WEBVTT - UBS CEO Sergio Ermotti Talks Earnings, Volatility, Credit Suisse

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. So Jo, thank you

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<v Speaker 1>very much for your time. A beat, of course when

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<v Speaker 1>it comes to profits in terms of revenue, and the

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<v Speaker 1>Global Markets team performing very well, the best quarter on

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<v Speaker 1>record for them. If we were looking for soft spots,

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<v Speaker 1>maybe in terms of the estimates, a bit of a

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<v Speaker 1>miss when it comes to asset management and wealth, but

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<v Speaker 1>the flows are still there. Earnings per share is a

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<v Speaker 1>beat as well. To those trends, particularly when it comes

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<v Speaker 1>to the volatility that you've seen and the upside gains

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<v Speaker 1>for the Global Markets team in the first court. Do

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<v Speaker 1>you expect those trends to continue in the quarters ahead.

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<v Speaker 2>Well, first of all, I have to say that I'm

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<v Speaker 2>particularly happy to see our results because they underline the

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<v Speaker 2>real value of our global leriasify to franchise, and also

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<v Speaker 2>when you look at Wealth Management, as to the management

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<v Speaker 2>and the investment banking board are delivered double digit.

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<v Speaker 3>Pre tax profit expansion.

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<v Speaker 2>Our core businesses at combined fifteen percent expansion. So I

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<v Speaker 2>think it's of course, so we saw a little bit

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<v Speaker 2>of seasonality, positive seasonality, particularly in the first few weeks

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<v Speaker 2>of January.

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<v Speaker 3>I think it's fair to say.

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<v Speaker 2>That afterwards the seasonality factors were out and a high

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<v Speaker 2>level of uncertainty and volatility did come in. But you know,

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<v Speaker 2>we you know, the most important issues that if you

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<v Speaker 2>go back in history, you can see how we can

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<v Speaker 2>really perform in a variety of in a variety of

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<v Speaker 2>market conditions.

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<v Speaker 1>Wealth management clearly the biggest profit driver as it has

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<v Speaker 1>been for a long time for ups. How your clients

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<v Speaker 1>within wealth adjusting to the market turmoil or political uncertainty.

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<v Speaker 1>Are they staying on the sidelines, are they looking for

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<v Speaker 1>different products, different asset classes.

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<v Speaker 3>Well, you look at.

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<v Speaker 2>So far, we haven't really seen a major shift in

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<v Speaker 2>asset allocation by clients. And when you look at the

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<v Speaker 2>first quarter and then the first couple of weeks in April,

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<v Speaker 2>you know they took more at of market volatility to

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<v Speaker 2>reposition their exposures within the radio set asset allocation. When

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<v Speaker 2>you look at the last couple of weeks, is fair

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<v Speaker 2>to say that probably there is a little bit of

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<v Speaker 2>fatigue coming in from US, coming from you know, the

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<v Speaker 2>trade tariff's situation.

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<v Speaker 3>So that.

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<v Speaker 2>For the time being, I have to say that despite

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<v Speaker 2>the real significant spike in volatility and huge volumes, we

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<v Speaker 2>saw peaks in volume that exceeded thirty percent of the

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<v Speaker 2>COVID times in the first week in the first couple

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<v Speaker 2>of weeks of the second quarter. So despite all of these,

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<v Speaker 2>clients are quite calm and focus on managing within their

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<v Speaker 2>asset occasion.

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<v Speaker 1>Is that volatility peaking volatility behind us? Now, do you think?

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<v Speaker 3>I don't think so.

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<v Speaker 2>I think that's as I said, probably now there is

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<v Speaker 2>a little bit of settling down. I think markets have

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<v Speaker 2>found probably a new a new dimension in terms of

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<v Speaker 2>where to reconsider things from and now it's going to

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<v Speaker 2>be depending.

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<v Speaker 3>On the developments on the tariff front. I think that

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<v Speaker 3>uncertainty is there.

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<v Speaker 2>It's very positive to see that there are ongoing discussions

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<v Speaker 2>in terms of finding agreements.

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<v Speaker 3>Having say that if this goes.

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<v Speaker 2>On for too long, uncertainty has also a cost, and

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<v Speaker 2>therefore probably investors and corporates will slow down their investment plans.

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<v Speaker 1>How are your private banking clients being impacted by tariffs

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<v Speaker 1>for the.

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<v Speaker 2>Clients themselves directly in their allocation, just as a function

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<v Speaker 2>of markets movements. You know, of course, we have a

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<v Speaker 2>lot of clients who are also entrepreneur business owners, and

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<v Speaker 2>there depends very much where they are. So I think

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<v Speaker 2>the Tarifficie won't be a game in which everybody loses

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<v Speaker 2>or everybody gains.

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<v Speaker 3>Some people will be winners, some people will be losing.

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<v Speaker 1>And is ubs benefiting from that safe haven status that

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<v Speaker 1>Switzerland has as investors diversify out of the US.

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<v Speaker 2>I think that there is not necessarily a geographic or

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<v Speaker 2>booking center issue. We are not seeing that kind of developments.

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<v Speaker 2>I think that, well, it's fair to say that we

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<v Speaker 2>are a global franchise. We have very important activities and

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<v Speaker 2>booking centers in the US, but also when you look

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<v Speaker 2>at Europe in Switzerland, you look at Asia, On Kong, Singapore,

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<v Speaker 2>in Australia and Japan. So our investors have been playing

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<v Speaker 2>the diversification cards for many, many years and so it's

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<v Speaker 2>nothing really new.

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<v Speaker 1>Expanding wealth management in the US is a key priority

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<v Speaker 1>for you and the team. There's still a bit of

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<v Speaker 1>catch up with the likes of Morgan Stanley. What's holding

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<v Speaker 1>the business back there and what does it look like

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<v Speaker 1>by the end of twenty twenty five.

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<v Speaker 2>Well, we are we have a plan on how to

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<v Speaker 2>bring our pre tax profit margins in the US to

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<v Speaker 2>mid teens numbers.

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<v Speaker 3>This is we all.

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<v Speaker 2>We say that our goal in the US is still narrow.

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<v Speaker 2>The gap to our peers because of who we are

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<v Speaker 2>and the size of our operation and the scope of

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<v Speaker 2>our operation in the US is not realistic the thing

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<v Speaker 2>that we're going to close the gap with our main competitors.

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<v Speaker 3>But you know, within that, we believe that.

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<v Speaker 2>You know, the ongoing efforts to work across many dimensions

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<v Speaker 2>to improve profitability are going well.

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<v Speaker 3>You look at the first quarter results we have.

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<v Speaker 2>We had a twelve percent PbD margins, is still short

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<v Speaker 2>of the fifteen percent we want to achieve in the

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<v Speaker 2>next couple of years, but it shows that we are

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<v Speaker 2>moving in the right direction.

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<v Speaker 1>Okay, And you're confident in getting to that fifteen percent

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<v Speaker 1>within that time frame in.

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<v Speaker 3>The US, Yeah, I think we are confident that we

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<v Speaker 3>will do.

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<v Speaker 1>The only capital requirements debate that's unfolding. It seems like

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<v Speaker 1>the SMB, the regulators, is the government not backing down

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<v Speaker 1>in Switzerland in terms of imposing those higher capital requirements.

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<v Speaker 1>Would you in the team be prepared to make structural

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<v Speaker 1>changes changes to the strategy to try to come to

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<v Speaker 1>a compromise.

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<v Speaker 2>On this, Well, okay, think it's not appropriate to speculate

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<v Speaker 2>what we will or we will not do in respect

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<v Speaker 2>of any any changes until we.

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<v Speaker 3>Know exactly what they are.

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<v Speaker 2>When we know what it is, we're going to analyze

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<v Speaker 2>it and and make considerations that are you know, focusing

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<v Speaker 2>on protecting and the interest of our shoreolders.

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<v Speaker 1>I think listening to your concerns, are you able to

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<v Speaker 1>shape the debate?

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<v Speaker 3>I think that one, I don't know.

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<v Speaker 2>I think that the only thing I know that we

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<v Speaker 2>are definitely making efforts in in in contributing to a

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<v Speaker 2>fact based discussion around is very important topics. So I

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<v Speaker 2>think it's very important that whatever decision is taken is

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<v Speaker 2>taken based on facts, not about meath or about any

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<v Speaker 2>other ideological issues. And so we want to make sure that,

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<v Speaker 2>you know, also COLDS are.

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<v Speaker 3>Fully fully aware.

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<v Speaker 2>Of, uh, you know, all the consideration that should be

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<v Speaker 2>analyzed before making such decisions.

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<v Speaker 1>But it's a potential risk to the buyback and the

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<v Speaker 1>dividend plan as you look out to that twenty twenty

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<v Speaker 1>six goal.

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<v Speaker 2>Yeah, it's definitely, you know, I think that our capital

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<v Speaker 2>returns plans are are subject to us delivering on our

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<v Speaker 2>financial targets, us keeping the already very strong capital position

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<v Speaker 2>we have and also no material and immediate change in

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<v Speaker 2>the regulatory framework, but anything that it would be nice

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<v Speaker 2>if any changes would be only limited to the short

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<v Speaker 2>term capital return plans. I think that the consequences of

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<v Speaker 2>the changes are much more profound for the competitiveness not

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<v Speaker 2>only of UBS but the Swiss financial center.

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<v Speaker 1>The integration we create the Swiss ups seems to be

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<v Speaker 1>going quite well.

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<v Speaker 3>This quarter.

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<v Speaker 1>You're doing the migration of Swiss clients onto a single platform.

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<v Speaker 1>Is there a risk to flows during that process?

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<v Speaker 3>Well, you never know, of.

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<v Speaker 2>Course, when you come to the place when the clients

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<v Speaker 2>are moving physically or you know, digitally, not physically but digitally,

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<v Speaker 2>there accounts me. They may make a choice to do

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<v Speaker 2>something else. But if you look at the big chunk

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<v Speaker 2>of clients and the most important I don't see it

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<v Speaker 2>is being a real factor.

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<v Speaker 3>I do see also.

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<v Speaker 2>An opportunity for us really under the same it operation,

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<v Speaker 2>the same service and product offerings, to expand our business

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<v Speaker 2>and to create a win win also for our for

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<v Speaker 2>our clients or will benefits also from a more expanded

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<v Speaker 2>and comprehensive offering.

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<v Speaker 1>We've reported Bloomberg's reported that you're in you're in talks

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<v Speaker 1>with General Atlantic. They are, of course the alternative asset

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<v Speaker 1>management firm potentially around a strategic partnership focused on private credit.

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<v Speaker 1>Are you able to confirm the talks are taking place,

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<v Speaker 1>that talks are taking place.

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<v Speaker 2>Well, look the area of private credit and how to

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<v Speaker 2>enhance our tool kit, you know, how to help our

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<v Speaker 2>clients to to to to with the best products and capabilities.

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<v Speaker 3>Are always a consideration.

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<v Speaker 2>But it's not appropriate for me to comment on even

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<v Speaker 2>Bloomberg speculations.

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<v Speaker 1>Okay, but pushing into private credit is a key strategy,

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<v Speaker 1>key priority, and you'll be working on that.

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<v Speaker 3>I think.

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<v Speaker 2>Is why, as I said, is what is one of

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<v Speaker 2>the toolkit we need to give our clients access to

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<v Speaker 2>financing and so on. That is, you know, it is

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<v Speaker 2>as strategic as and many other things we do on FX.

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<v Speaker 1>Before we let you go, the swissly strength up about

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<v Speaker 1>ten percent versus the US dollar year today. A lot

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<v Speaker 1>of your revenues coming through from the US dollar, particularly

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<v Speaker 1>when it comes to global wealth management business, A lot

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<v Speaker 1>of the cost is in Swiss francs. Some investors questioning

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<v Speaker 1>the fundamentals of the US dollar. How are you thinking

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<v Speaker 1>about those dynamics going forward?

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<v Speaker 2>Well, look, you know, if you look at the dollar

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<v Speaker 2>and any in general, I would say more the other

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<v Speaker 2>way around. So his friends has been strengthening against many

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<v Speaker 2>current main currencies for decades now.

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<v Speaker 3>So from our standpoint.

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<v Speaker 2>Of view, if you look at our weeks of effects

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<v Speaker 2>exposure between even costs, they are quite balanced. I mean,

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<v Speaker 2>maybe a little bit of you know, on the Swiss

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<v Speaker 2>side versus sorry on on the on the wealth management side,

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<v Speaker 2>and on the A B side where we have a

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<v Speaker 2>little bit more cost in in in in pounds for

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<v Speaker 2>the A B. But generally speaking, I think effects it's

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<v Speaker 2>not a major factor for us.