Jan 26, 2021
Operator
Ladies and gentlemen, good morning. Welcome to the Fourth Quarter 2020 Results Presentation.
The conference must not be recorded for publication or broadcast. [Operator Instructions] At this time, it's my pleasure to hand over to Mr.
Martin Osinga, UBS Investor Relations. Please go ahead, sir.
Martin Osinga
Thank you. Good morning, and welcome everyone.
As usual, I will draw your attention to our Cautionary Statement at the back of today's presentation. We'll also refer to the risk factors in our 2019 Annual Report together with the additional disclosures in our quarterly reports and related SEC filings.
On Slide 2, you can see our agenda for today. It's now my pleasure to hand over to Ralph Hamers, Group CEO.
Ralph Hamers
Thank you, Martin. Good morning, everyone.
And welcome to the full year results. I'd like to start by saying that all of us at UBS clearly hope that you, your friends, and families are all in good health and that you're all safe.
It's a strange world out there, the pandemic is still there. Most of us are in strict lockdowns.
Please #[indiscernible] stay healthy, it's important. And let me start with the key messages that we have on Slide 3, take you through a little bit, it kind of summarizes the whole presentation.
And clearly 2020 was a tough year all around for our clients, employees, our communities. If you really look, what's behind that, it is our colleagues and the way our colleagues, basically rose to the occasion, day-in, day-out.
And that made us as UBS stand for stability, for confidence. We were able to maintain connectivity with our clients, provided the advice and the solutions that the clients needed in these uncertain times.
And you can see that connectivity, that reach out coming back into more than $100 billion in net new money, that client's invested with us across Wealth Management, and Asset Management. And this has contributed to a record in invested assets in both businesses.
So yeah, together, we're now over $4 trillion dollars in total. We achieved, on the back of this commercial success, our highest net profit in a decade, with every region delivering over $1.5 billion profit before tax.
As a result, we hit or exceeded each of our targets for growth, but also for returns, while we delivered on the strategic priorities that we laid out at the beginning of last year. Now, reflecting the 2020 results and our solid capital position, we will propose to pay $0.37 dividend per share at the upcoming AGM.
In addition, we're planning to resume buybacks targeting up to $1.1 billion in the remainder of the first quarter. Now turning to the next slide, Slide 4.
Well, basically, I mean, this slide tells it all. It's momentum across all different dimensions.
When we look back at 2020, you can basically look back with a sense of pride, supporting the clients through the challenges they face. $4 trillion of invested assets across Wealth and Asset Management as clients turn to us to help them to achieve their investment goals.
$80 billion of net new money generated in Asset Management alone. Of this, around half was directly related to providing our Wealth Management client better access to separately managed accounts.
We also saw strong demand for Chinese equities for sustainable investment products and both confirming its strategic priorities being the right ones. Also, on the slide, you see the $26 billion in net new loans for Wealth Management clients, another strategic priority.
On transaction side, we build on our strength to identify and execute on trading opportunities for our clients. And on the back of that, global markets' income grew by nearly a third, doing well across products on higher client activity.
Transaction-based income of the wealth manager increased by 17%, reflecting enhanced product capabilities by leveraging Investment Bank. You'll see that both the Asset Management side as well as the Investment Bank, are really looking at how we can support the Global Wealth Management and a focus that we have and you see the first signs of true success there.
We have really endeavored to make it simpler for clients to transact with us as well, on the Investment Banking side. We were there for our corporate clients too, guiding them through the primary markets.
Throughout the difficult year, we helped over 500 corporate client's raise debt and equity in the capital markets. Last but not least, an important section for us as well, the family office clients, clearly the ones with the most sophisticated and complex needs.
As you know, we introduced an integrated cover model in order to service them better, ensuring that they would get the broad range of capabilities across Wealth Management and the Investment Bank, as one UBS. And working as one bank for our clients, we grew our revenues here by 29%.
So quite a success from the commercial front and seeing first signs of the move towards ensuring capabilities in the Investment Bank, the asset manager and the wealth manager aligns and serves our clients as one right here. Turning to the next slide, specifically on sustainable finance and it's clearly an area in which we have - on which we have been focusing for years, and 2020 was no exception.
We became the first major global financial institution to recommend sustainable investments over traditional investments. And that mandate has attracted $7 billion of inflows over the year.
In Asset Management, we rolled out the Climate Aware strategies across additional asset classes. Invested assets with these strategies increased nearly fivefold to $15 billion last year, contributing to sustainability-focused assets now more than doubling to nearly $100 billion.
But you can't just go out there and recommend that that is the right thing to do if you as a company, if you're not there. So it's also important what achievements UBS itself does on the sustainability side and how we are recognized in that area as well.
And therefore, we're proud that we are on the CDP's Climate A List of companies that lead the way against climate change. And we've been a global industry leader in the Dow Jones Sustainability Index for six years running.
And we're rated AA by MSCI. So you see, we were a kind of an early party to sustainability in what we do ourselves, but also what we recommend to our clients.
And we see that this is becoming more and more mainstream. Our clients are truly interested in it.
They want to have good returns and do good investments, and investments for the good. And through this, we can truly help them on their journey.
So where does this position us? I'm now on Slide 6.
I believe the future of financing belongs to firms that have scale of work matters. Leverage that scale for our clients and leverage that scale also for shareholder's advantage.
And that's basically what you see here. You see here, those areas that we really are a top player and whether it's on the Wealth Management side now with more than $3 trillion invested assets.
So, clients really showed a trust in us on the Asset Management side, close to $1.1 trillion in invested assets, also showing that we're doing the right thing there. We're the largest bank in Switzerland.
We're the largest wealth manager in Asia-Pacific. And in Investment Banking, we're top five.
In equities, we're top three, and in FX trading, we're having strong momentum on both sides, shows good diversification there as well. And that's a good basis to build on.
It positions us well in the competitive landscape where winner takes most, if not all, and we know that scale benefits should in the end also go towards the clients and the shareholders. And that's what we're certainly focusing on, which gets me to how we have done versus our targets in 2020.
And that's a nice summary right here on Slide 7. It's actually a demonstration of our scale across and the page speaks for the breadth of our business and the strength of our business and our client franchise.
And revenues up 12% leading to an earnings per share $1.79, return on CET1 capital 17.6%. Our success was broadly based and really across all business lines and all geographies.
And you see asset-gathering business comprises the Wealth and Asset Management, recording double digit profit growth there as well. Our IB achieved almost a 20% return on equity, super performance right there.
Regionally, profits in Asia-Pacific and the Americas grew by over a billion dollars for the year. A billion more profit in Asia and the Americas.
Our Swiss Personal & Corporate Bank which is most directly affected by the crisis did well too, earned a return well above cost of capital still. even in the difficult economy, managing through the pandemic, supporting SMEs and mid-corps and corps and households and doing that really well.
And it's basically what we can do is the role that we play here in Switzerland, standing by the Swiss corporate sector, providing them liquidity and support of the economy throughout this crisis. And all that we have been able to do while staying disciplined on cost and delivering an operating leverage.
The expenses were up 4%, I'll give you that. But if you look into it and as Kirt will show you, that was really driven by foreign exchange as well as variable comp.
The top line at the same time increased by 12%. So there you see very strong, positive jaws, improving our operating leverage.
Now clearly, we have a good year, you generate a lot of capital contributing to stronger capital ratios, they continue to be strong. And that's after offering the attractive returns to the shareholders.
And we delivered on our $2.6 million dividend commitment for 2019, brought back CHF 350 million of shares earlier in the year. We include another $1.3 billion for the 2020 dividends.
And we set aside $2 billion for share buybacks. And turning to Slide 8 then.
We then have a return on CET1 capital of 18%, close to 18%, positive operating leverage and it basically shows you our true potential. As we focus on our clients, as we care for society, support our employees, I am also convinced that we can achieve leading shareholder returns.
That's what you see here. And, I think also going forward we can achieve good and attractive leading shareholder returns.
But what we're doing here is really mobilizing the entire UBS team to unlock our full potential. I'm asking the questions like how can we grow in a capital and cost-efficient manner?
How can we think further? How can we become fitter?
How can we act faster? So we're thinking about ways to make UBS even better bank, for our clients, for our employees and for our shareholders.
And that actually brings me to my first impressions. I know, you've all been expecting these and I can also tell you that you will not get a full strategic update today.
But I wanted to take you along in my first impressions, now I have had five months with UBS and giving you some of the things that I see, that really impressed me, as well as some of the opportunity I see going forward to unlock our tomorrow. So clearly, when I joined - before I joined UBS had a superb reputation for strong and stable franchise, for its premium brands and symbolizing quality.
Now after having been with the with the company five months, having spoken to many clients, many employees, investors, stakeholders, and I can only say there is much more that impresses me. And that's and here you will see a couple of these areas.
I was impressed by the quality of our core leadership and our leading equity research, for example, the CIO House View, the insights that we offer on the most relevant topics such as sustainability, how we use it to advise and guide our clients during certain times. And I am impressed by the rest of our capabilities that allow us to support our clients, no matter their return objectives or risk appetite.
I'm impressed by the strength of the client franchise and with the relationships that we've also forged over many, many years. I'm impressed by all this.
This is what really showed me the true value of UBS and of our people. And now and then the strong reputation that grew with UBS, I would say, we fully live up to it.
If there's one thing that we're uniformly recognized for is this, we are a global wealth manager and is absolutely unique in terms of its global scale and reach, is supported by World Class investment bank, strong asset management capabilities, leading universal bank in Switzerland. So that's what we are, strategic unique and that's where we bring in clear advantage.
And that's where our biggest growth opportunities lie as well. Clearly, if you look back on last year, joining the bank, I was also impressed by the strength of the balance sheet, the risk management rigor, the operational resilience that we have shown amidst the crisis with lots of activities coming through our engine, our execution engine.
And as you can see as well the stability in the prescription of the revenues and the capital generation. But and there is always the best, right?
There's always a best, and yeah, I have to look forward and the past is the past, it gives you a position but no guarantee for the future. And that's why we have to look at the future, and get a sense for what's coming out.
And there's a couple of things that that are coming out. And the first thing is that, it's clear that this pandemic has accelerated the client's digital expectations, and the need for technology investments.
And I think that need has been accelerated by at least three if not five years. And that requires far greater investment by financial firms.
And those that have the scale will benefit from it the most. The only thing that's still out there, and that will not go away, is the persistent low and negative rate environment.
We know it's a challenge for banks, and but there are also opportunities for international firms. So it's first, this has two sides.
So on the banking side on the NII side, clearly, it is it is a point to reckon with, but it gives you opportunities also where we can actually advise clients to invest in other means than depositing the money with us. So it's also an opportunity.
We know that, the $80 trillion of negative yielding debt, the pension funds are looking for advice on asset location, and compelling investment opportunities, they're looking for those. And the other trends is the trend to Climate Change COP 26 estimates the private finance, including pension funds will provide $3.5 trillion needed annually for investments.
We can certainly play a role there and we can play a leading role there, we can play an advising role there, we can play a management role there, we can play a structuring role there and so quite an area of opportunity. But there's a lot of uncertainty that will continue to be there.
Increased competition from non-traditional providers, as you know, complex geo-political environment, continued regulatory change coming at us and we have to stay ahead of that. And each of these trends requires to change, to adapt.
And for those who get it right. There's quite some opportunity in those changes as well.
And that leads me to the focus areas. And I know, these are pretty general.
And but they're the focus points as we are working on our strategy. So am I giving you the strategy here?
No, I'm not. Am I giving you the focus points that we are discussing all the time here in further developing our strategy going forward?
Yes, these are the ones. And so these are the things that management team and I are concentrating on and for our strategy, and working on these for the next years.
We're not wasting time. We have launched quite some work streams in all of these directions to get a lot of bottom up input as well from our people who are very close to the client, who are very close to the execution of our activities, who know what clients wants, who know where we can improve a client service, who know where we can improve on efficiency.
So it's very important that this is not some kind of a, I don't know, a kind of a top-down strategy that we develop. It's truly a combination of top down in terms of direction in areas where we see the trends and bottom up in terms of how to show these trends in and how to make sure that we're effective in coping with these trends.
We want to get it right. And that's why we need the details.
And when we're ready, we will certainly be kind of updating you on our strategic plans and opportunities as we go. But to take you through these focus areas, first and foremost, being laser focused on supporting our clients, building on the positive momentum that we have in 2020.
It would be a waste if you lose that. So we'll have to keep delivering on the trust the clients put in us and in our brand.
And I think UBS like many firms but here there's quite some upside opportunity if we truly work all together, if we truly work seamlessly together and seamlessly delivered the whole firm to our clients. When we focus on their needs and their experience, and we look at how to fulfill those needs, regardless of which business division has the right solution, that is where we can make the difference.
We hear this from many clients, and we can improve on that. And that's what we will be we're working on.
And that's probably the number one priority for us is, how can we be one UBS? Now UBS also has a strong culture.
But we also need to evolve this culture to be more flexible, to be more agile, and that will first benefit our clients. But it will also help us to respond to change faster as well.
In order to be more flexible, and agile, I think we have to operate in a more simple form, we have to be a little bit more pragmatic, take decisions faster, we'll need to empower people and make them more accountable as well. Then on the efficiency side, it's clearly the self-funding investments for growth has become a necessity for any bank to be successful today.
For that, we'll have to operate even more efficiently going forward. That means driving, operating leverage and making optimal use of our scale, being relentless when it comes to discipline around costs.
We'll have to be critical in what we invest in, we'll have to systemically crowd out the investments that are not delivering or that are just not good enough or just not strategic enough. So that's where I think we can further improve.
I'm keen on building our next, our edge in sustainable finance. It's a strength, it's a super opportunity, it's something we firmly believe in across the whole firm.
So I think that's what we have to work on. And clearly, technology today already plays a central role here at UBS.
And I see some real good practices in that in the technology area itself, but also in applying technology. For example, in our Investment Bank, clearly at the front - at the front of some of these developments there but we have to, and I think we're able to take advantage of the consistent investments that we've made to date.
We'll have to reap these benefits, we should and have to be a winner in the digital recovery. And the only way to do that is that we turn technology from an enabler, something that is at the end of the decision-making process to making technology a differentiator, which is at the beginning of the decision-making process and at the beginning of how we improve our services to our clients.
Now, lastly, as you may know, I'm a strong believer in purpose led organization. So the first thing I picked up here, literally in my first week is, okay guys, where are we on purpose?
Where is our true DNA? Why do we come to work?
What is behind how we do things here? Why we do the things we do here?
It's truly important to get that sense, to get that up. It's a big project that we're working on.
And I'm sure that once we get it, it will really guide us and give us directions as an organization for the future. Now if we get these things right, I'm convinced we can consistently deliver on leading shareholder returns.
Now to close, I'd like to, since this is also the end of the year, I guess, and not the easiest of years, I'd like to thank everybody at UBS for their dedication and work over the past 12 months. I know some of them in difficult personal circumstances.
Our employees went out of their way to serve our clients and support each other, support their communities, while managing firm's risk, liquidity and capital to maintain our financial strength. 2021 is already shaping up and it's already shaping up to become quite an eventful year with what we see across the globe.
But I'm convinced that also this year we can positively differentiate ourselves. With this, let me hand over to Kirt to take you through some more details before we get to Q&A.
Thank you.
Kirt Gardner
Thank you, Ralph. And good morning, everyone.
I would also like to join Ralph in extending my hope that you and your families are healthy and coping well with the current challenges that we're all facing. Net profit for the full year was $6.6 billion, which translates into a 17.6% return on CET1 capital, and nearly 13% return on tangible equity.
PBT of $8.2 billion was up 47% driven by 10 percentage points of operating leverage before credit loss expenses. And this improved our cost/income ratio to 73%.
Three out of our four regions were up year-on-year, with the Americas delivering the largest contribution to Group PBT. Turning to expenses.
As we said before, under an operating income growth scenario, we aim to manage to flat costs, notably excluding variable compensation and key one-time items to drive positive operating leverage. And as Ralph referenced, is what you can see here on this slide, this is what we indeed did deliver in 2020 with year-over-year operating expenses excluding compensation in FX flat, and also as we funded over $1billion in investments with savings during the year.
Now with the events over the last year limiting travel, this gave us a natural offsetting factors for increased expenses and investments that were also directly related to COVID. Examples include the one week additional salary we granted to our less senior employees, as a thank you from us, in October, or suspending staff reductions during the pandemic, which also means we start 2021 with a higher run rate than we originally planned.
Turning to the quarter, PBT and net profit, both more than doubled year-on-year. PBT reached $2.1 billion with a 16% increase in revenues, and a slight reduction in costs, driving a 13 percentage point reduction to our cost/income ratio to 74%.
With net profit of $1.7 billion, our return on CET1 capital was 17.5% even after we added $4 billion or more than 10% to our capital base over the last 12 months. Moving to our businesses.
Now for the full year, Global Wealth Management recorded pretax profit growth in every region and a 20% increase globally. The Americas and APAC both reached new highs with APAC above $1 billion for the first time.
We've been diligently executing on the plans that Tom and Iqbal announced a year ago and this has been an important driver of these results. In 4Q, PBT was up 22% year-on-year, partly on higher invested assets to pass the $3 trillion mark for the first time as well as transaction activity and loan growth.
Expenses were down 1% against 3% higher revenues leading to a three percentage point cost/income ratio improvement. We had another quarter of high net new loan volume at $8 billion, with the largest contribution from the Americas and also good flows in APAC, and EMEA.
For the full year, net new loans were $26 billion, consistent with our strategic focus on this growth level. The quality of our loan portfolio remains high and we have achieved this substantial loan growth without increasing risk on a portfolio level.
We continue to gain momentum with our one UBS initiatives. Our Separately Managed Accounts initiative in the U.S.
drove $26 billion of inflows into Asset Management in the quarter and over $62 billion since inception at the end of 2019. And GFO income across GWM and the IB was up 25%, as you heard from Ralph.
Recurring fees grew 5%, driven by higher average invested assets. This was partly offset by lower margin, mostly as a result of flows into funds and mandates with lower fees, a trend that we've highlighted in prior quarters.
Sequentially recurring revenues were also up 5%, supported by growth in invested assets and $13 billion in net new mandates. And market performance was one of the drivers of the double digit growth year-on-year and sequentially in invested assets, which includes around $1.5 trillion of invested assets in accounts with direct investments in cash that do not generate additional recurring fees, hence having some impact on our margin.
Net interest income was up 2% from 4Q19 and 5% quarter-on-quarter. Sequentially higher lending net interest income offset lower deposit net interest income.
On the lending side, we had higher volumes and margins improved. Despite the increase in deposit volumes, deposit income decreases on lower margins, mostly due to lower U.S.
dollar interest rates. For the first quarter, we expect to offset the pressure from lower interest rates with continued positive lending net interest income and anticipate around $1 billion of NII.
Transaction-based income would have been up 9% excluding the $75 million fee related to a shift of business that P&C paid to GWM a year ago. This is our best 4Q since 2014, reflecting continued high levels of client activity, mainly in the final two months as clients remained on the sidelines in October ahead of the U.S.
election. Looking ahead to 1Q21, while we can expect normal seasonality sequentially, the year-on-year comparison will be impacted by the unusually high trading volumes in 1Q20.
Coming into 2020, [indiscernible] reposition GWM to get closer to our clients, and bring them more tailored services and solutions as well as more of UBS's full capabilities. This focus is clear in GWM's full year results.
Reported profit before tax rose to $4.1 billion, up 20% year-on-year, with profitability growth across all regions, including double digit PBT increases in Switzerland and EMEA and record results in Americas and APAC. PBT for P&C increased by 4% to CHF 318 million.
Operating income was up 3%, mainly reflect these higher transaction-based income as 4Q19 included a CHF 73 million fee paid to GWM related to a shift of business, that I also referred to in GWM. Excluding the fee, transaction-based income would have been down $32 million and $40 million lower income from credit card in foreign exchange transactions as a result of reduced travel and leisure spend abroad by clients due to COVID.
NII came down on lower deposit revenues mostly related to U.S. dollar rate headwinds on our corporate and institutional clients, but also reflecting continued drag for negative Swiss franc and Euros.
Excluding a shift of business early in 2020, loan NII was slightly up as volume increases offset margin contraction from increasing competition. Net new business loan volume in personal banking was 4.8% for the quarter and a record 6.9% for full year 2020.
As part of our continued focus to digitize our Swiss universal bank and recognizing accelerated preferences of our clients to access our services through digital channels, we announced that we would close 44 smaller branches in 1Q21 after having already closed around 30 branches in 2020. We will ensure that our clients remain well served with continued enhancements and broader access to our leading digital channels and other improvements through our remote services.
As Switzerland's largest universal bank, we prioritize supporting the Swiss economy and its people throughout 2020. Apart from our swift and effective deployment of the government backed loan program, we were active in deploying our balance sheet and providing advice to help them through these challenging times with $6 billion in net new loans to our Corporate & Personal clients.
We have contributed relief through donations, increased employee volunteering, while partnering with organizations that provide counseling, health support and education in Switzerland and across the communities in which we operate. Asset Management had another exceptional quarter capping off a successful year for 4Q PBT more than doubled to $401 million and 40% higher operating income and flat costs.
Full year PBT was up 66% to $884 million, excluding the Fondcenter gain in 3Q20 of $571 million. 4Q performance fees increased by over $150 million to $255 million mainly driven by increases in our hedge fund businesses, as a result of strong investment performance in a constructive market environment and annual performance fee recognition for certain products.
This was the highest level we've seen in over a decade. Next quarter's performance fees are likely to be more in line with the level that we've seen in prior first quarters.
Net management fees were up 14% as we benefited from the higher market levels and continued net new run rate fee momentum, reflecting both the strong volumes and quality of our net new money flows. We had an inflow of $38 billion excluding money markets and Invested Assets passed the $1 trillion mark in November for the first time.
We're benefiting from our consistent investments and strategic execution in our Asset Management business. We're driving growth with new ideas and investing in content with recognition for our success and performance from various surveys, notably in APAC, and the sustainability space.
Clients are also recognizing our differentiated capabilities and innovation. And we see it in the net new money inflows of nearly $80 billion during 2020 or in our 9% growth rate with positive contribution from all channels and regions.
The IB delivered its best 4Q PBT in almost a decade. Full year PBT was $2.5 billion, up over 200% and return on attributed equity was nearly 20%.
For the quarter, global market's revenue increased by 21%. Derivatives and solutions was up 40% driven by equity derivatives and credit.
Execution and platform grew 25% with higher client activities in cash equities, particularly in the Americas and APAC. We also believe we have once again gained market share in electronic trading in FX.
Global Banking was up 33% with a significant increase in equity capital markets and advisory. ECM was the main driver with increased IPO and follow-on issuance in the U.S., APAC, and EMEA.
Within advisory, our M&A revenue rose outperforming the fee pool in all regions. The IB's cost/income ratio improved to 71%.
Its income grew by 25% and operating expenses decreased by 13%. Expenses in the prior year quarter included over $200 million charges from restructuring and a goodwill impairment.
Excluding these, operating expenses would have been flat. Throughout 2020, we maintained our focus on deploying capital with discipline and for appropriate returns.
And this is best illustrated by the comparison to our peers. Our credit losses for the quarter were $66 million with 33 million in Stage 1 & 2 releases more than offset by $99 million in Stage 3 impairments.
The Stage 1 & 2 net releases resulted from a combination of book quality, including exposure migrating to Stage 3 and book size movements, as well as model updates during the quarter updated macroeconomic factors and formed a further release in expenses. However, as in the third quarter, we considered such a release premature and applied post model adjustments to overlay and fully offset these effects.
During the quarter, we increased our reserve for buybacks by $500 million to $2 billion. At year end, our CET1 capital ratio was 13.8% and our CET1 leverage ratio was 3.85%, excluding FINMA's temporary exemption for state deposits in central banks.
I'll finish my remarks with an update on capital returns. For 2020, we will propose a dividend of $0.37 U.S.
per share, representing a total accrual of $1.3 billion. In addition, early in 2020, we completed CHF 350 million of buybacks.
And as I just referenced, we also established a further reserve for buybacks of $2 billion out of earnings. In aggregate, this is $3.7 billion.
We will resume buybacks tomorrow, initially completing the remaining CHF 100 million under our current CHF 2 billion program. We are establishing a new three-year CHF 4 billion buyback program.
Once this is in place, we plan to repurchase up to $1 billion in shares during the remainder of 1Q. With that, we'll open up the line for questions.
Operator
We will now begin the question-and answer-session for analysts and investors. [Operator Instructions] The first question is from Andrew Coombs from Citi.
Please go ahead.
Andrew Coombs
Good morning. Two questions, please.
Firstly, on the points you made on strategy on Slide 11. I know one of your key focus points throughout the ING was to focus on primary customers in order to drive profitability.
And yet you're - on the slide talks about growing the client franchise more broadly. So perhaps you could comment on that.
Do you see more opportunity if you were to go down, say the global family office route or is there more opportunity for you to extend my way to a broader mass affluent client base, for example? So that would be my first question.
Second question on buybacks. And the CHF 4 billion of buybacks and first point you come out with a three-year target.
I thought you keep the 2021 guidance, and perhaps update the market on the three-year target, post the French tax ruling in March. Could you just speak to why you felt the need to come out with that buyback number today?
And also if that's a hard and fast CHF 4 billion or if that might change over time? Thank you.
Ralph Hamers
Thank you, Andrew. I'll take the first one and then Kirt will take the second question.
And so indeed at ING we're very much focused on primary customers and the definition there was a customer that basically saw that bank as their primary bank to turn to for their normal banking businesses. I think UBS is not the normal bank from their perspective.
So the way we and I look at how to grow the client franchises, that clearly you know the wealth client's segments, the different segments are of true importance to see what it is that we can do for them at scale? Which basically means that in some countries, we can have a much broader product offering where you have a - an onshore scale opportunity but in some you won't have that.
And if we don't have the onshore scale opportunity, we would certainly want to be an important bank for those clients but we would seek collaboration in joint ventures like we're doing in Brazil, for example, and in Japan as well where the underlying normal banking need, if that is what you want, may want to call it, is provided by the local scale player whereas the additional wealth aspect of dealing with the clients could be in lending in order to support an investment portfolio could be in advice on investments, could be on global investment opportunities and that is for us to provide. So that's the way we think about it.
So where we can have the full slate of product like we do in Switzerland, we will certainly offer it because we can reach our own global - our own scale. If that is not the opportunity, we won't and we will just focus on those things that we globally can then have scale in.
Kirt?
Kirt Gardner
Thank you, Ralph. And good morning, Andrew.
Just to clarify, the CHF 4 billion program is a three-year program. It's not a three-year target.
Clearly, we have flexibility to repurchase more than that CHF 4 billion over a three-year period. And once we complete the repurchases under the CHF 4 billion program, we can open a new three-year program.
The requirement in Switzerland is that all programs are by definition three years. Also, I would note as well, that there is some technical requirements as well that you cannot open up the program where the potential repurchases would exceed up to 10% of your share count.
That also and formed overall the size of the CHF 4 billion program that we're currently in the process of confirming.
Andrew Coombs
Very good. Thank you, guys.
Operator
The next question is from Kian Abouhossein from JPMorgan. Please go ahead.
Kian Abouhossein
Yeah, thanks for taking my question. Congratulation Ralph to a strong first start.
I have two questions. The first one is related to the corporate center.
And clearly you have done or confirmed a management change that opens up a position within the corporate center. And I just wonder, first of all, who or what kind of person or how do you expect the corporate center to be managed in the future?
Are you looking for somebody to run it or how else will you manage it? And in that context, how do you think about the heavily centralized cost space around corporate centers within UBS and how it should be run in the future, going forward?
And the second point, I'm interested around the businesses that might be not big enough that need to get bigger, or might have to get exited, can you talk a little bit about business specifically, where you think there could be potentially changes to be made in order to improve performance? Thank you.
Ralph Hamers
Thank you, Kian. Well on the corporate center, it's an interesting one.
And as it happens, just to be called corporate center, and then it gets some kind of an attention that is to be regarded as overheads, which is far from overhead. Because the corporate center that you refer to the COO function.
The Group's COO function is literally where all of our execution activities reside, where all of our ITU activities reside. And clearly, both are for the benefit of our business and for our clients.
Now having said that, in the past, and I think for the right reasons, UBS has been looking at how can we find the synergies managing these operational areas and these IT areas across rather than for a division. And then there was a shift to make it more business efficient aligned, which is something that we have been working on for the last two years.
And now the jury is a bit out. And I'm undecided, as we speak, in terms of, Okay, is this the moment that you go completely horizontally?
Where it basically starts with the clients, and then you do your front to back full optimization and you get technology to work and digitization to work on each and every client process, both in improving the client experience as well as improving the efficiency or do you continue to look for the cross-operational activities across technology activity synergies. And I think it will always be a matrix, honestly.
Whether you go more on the result of one but then you need a vertical alignment on standards on how you manage this, or you continue to be more vertical, but then you would need to ensure that there was an alignment the way we currently have it. So it's certainly subject to the discussions that we currently have.
And it's certainly determined by some of the tweaks we may want to make in the strategy. Having said that, it is an area of utmost importance for further opportunity for scale as well as improving the differentiating client service that we can deliver and that is also why the slot at that level is not replaced yet.
And because I don't want to kind of front run a decision around how we as a team want to take the next step in that. And I'm very happy that the Sabine takes the Swiss challenge on her as to how to take the Swiss business to the next level, where a lot of transformation and digitalization needs to happen, as we know.
And that gives us all the time to really look at to how we want to organize. So bear with me a bit there.
But I see benefits in both ways and so in the end, it will always be a bit of a matrix. And that is one.
And let us say the other thing - the other question is about, have I already identified areas where we can either scale up, or where we basically we can't get to scale? Well, I think we have to - we have come to a conclusion, for example, in the Austrian Wealth Management case.
So basically, and this also kind of ties into my answer to Andrew, earlier, which is that you have to look at what kind of scale can you accomplish from an onshore perspective versus what is the scale that you can accomplish with services that you have - that you can do cross border and offshore. And I think that's where some of the optimization can happen.
And that's certainly what we are looking for as well.
Kian Abouhossein
Thank you.
Operator
The next question is from Anke Reingen from Royal Bank of Canada. Please go ahead.
Anke Reingen
Thank you for taking my question. And welcome to life to the UBS course.
I just two questions, please. Firstly, on the cost control which was obviously very impressive, I thought in 2020.
And I just wonder, what do you see in terms of flexibility? Well and revenues are not quite as strong and might come down in 2020 in order to provide cost flexibility.
I mean looking at the variable expenses, you said, it's up to $500 million, or 150x as to one off. And obviously, general expenses, down from $5.3 billion to $4.8 billion in 2022.
So just I'm trying to understand your cost flexibility in light of, if revenues would come down. And then secondly, on the comment, you would provide a strategic update on Q2 and beyond.
Just trying to understand in terms of your targets, with focus on beyond, should we think about most evolving, flexible targets? Or will you start with a certain area and add further areas going forward?
Thank you very much.
Ralph Hamers
Okay. Anke, I will take a second question and then Kirt will do the first one.
So on your second question, no, it's just that this is the first time I do results. It's a bit early for me to come up with a complete strategic update in terms of direction, focus points, as well as financial targets.
And we are working on this. We do expect to be able to come out with an update in the second quarter.
And then around the strategic update, you should see that more that certainly we will give you a strategic update. But in view of many of the things that are still happening in the world, I mean the world is certainly not a stable place.
And see and, depending on how the economies really get through this pandemic, depending on how some of the political tensions work out, you should expect from us even after a strategic update, a more agile way of working with our strategy. Not so much as the endpoint that we see, basically the zoomed-out perspective.
But certainly the zoom-in perspective as to what do we do in the next three months to six months to 12 months in order to get to the end perspective. So that's a little bit the style of our work.
That's what I think one needs to do in a world that is changing at accelerating speed. So that's certainly what you could expect in terms of actions being taken.
Now, when it comes to the financial targets that that come with a strategic update, yeah, we'll see in the second quarter where we are on those and how we can kind of firm them up. With that, Kirt?
Kirt Gardner
Yes, thank you, Ralph. And good morning, Anke.
In terms of our overall cost management, and we've discussed this before, if you think about the flexibility that we have in an environment where we see challenges on the top line, naturally the most flexibilities and variable on FA comp. And just as you saw variable in FA comp up in 2020, a year when we saw good operating income growth, if we saw operating income down, you would, I think accordingly see reductions in both of those lines.
In addition to that, if you think about other areas for the flexibility and you saw this in 2019, when we had a more challenging environment, we announced immediately at the beginning of the year that we would see $300 million of related costs come down during that the first half of the year. They clearly relate back to pace of our investments and that's something that we would certainly scrutinize quite closely.
Some of the other areas, frankly as a consequence of COVID are already at all-time lows, and that includes our T&E marketing spend, consulting spends. Right now all of those lines are exceptionally low.
On the other hand, of course, if we were to look at the need for further flexibility, we would consider layoffs naturally, I commented in my speech that we have purposely postponed layoffs in response to COVID. But that is something that would have to be brought back into focus.
And clearly any layoffs would also come with an additional expense or restructuring expense that you would see in the period itself that we executed on the layoffs.
Anke Reingen
Okay, thank you.
Operator
The next question is from Jeremy Sigee from Exane. Please go ahead.
Jeremy Sigee
Thank you. Good morning, and yeah, welcome to Ralph from me as well.
I've got two questions, please. The first one is, if you could come back to the topic of gross margins in the Global Wealth Management business.
I think you commented on some of the lag effect of new money coming in. But if you could talk a bit more in particular about the Swiss business and also the Asian business, which seemed to have had the most striking declines in revenue margin in the quarter that would be very helpful?
My second question is, and this is partly to inform the capital discussion, just if you could give us an update on litigation in terms of the timing when you expect any developments around the French tax case, but also the U.S. RMBS case in terms of the DOJ?
But also any comments on civil cases, which has sort of become topical after Credit Suisse's news flow. If I could also just add a request linked to the discussion earlier on about the corporate center, if you could think about allocating the corporate center more fully to the divisions, I think it would be beneficial.
It's frustrating for us that all of the divisional returns are much higher than the Group return. And I don't think it can create clarity in your internal discussions as well.
So you don't need to comment on that. It's just a request.
But the two questions that are margins and litigation please.
Ralph Hamers
Well, I can actually start with your third common Jeremy, because I do think that I mean, through the last time we do this, but it's, I think in the end, you have to kind of show the true cost of operating. So I can relate to your suggestion there.
And because if you want to have the full incentive for people to see where they can further decrease costs or increase further efficiency on a relative scale basis, I think it is important that you see those pictures. And management can, they see it so it's not like it's not there.
But it's certainly one of the things that we're collectively looking at and it's also a request from the business in order to see that. Now on the on the gross margins, if it comes to the Swiss business as Kirt alluded to, there's certainly been pressure on the NII coming from the replicating portfolio on U.S.
dollars. And we've seen that in the past in the Swiss francs clearly.
We do expect, two more quarters maybe of pressure there from the U.S. dollar perspective.
And what are we doing with that? So the first thing is we have started to introduce deposit fees.
We've also announced that as of mid-year, we will start charging negative rates on deposits beyond CHF 250,000 in the Swiss business. And then, we are looking at introducing investment opportunities to our clients as alternatives to keeping deposits with us.
And of course, it is also the other way on the NII side, at least to compensate for margins is very much also to look at your loan business and whether you can increase some of your margins there which is what we do see. By the way, we see healthy margins coming through on the Wealth Management side across.
But the low, if not negative rate environment, has this pressure on margins on the NIM side. Although on the Wealth Management side, most of that has already been kind of taken on over time in dollar and Swiss francs perspective.
Kirt, if you could?
Kirt Gardner
Yeah, maybe I can extend some comments, Jeremy on the Wealth Management gross margin. I think and as, of course we saw during the quarter, there was an overall reduction in the margin and that the broader comments I made in my speech.
First of all, we do continue to see a sales overall into new mandates that come in at a lower margin relative to the back book. I think, in addition to that, within the non-mandate dynamics of the business, we also see in the U.S., for example, a reduction in trailer fees as we place clients into C class shares versus A class shares in response to Reg to be which we view is in the best interest of our clients.
Now for the quarter itself, because of the very significant growth in invested assets that were up almost 10%. My comment around the dynamic whereby we have $1.5 trillion in investments from clients that do not attract additional recurring margin also had an impact overall margin.
And this dynamic particularly was evident in Asia Pacific. First, I would note, we manage the business for PBT.
So what is most important is, on a full year year-on-year basis, our PBT is up 20% and we're very pleased with that. Now in Asia Pacific, actually our PBT almost doubled.
It was up 90% year-on-year. However, at the same time, our invested assets in that region were up 24% to $560 billion.
And given the fact that we have the highest concentration in transaction revenue and only 13% mandate penetration, you saw this margin dynamic play out in Asia Pacific. Finally, in terms of the Swiss business, one of the things you have to look at year-on-year, that I referenced, is that there was a $75 million fee that was paid, P&C to GWM a year ago.
And that also had an impact year-on-year on our overall transaction margin. But absent that fee, our transaction revenue was up 9%, again, which is what is most important to us.
Jeremy Sigee
On the capital verse litigation? The capital plan verse litigation?
Kirt Gardner
How we look at all risk events, Jeremy is, naturally we consider our overall deployment of capital and we think about the pace of deployment and return of capital to our shareholders in light of any kind of risk event that we have on the horizon. So the announcement that we were going to repurchase up to $1 billion, you know, clearly, we're sitting on quite significant excess buffers, there's the $2 billion of reserves that we built.
And if you look at the 80 basis points with 13.8% versus 13%, that suggests another $2.4 billion of buffer. We will naturally of course, see and observe the outcome of the French case in March which is scheduled for March 8 to March 23rd.
And that of course will inform how we think about the pace and timing of buybacks beyond the French case.
Ralph Hamers
And just to conclude that on the RMBS case, because you referred to that one as well. I just wanted to kind of clarify our legal position is different from some other colleagues.
We've already settled most of our private cases related to the RMBS matter. So what is left is the FEREA matter, that is the remaining one.
And basically, we have just started discovery on that one. And we expect this to be '22 to '23 events more than anything else.
Jeremy Sigee
That's really helpful. Thank you very much.
Operator
Next question is from Stefan Stalmann from Autonomous Research. Please go ahead.
Stefan Stalmann
Good morning, gentlemen. And welcome again, Ralph.
I actually have only one question, please. And it comes back to the point of variable compensation.
The $500 million roughly increase year-on-year. But again, if you take out the accelerated amortization of deferrals from an employee's perspective, there's probably hardly any increase in the bonus award in the year where you generated more than $3 billion incremental revenue, underlying incremental revenue.
So those are obviously very, very advantageous operational leverage metrics. And do you think that's sustainable?
Is basically the bonus pool now for all intents and purpose is fixed, both for the upside and the downside on the revenue side? Maybe you could comment a little bit around this?
Also, on the question of whether there has been, let's say, some political considerations in keeping the bonus pool lower than it would have otherwise been. And maybe you can already hint whether there has been a change in the cash versus deferral mix in your 2020 awards?
Thank you very much.
Ralph Hamers
That's a lot of detailed questions, Stefan. So, really the bonus pool is not fixed.
And there is also the - it is really related to our performance, so the change that we did this year, we basically did a change for variable for fixed this year. And despite that, we have been able to keep our operational expenses before variable compensation flat.
So that's, really a good accomplishment. So that's, although it's not a full year, in fact, that is in there.
And then we clearly have corrected the variable compensation pool for that. But the way we accrue for variable compensation is that we have our way of looking at the different performances of the different divisions, they each have their own kind of framework to accrue variable compensation.
And if you take the full accrual, then we have kind of corrected that for whatever has gone into fixed away from variable compensation. That's the way you have to look at it.
Now clearly the year was a very good year from a revenue and result perspective. And therefore you see the variable composition going up.
Last year was so another good year, and you saw that the pool was really down from 2018. And therefore, you see it going up again this year.
Now, the way we go about is clearly we pay for performance, we have to kind of, we are in a competitive business across the globe. We'll have to take into account local market circumstances everywhere, which we do in terms of making sure that we are an attractive employer also from a compensation perspective.
But as said also by Kirt, in terms of giving recognition to, for example, the pandemic, we have been awarding thank you allowances to staff that are not eligible to specific variable compensation schemes in order to reward them specifically as well. And we've been really cautious in restructuring our company, leading to specific redundancies and we're really looking at how can we ensure that people find new jobs within UBS but clearly you have to continue to transform and restructure because you can't stop to change vis-a-vis the client needs.
Having said that, at the same time, we've been really mindful of the fact that this is not the - that this is a time in which we have to ensure that people feel they have a good opportunity to find new positions within UBS. I hope that helps.
Stefan Stalmann
Yes. Thank you very much, Ralph,
Operator
The next question is from Magdalena Stoklosa from Morgan Stanley. Please go ahead.
Magdalena Stoklosa
Thank you very much and good morning. I've got I've got two questions.
One is still about your kind of thinking about the capital returns and another one that kind of focuses on the Investment Bank. So of course, we talked about kind of various aspects of your announcements this quarter.
And I'm a little bit more interested about your thinking slightly longer term, because of course 2020 brought quite significant changes from the perspective of the lowering of the dividends and a kind of higher share buyback numbers. Now, I'm interested in two aspects from here.
One, how can you think about your share buybacks versus the valuation? Because, of course, when you look at the kind of return on investment here, it is much more attractive to be buying back shares below book than above books, so just your thoughts there?
And of course, the dividend growth trajectory, how do you see that mix kind of shifting as we rebase in 2020 and you think about your capital generation going forward? So that's one.
And second really is about the Investment Bank, because, of course, 2020 revenue trajectory plus 30%, kind of year-on-year across businesses, very strong. But we have kind of two things here, when we think about the sustainability of it into '21, '22.
From my perspective, you've actually entered 2020 with a restructured business. So a part from the revenue, I think would have been structural, but of course, a part of it was cyclical on the strength of the markets.
How should we think about it into, let's just say, the next three years, the sustainability of that revenue profile? Or maybe even PBT level as we kind of look at it in its entirety?
Ralph Hamers
Okay, well, just thanks. And I'll take the second question and Kirt will take the first one.
In terms of the Investment Bank, clearly and that's not only for us, it's also for the other investment banks, as most of them have already come out with their numbers. 2020 was a particular constructive year, as we say here.
And so though we are not in the warehousing business, we are in a flow business. And if there is a lot of kind of rotation in the investments, then a lot of flow comes through our system.
And we have to make sure that we anticipate on those client needs and we execute those transactions. So that has led to basically a good performance across almost all areas of the Investment Bank over the year, whatever it is the more prime brokerage business and the ECM, LCM, business, whatever it is.
The cash equities, the equity derivatives and specifically also in the fourth quarter across product lines as well. So you're seeing basically the investment banking working across almost all of their activities.
Now, if you are a more a flow house like we are, and basically, we generate a lot of those flow, the flow and back to our clients rather than a warehousing house, we don't take as much risk as some of the others do. And clearly, you will see some volatility with the markets being either quite or not.
And that will give rise to some volatility on the revenue side. So how do you go about that?
In many different ways. First, you make sure that you have those products, in which you can actually generate the scale.
And to the extent you can't generate the scale, you have to improve the scale, or you have to make the analysis whether it was really necessary for your clients. So, for us, it's very important to stay on top in the equity business and the FX business because we know these are core franchises to all of our clients.
And we have to invest in these execution platforms. And that's what we actually see coming as well.
And there's a lot of initiatives around further digitalizing the execution platforms. And that with what - through which we further decrease our costs and get a scale opportunity.
We know the business very well. We have a good team also on the digital effort there.
So I do think that that can help us. Now across all the other areas, you know it is really depending on where the market is, but I can tell you that, that we're going into the New Year with a good pipeline on the prime brokerage business as well as on the advisory business.
And you've heard that from other firms as well. And so on one side, short term, we think that the market activity will be quite elevated, and that's good.
We see good pipelines longer term, it's all about how can we ensure that we stay top three to top five in those products that are truly important, and how can we be efficient in it? And I think that's what we're actually looking at.
Kirt?
Kirt Gardner
Yes, Magdal, just to address your question on capital returns. I guess, as we think about our mix and the decision to increase the proportion of capital returned with the higher levels of buybacks, you can certainly consider our current valuation is, as you highlighted.
Naturally when we're trading below one times book, it's a very attractive time for us to buy back our shares. But it's not just - we don't just look at our trading versus book value, we also consider what we think the fair value of the firm is, and we reference our three-year plan.
And if we believe that our three-year plan suggests that we should be trading above what our current valuation is, it also informs, for us it's a good time to repurchase shares. But away from this valuation consideration, also we like the fact that it gives us more flexibility.
We can return capital when we have it. We don't have to wait a year for our AGM to approve and for us to pay back a cash dividend.
It also gives us a better ability to manage our stress and how it impacts stress versus a cash dividend. And then finally, it reduces overall the capital that we hold when - as we accrue our cash dividend and go throughout the year and therefore the difference between tangible equity and CET1 capital.
In terms of our dividend overall, how do we think about dividend growth? Our intention is to be progressive.
And for us, progressive could mean $0.005 or $0.01 a share. And that's something that we'll look at as we go through each year of what the right level of cash dividend is but as I said, with the intention to be progressive, probably minimally progressive, because we do want to optimize buybacks at this point.
Magdalena Stoklosa
Great, thank you very much.
Operator
The next question is from Andrew Lim from Societe Generale. Please go ahead.
Andrew Lim
Hi, good morning and a warm welcome for me too, Ralph. So I have my two questions.
First of all, I'd like to go a bit further, please, on this potential tax evasion case. You've committed an official buyback program and it seems to be the case that you're alluding to maybe differences in timing on buybacks, depending on the outcome, but not a change in the quantum.
And I'm just wondering if you did have the worst-case outcome, and have final €4.5 billion [ph], would that change the quantum of your buybacks, and specifically $2 billion for this year? And then maybe tied on to that, what would the process look like going forward if you did lose that appeal?
Are there further stages and phases where you could appeal that appeal? And how long would that take?
And then secondly, Ralph, you've been noted for your success in growing digital banking at ING. But looking to wealth management, arguably, people have this perception maybe that's digital banking, or let's say a digital offering at wealth management clients hasn't really taken off in a way it should be.
Looking to UBS and maybe wealth management in general, do you see specific opportunities to improve the digital offering for wealth management clients? I appreciate your thoughts there.
Many thanks.
Kirt Gardner
In terms of our buyback program, #[off-mic].
Operator
Ladies and gentlemen, please hold the line, the conference will continue shortly. Thank you.
Ralph Hamers
There is a disruption in the line. We'll have to mute to reconnect.
Kirt Gardner
Andrew, can you hear me?
Andrew Lim
We can hear you, I can hear you.
Kirt Gardner
Okay. And I'm not sure where we dropped off.
But as I mentioned, naturally a worst-case outcome, which is something that as you would expect, we certainly model and we look at, that of course, would form our buyback capacity just given how it would impact overall CET1 ratio along with other factors. Now, finally, in terms of the French process, after the Appeals Court, there is one more level of appeal that we can make to essentially the equivalent of the Supreme Court.
And so we would look at the outcome of the French case, naturally, we would consider what that informs in terms of probability of potential outflow, and we would account for it accordingly. And we would also take into consideration what we would view as any opportunity for us to appeal and how strong that case would be.
Andrew Lim
Okay.
Ralph Hamers
And yeah, so #[off-mic] up a bit. And so, and maybe also on capital distribution, clearly, we generate a lot of capital.
And what you do as a firm is, okay, where can we deploy the capital in a - with a right return and how can we build our franchise. So that's where you see some of the lending coming in.
And that's where we will allow Wealth Management and the P&C business to use some capital clearly. But as Kirt said, we'll have to be kind of conservative around how we manage our CET1.
And then clearly, we generate a lot of excess to capital, which we want over time to distribute, then as well. And coming back to the question, Andrew, on digital, and where do we see the biggest opportunity for digital?
It's actually in three areas, for the moment, at least in three areas. I mean, the opportunities for digital is almost everywhere, in my view, but the three areas that we're already looking at and where we can further, in my view, accelerate strategically, but also tactically, is in the Investment Bank.
As I said, we have quite some initiatives there in order to further digitalize some of these execution platforms and some of the services that we go through in those products and those services that we know really well. And the second one is clearly in the Swiss Bank, where the demand for perfect and really good differentiating digital services is increasing rapidly.
And we really have to step up on those. So that's what we need to do as well.
And then also in the wealth manager and you may find it strange, but I do think that if we do a very good job at analyzing the data and applying artificial intelligence in understanding our understanding our clients better and understand the timing of our clients better and predicting their needs better. I am convinced we can further support our financial advisors or our client advisors to be much more supportive and effective with our clients and with that being more productive as well while at the same time, really investing in all of those core processes that support them and make them digital because they still lose quite some time in a lot of processing of the business they do.
And I think so to support all the financial and client advisors in making everything digital that you can make digital but it's also generating the client intelligence to really support it to be personal, to be there at the right moment, to have a bespoke product offering and bespoke pricing. I think those are the components that I firmly believe in, we can improve and where we can support the wealth manager.
Andrew Lim
That's great. Thank you very much, Ralph.
Operator
The next question is from Jernej Omahen from Goldman Sachs. Please go ahead.
Jernej Omahen
Good morning from my side as well. And welcome Ralph to your first results call at UBS.
I just have two questions left. The first one is on page 16 of your presentation.
And what I'd like to ask here is the following. So the loan volume went up by $12 billion quarter-on-quarter, $34 billion year-on-year.
So that's an 18% increase. You say in the commentary here that margins have expanded as well.
How do we tell it is 18% increasing volumes, expanding margins and only a 2% increase in net interest income? If the explanation really is the lower deposit revenues in the U.S., that must have been one monster contraction of the deposit margin in the U.S.?
And then just a sub-question, given that the curve in the U.S. is both steepening and rising, what or how should we think about this for the coming period?
That's question one. And then question two on page 22, the top right exhibit?
What does that show? Thank you very much.
Kirt Gardner
Could you repeat the second question, please?
Jernej Omahen
Page 22, top right exhibit. Can you just explain what this actually shows?
I don't understand what the components here are. In the footnote it says reported PBT divided by average attributed equity but reported PBT of what.
So you've taken divisional PBT results of your U.S. peers or what have you done here?
Thank you. Well in essential, just trying to compare it with a top right chart but I don't understand it.
Thank you.
Kirt Gardner
Jernej, hi. Good morning.
So maybe just in terms of your first question, so I think and if you look at our deposit volumes $348 billion in deposits, if you think about the overall U.S. dollar interest rate contraction, year-on-year, and how that translates into margin, that is 130 basis point contraction in margin.
So when you apply that to this level of volume, you can see how there is very substantial net interest income headwind across our U.S. dollar book.
Now, actually, the volume is helpful. So the fact that we did increase volume does partially offset that contraction.
But that is a massive headwind. Now offsetting that, as you rightly point out, we had the increase overall in lending volumes $34 billion year-on-year, your math is correct, $12 billion quarter-on-quarter, up 19% and 6%.
In addition to that, we did have some margin improvement. So overall, the fact that that we were able to offset that with a lower volume book, and with less of a volume increase, I think is, to me, is a strong statement about the performance of our net interest income and what we delivered over the year, and what we expect to continue to deliver over the quarters going forward.
Now, specifically, our loan net interest income on a year-on-year basis is up $152 million and up to $52 million on a quarter-on-quarter basis. So again, I think quite significant momentum from our lending.
Ralph Hamers
Maybe Jernej, you have the margin compression on the full book on your balance sheet, basically, in dollars whereas you have your margin improvement on your new production. And that's, those are the parameters that you have to work with.
So, actually, we think it's quite an accomplishment, what the team has done here. [cross-talk].
Jernej Omahen
Now, it is an accomplishment. And can I just add a question here, so plus 18%, year-on-year growth in loans, I think, you're doing what you said you would do here and then a bit more.
When you look forward, do you think UBS can sustain this pace of growth here?
Kirt Gardner
Yeah, I mean, our intention is to continue to very much focus on growth in our loan book. Right now as we look over the next couple of years, we just completed our planning process.
We actually do see that GWM, we believe that the plans are in place, the capabilities are in place, all the investments and the actions that we've taken over the next couple of years, they - the relationship and the joint venture with the IB around structured lending, we think we're well set up to increase. And for us, if you look at our total loan penetration, you compare us, for example, to the other Swiss franc or to our U.S.
peers, you'll see that our loan penetration overall is well below our peers. And that also then gives us good conviction that we can continue to take wallet share.
And if we turn to slide 22, I mean, overall, what we're trying to show is consistent with our model, so we have a model where we hold relatively less inventory than our peers, we take less market risk, as evidenced by the overall bar in the business. And we're just relating that to revenue to show that our capital productivity and our productivity on risks that we deploy is relative to our peers is that at the upper end overall, and that helps to lead to very good return on attributed equity.
So we're just really reinforcing and we're providing proof points that our overall investment banking model works well and works particularly well in markets where there's a lot of volatility,
Jernej Omahen
Right. But can I just ask?
Now, so I understand that, but what I was asking, what does this actually show? So you have you have taken divisional results of your peer group.
And you have divided them by allocated equity as reported, right. So this is a divisional comparable or what?
Ralph Hamers
That's correct.
Kirt Gardner
That's right, we've taken divisional results of our peers, we've looked at the bar they've reported, the revenues that they've reported, and also the attributed equity. And we compared that on a like-for-like basis across our peers and of course, looking at our business.
Jernej Omahen
Thank you very much.
Operator
The next question is from Goel Amit from Barclays. Please go ahead.
Amit Goel
Hi, thank you, and also welcome from myself too. And so two questions, and the first one actually, just going back to the profitability, and obviously a very strong set of results for 2020 especially given various headwinds.
I'm just trying to just try to understand in terms of as you think about this going forward and kind of looking at Slide 7, profitability well above the targets. Do you think the level achieved this year is, also in 2020 is sustainable kind of going into '21 and beyond?
Or do you see it as a bit exceptional? And how do you think about that when you're thinking about the targets?
And the second question, I mean, actually, I was going to ask them on the loan growth but actually, maybe slightly different one, given the last question we just had. And on the IT, just curious, Ralph.
Obviously, when you've had a look at the system and the processes, etc., and just maybe a bit more detail in terms of what your thoughts are on the infrastructure and the IT that you see at UBS? Thank you.
Ralph Hamers
Okay. Thank you, Amit.
Yeah, so, clearly 2020, in view of the market volatility, the rotation in the market, the - clearly it has worked for us in the Investment Bank, it also has worked for us in terms of being a very solid, a very trustworthy, a very knowledgeable advisor to many of the clients, to which they have entrusted more money with us. And you see that all across.
So, is the 2020 number in terms of growth an absolute level? Is this one that you come bank on going forward?
Not in full. But underlying, we see a much stronger franchise across all regions across all business divisions.
I think that's what provides the foundation. Also for us, we're working on some strategic - further strategic fine tuning and how we can best kind of move forward.
And if that warrants a further kind of update on the targets on Slide 7, we will certainly take those along. Let me give you an update in the second quarter.
So that's one. Then on the IT side.
I think that clearly, I put quite some time in it with the Head of IT here. I've gone through how we manage IT?
How we prioritize IT? And how we, where are we on infrastructure, etc., etc., etc.
And I think there is, we do a good job. If it comes to the ability to use Cloud, how we move towards Cloud, what can we do in the public Cloud?
What can we do in the private Clouds? What do we want to continue to do on mainframes and all that?
Sort of the story there. But there is also, there are areas of improvement, and areas where we can really step up and be more efficient.
I think that will, the way we go about our technology going forward, if you if look at the technology spend that we have, it's not like we need a higher spend per se, going forward. If you look at the benches, looking at the technology spent versus revenue, we're right up there.
So I think that shows that we're not under spending in technology. But I do think that we can kind of change the rhythm through which we take our investment decisions on a more quarterly basis, rather than once a year we allocate tax spend to the different divisions.
I think we have to optimize it across the different divisions, we have to optimize across the different programs. And I'm not a big believer in long term programs, although you could have a long-term program, but you have to really set targets and milestones on a more short-term basis to ensure that you're delivering, that you're making progress rather than after quite some time finding out that you haven't been able to deliver, because that leads to impairments and basically not the benefit.
So on, how are we doing in technology? I think we're doing well.
What are we spending in technology? I think we're up there, I don't think it is, we need to do more how we go about allocating technology spend, prioritizing technology spend and managing technology spend.
I think that's where the change will be, the effectiveness of the spend.
Amit Goel
Okay, thank you.
Operator
The next question is from Adam Terelak from Mediobanca. Please go ahead.
Adam Terelak
Yes, morning. Thank you for the questions.
I had to on GWM margin dynamics, sorry to come back. On the fee margin, I understand your point on the non-fee earning AUM base.
But to have Q-on-Q margin erosion, that would suggest that that element of the AUM is growing faster than that is earning the fees? Or is it a fixed fee on those AUM that doesn't grow, so gets diluted over the overall higher AUM base.
I'm just really trying to understand why the Q-on-Q margin pressure was there from a mix standpoint, and how sustainable or whether we should extrapolate that further as the relative elements start to grow with rising markets? And then on the NII front, you mentioned $52 million of higher revenues from lending Q-on-Q, could you break that out into margin and new business?
I'm trying to understand how sustainable that $50 million would be and whether that's the sort of number we can start modeling if the loan momentum or loan growth momentum stays as it is? Thank you.
Kirt Gardner
Yeah, thank you, Adam, for the question. So this is very simply, mathematically, if we have $3 trillion in invested assets, and within the $3 trillion, if there's $1.5 trillion, that where we have relationships with clients that are not contract based.
And so therefore, they don't attract recurring fees or they attract recurring fees only relative to like custody and some of the other services we provide to them. So therefore, when we see an increase in markets, and we see those assets appreciate, we're not seeing a corresponding increase in recurring revenue.
So therefore, the recurring revenue that we are receiving and where we do see an increase is being allocated over a larger invested asset base. And mathematically, that just results in some erosion and margin, so quite straightforward.
In terms of the net interest income and what you should expect to see going forward. I mean, I'm not going to break down the details, frankly, of the $52 million as I said, that's all reflective of the lending that we did, leading into the fourth quarter in addition to partially reflecting the additional $8 billion of loans during the fourth quarter along with some margin expansion.
Adam Terelak
Okay, so we should expect mechanical margin pressure if we continue to see market carrying of AUM on a multiple?
Kirt Gardner
I think what I indicated is and I think what's most important is that we still expect to offset incremental quarter-on-quarter U.S. dollar interest rate pressure for net interest income on our deposit book through continued increase in net interest income from our lending.
And as we look at Q1, we would expect net interest income of around $1 billion.
Adam Terelak
Okay. And on the fee side, to carry on the fees is always going to be lower than the AUM if markets are positive and green?
Kirt Gardner
Yeah, I mean, that's a bit - given that we have a portion of our relationships that are transaction-based only and don't incur recurring revenue, when we see appreciation that's going to provide margin pressure. But also when we say actually valuations come off, you would expect to see some recurring margin benefits, but it's pretty meaningless, which is why we report or we focus on growth in operating income and PBT.
We think it can be very misleading if you start to get involved in all the different mathematical impacts and dynamics that go into margin overall.
Adam Terelak
Right, right there. Thank you.
Operator
Next question is from Nicolas Payen from Kepler Cheuvreux. Please, go ahead.
Nicolas Payen
Yes, good morning. Thank you for taking my question and I have two please.
The first one is on production income in Wealth Management, and I believe where you have had a very strong year. And how much of that income you think is sustainable and more particularly, how much of that is due to the joint venture between the IB and GWM?
And the second one would be on Asia. There you have PBT which almost tripled in IB, almost double in Wealth Management.
So what should we expect from there? Should we expect the same kind of trend or a decrease in PBT for next year?
Any outlook on this region will be appreciated. Thank you very much.
Kirt Gardner
Yeah, in terms of GWM overall, clearly the - if you if you look at what we can drive and control, it's the flows and the volume. And you see a very strong momentum in lending.
You also see a strong momentum in net new mandates, and you see our focus on transaction revenue, and that's something that's going to continue as we go into 2021. Away from that, of course, we're also impacted by movements in equity markets, just given the significant leverage in current revenue.
Now the IB and GWM is kind of the one term revenue overall, that was an important part of our 2020 results. And you saw we highlighted the GFO growth of 25%.
More broadly our long-term revenue was up 17%. And clearly that is growing faster than overall operating income by a fair bit.
So we would expect one of the growth drivers for us going forward to actually be the revenue that we generate across the firm. And we would expect that to continue to grow faster than the GWM-only revenue.
Now in terms of PBT in Asia Pacific, we still expect if you think about the structural trends in Asia overall, that indeed is going to be our growth region going forward and hence the reason that we place such strategic emphasis on Asia. And it is important for us to see growth in Asia too, in order to see growth overall for GWM.
And so yes, and think that while there's going to be cyclicality, we see that. We see years when Asia does less well, we think the trend over the next five years is going to be for strong growth out of Asia Pacific, particularly in Wealth Management.
And we expect to remain the leader over that period.
Ralph Hamers
So if you look at you know, from a wealth manager perspective, where is it that you want to be and need to be as a global wealth manager? Asia is where the growth is and where the pool will grow the fastest.
And U.S. is where the pool is right now and that's why it's also important for us to be there, but Asia is certainly the growth region.
Will this year be, see the same parameters as last year? I think on the GWM perspective, why not, because this is a combination of a demographic trend and a further kind of improvement in the middle-class economy with pushing up also some on the welfare side.
On the other side, we also had a tremendous strong year, a tremendously strong year on the Investment Bank in Asia. And yeah, that may be a bit more volatile.
But if there is one area as well, where the one UBS truly comes across to our clients, it is Asia in general. And I think that worked very well, to make it work.
And that is certainly the success formula for our Asian clientele. And there's quite some growth potential.
That's also why that's specific work stream out of the 14 work streams that kind of I mentioned, growth in Asia Pacific is a crucial one for us.
Nicolas Payen
Thank you.
Operator
The next question is from Jon Peace from Credit Suisse. Please go ahead.
Jon Peace
Yes, thanks. Can I just ask a couple of clarifications, please?
So firstly, when you talk about leading shareholder returns on Slide 8, and do you see yourself in a European banking peer group or in a global bank peer group? And do you intend to turn on CET1 to be your profitability metric rather than return on tangible equity?
And then the second question is, do you expect to hear the results of French [indiscernible] March hearing or could it be delayed a few months? And then just technically, is the idea that you would pause your buyback after Q1 pending that decision?
Thank you.
Ralph Hamers
Jon, yeah so on the French case, we actually don't know. As I said, it starts on the March 8, it will last until March 24, I think.
And normal procedure is that at moment, we get a date at which we will hear the ordeal. And so I can't really look into the future there as to what that period will be.
But we will know on the 24th. So that's one.
In terms of you know, return on capital, CET1 capital, it is the parameter that we currently have. This is not the moment to change these things, clearly and going through our strategic updates, we're also looking at that and where we see return on capital going.
But we are in Europe and a lot of our businesses are also outside of Europe. And so let us certainly kind of be better than Europeans and have an ambition to be there with the others.
Jon Peace
Thank you.
Operator
The next question is from Tom Hallett from KBW. Please go ahead.
Hi, guys.
Tom Hallett
Hi, guys. A couple of questions for me, please.
I was just wondering what your strategic intentions are in Asset Management? In the presentation, you mentioned the benefits from scale for clients.
And M&A is clearly becoming a big theme for peers, particularly in the U.S., which do seem to be breaking the scale but also large strategic shifts. So just wondering or curious at what stage does UBS need to change track and inorganically grow the business?
And what can conditions would need to be met to become more open to such a move? And then secondly, I know we're only a month into the New Year, but I'm just wondering how clients are engaging and positioned in wealth across regions, particularly in the context of the reflation trade?
And can you also just remind us, what are WA impacts we should be expecting within CET1 over the coming year? Thanks.
Ralph Hamers
That's a handful, Tom. Let me start with the first one on asset management, but I'm going to generalize a little bit here.
So clearly, we start our exercise from a position of strength. You can see that the results that we have this year, not only in PBT but also an invested asset and also in the asset manager is very clear that what Suni is doing is truly very successful in growing the franchise and making the right decisions around what new product needs to be there.
So, the sustainability call is certainly one that came from there. The Chinese active strategies have been very successful.
Our hedge fund has been very successful there. And with that, we have been really successful with our clients, building scale to almost $1.1 trillion.
So, is that sufficient scale in an asset management business? One never knows.
Does the asset manager support in capabilities, what we need also for the wealth manager? Absolutely.
Now, in all of these cases, whether it is the asset manager or not, we do see room for further organic growth. But clearly if there is an inorganic opportunity out there that could accelerate some of the growth or efficiencies that we want to accomplish in whichever business we will have, we will take a look at it.
But that is the order, we are looking for organic growth, because we feel that we have the right management, we have the right product, we have the right alignment between the different divisions. And last year, we have proven that we can do it organically.
But if an opportunity presents itself to accelerate some of that, we may consider it. That's one then the other questions maybe -
Kirt Gardner
Yeah, I mean I think that was a multi multifaceted question. But in terms of RWA, we expect around $10 billion of increase overall for methodology and regulatory changes.
And away from that, I won't comment on what business increases we're likely to see. But naturally, I think as we've highlighted pretty consistently, you can assume that we're going to continue to deploy capital to GWM to support its ongoing growth in lending.
Tom Hallett
Okay, thank you. Just maybe one other question on the report in terms of the how clients are engaging positions abroad in the context of the reflation trade?
Ralph Hamers
Just repeat that.
Tom Hallett
So, in terms of reflation trade, how clients are sort of seeing that?
Ralph Hamers
I don't really have that detail available.
Kirt Gardner
I think so if you look at the segment, so we do client segment research, and you see that clients are positive towards pockets. So I think there as a percentage 65% are positive towards investing.
Eight out of 10 of our clients are seeking active advice, given all the things that are going on. And that's where we are super well placed with our network of financial advisors and client advisors.
So clearly, the uncertainties that are in the market play to the strengths of our franchise. Clients need advice, and that's what we can provide.
Tom Hallett
Okay. Thank you.
Operator
The last question is from Piers Brown from HSBC. Please go ahead.
Piers Brown
Yeah, good morning, gentlemen. Just maybe one final one for me on credit losses.
And we've obviously seen, as you previously guided to, the drop offs in credit loss expense, second half over the first half. And I wonder if I can get a sense as for full year '21?
I think the market share can provide about another half of the credit loss expense charge, so I mean, just in the context of the tougher lockdowns we're seeing, particularly in Europe over the last month or so, is there anything in the trajectory of economic recovery or change trajectory of economic recovery, which makes you think that sort of assumption might be might be incorrect? And how you would be thinking about some of the model updates you may be putting through in the first quarter for credit losses?
Thanks very much.
Ralph Hamers
Yeah, Piers. Overall, CLE of $66 million driven by Stage 3 for the quarter, where we had $99 million of impairments partially offset by $33 million of Stage 1 & 2 releases.
Now overall, as a consequence of updating our - the economic factors for our scenarios, that actually informed a further release, which we overlaid, we felt it was premature to actually release additional reserves into the P&L. In addition to that, we also rebalanced the weightings on our baseline versus adverse scenario from 70/30 to 60/40.
That is, because we do see, despite the optimism around the vaccine, we do see a fair bit of uncertainty around how the recoveries are going to unfold and what the impact of the current lockdowns are going to be. So we acknowledge that that then creates of course quite a bit of range of potential scenarios for 2021 and how that might then impact overall credit loss expense.
So still a fair degree of variability and uncertainty around that. Overall we would expect in 2021 to see more expense on the impairment side than we went on Stage 1 & 2 side.
Piers Brown
Okay, thanks very much.
Operator
Ladies and gentlemen, the webcast and Q&A session for analysts and investors is over. You may disconnect your lines.
We will shortly start the media Q&A session.