and do everything we can control, and a bit transparent about changes that we do due to market conditions.
Alevizos Alevizakos
Okay. Thank you very much.
And thank you, Tom, for all the help that you've given us the last few years.
Thomas Naratil
Thanks, Al.
Operator
The next question if from Amit Goel from Exane BNP Paribas. Please go ahead.
Amit Goel
Hi. Thank you.
I've got a question relating to the competitive environment, in particular, on the ultra-high net worth space. So obviously, with one of your key competitors recapitalizing and looking for significant revenue growth and client advisor growth, just wondering whether that impacts the way you think about your strategy and whether you think that has any bearing on margins going forward?
Thank you.
Sergio Ermotti
Well, first of all, let me tell you what you already know that we are the preeminent wealth manager in the world. We have an outstanding and leading position in Asia, and we are not complacent about anything that goes around us.
And so, we have been there for 50 years in Asia, for example, but also across the board we have a very successful business model and we are very determined to keep our status going forward. So we are making investments as we have been doing in the last three to four years to organically grow and balance growth with appropriate metrics of a sustainable profitability.
It's very important for us to do that. And in general, those new competitors are not new competitors.
I mean, are existing; very strong and credible competitors. I do believe that a combination of maybe a renewed focus by some competitors and the macroeconomic conditions may put more pressure on second and third tier players.
Then, it will down to the leading players. So I think that's - by the way, Wealth Management is a business that is forecast to grow 7%, 8% in the next decades, and there is a lot of growth potential available.
So I think we are staying very focused and not being complacent but also confident about our capabilities and market position.
Amit Goel
Okay. Thank you.
Operator
The last question is from Jeremy Omahen (sic) [Jernej Omahen] (01:09:51) from Goldman Sachs. Please go ahead.
Jernej Omahen
Good morning from my side as well. Can I just ask this question on - I'm looking at page 16.
Can you just remind us how the CHF 7 billion of capital attributed to the Investment Bank is calculated?
Thomas Naratil
Sure. [indiscernible] and then I'd also refer you to the annual where there's some very detailed disclosures, detailed...
Jernej Omahen
Yes. I know you put it out and I looked at it before.
But anyway, I'll wait for your explanations because it's quite possible I'm confused.
Thomas Naratil
Yeah. So we use a multi-factor model to allocate equity to the business divisions.
It's based on risk-weighted assets, leverage ratio denominator and risk-based capital. There's a 50% weighting on risk-weighted assets, a 25% weighting on leverage ratio denominator and a 25% weighting on risk-based capital.
To that, we add any goodwill and intangibles that are related to acquisitions that the business has done. As you may remember, when we changed our strategy in the Investment Bank back in 2011, we wrote-off all the goodwill in the Investment Bank.
So there's currently de minimis goodwill intangibles [indiscernible] the tangible that we allocate. Risk-weighted assets, we allocate at a 10% of utilization.
Leverage ratio denominator, we actually allocated 3.75% common equity Tier 1. We actually do it on what we would call a broader array of competitors rather than the regulatory minimums.
And then RBC is based on the output from our internal RBC model.
Jernej Omahen
Okay. But if I take the CHF 7 billion and I look at the risk-weighted assets, so 68%, so that's roughly a 10% core Tier 1, but the leverage exposure of 2.90%, so that gives me on CHF 7 billion roughly 2.4% leverage ratio.
Right, Tom?
Thomas Naratil
But if you look at the weightings and you look at the individual components, the leverage ratio - so if you were to say - if you were to look at what the gross up numbers were before you weighted them, LRD is the highest output then risk-weighted asset. RBC; and I think this is a particularly important point, RBC is substantially lower than the other two because of the way we manage all of our businesses to a liquidity adjusted stress limit.
So if you look at - depending on your views on RBC, you would say that's actually the real amount of capital you need to support a business...
Jernej Omahen
Right. Thank you.
Thomas Naratil
... regulatory perspective.
Jernej Omahen
Right. The reason why I'm asking you is on page four.
So when you say that the group resource allocation going forward, I guess, which is attracting a lot of attention today. So the Investment Bank is 30% to 35%.
Does that assume that UBS keeps the current way of allocating capital to the Investment Bank?
Thomas Naratil
So, let's separate research utilization from attributed equity allocation. So, on research utilization, which is what the graph on four notes, RWA and LRD will continue to be 30% to 35% - 30% to 35% of the group's target will be allocated to the Investment Bank and the balance of 65%-70% to the other business divisions.
Attribution of equity calculation, right? So if you were to say, well, what does that mean for the IB going forward?
Obviously, as usage goes up from 70% to 85% and from 2.90% to 3.25%, the calculation of the attributed equity allocated to them will, of course, go higher as it will go higher with the other business divisions as they increase the utilization as well.
Jernej Omahen
All right. And just finally, not to bank on this point, but why does it make sense to have a very complex capital allocation model to the Investment Bank and why is it not the right thing to do to just say, the Investment Bank should have enough capital to meet the core equity Tier 1 and the leverage ratio targets, which we've set for the group?
Thomas Naratil
Yeah. So, one, the way we attribute equity to every business division is exactly the same.
So, it's the same methodology. It's not for the Investment Bank.
Number two, it's our view that a multifactor model produces a better result in terms of thinking about your business across multiple divisions because you have different constraints on different divisions at different points in time. So we found over a long-term time period using multifactor approach, we believe actually produces a better decision-making process for us.
The way we check that, we review this every year and we compare it to benchmarks for our multiple competitors. As you know, sometimes, it's a little bit hard because not everyone discloses the details of their methodologies.
We then check that versus regulatory capital and others. And we think the methodology that we're using is producing the right result for us.
It is the methodology that we use to change our strategies in 2011 and accelerate in 2012. And also, we use that to make some of the decisions that we announced today.
Jernej Omahen
Thank you very much.
Thomas Naratil
Thank you.
Operator
Ladies and gentlemen, the Q&A session for analysts and investors is over. Analysts and investors may now disconnect their lines.
In a few moments, we will start the media Q&A session. [Operator Instructions] Please hold the lines.
The media Q&A session will start shortly. Thank you.