Ladies and gentlemen, welcome to the UBS Analyst and Investor Conference call. I am Moira, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing N1 on your telephone. For operator assistance, please press N0. The conference must not be recorded for publication or broadcast at this time. It's my pleasure to hand over to Sara Mekhi, UBS Head of Investor Relations. Please go ahead. Good morning and welcome everyone. We are joined today by our Group CEO Sergio Ermotti and our Group CFO Todd Tuckner. We will start today's call with initial remarks from Sergio and Todd, and then we will open up for Q&A solely on our consultation response. With that, I'll hand over to Sergio. Thank you, Sara, and good morning everyone. Today we would like to briefly highlight key points from our submissions to the Capital Adequacy Ordinance consultation. We want to contribute to an informed discussion based on facts, and I remain hopeful for the adoption of a reasonable solution, one that ultimately benefits all of the stakeholders, including Switzerland. We believe our submission is comprehensive, so we will keep our remarks short as the purpose of this call is to take questions or provide clarifications on our position with respect to the proposal to fully deduct investments in foreign subsidiaries from CET1 capital. We will comment in more detail at the end of the consultation period, which began last week. To reiterate what we have said several times since the acquisition of Credit Suisse over two years ago, in principle, we fully support the further strengthening of regulation based on lessons learned from the events leading up to March 2023, provided the amendments are targeted, proportionate, and internationally aligned, and duly consider the actual root causes of Credit Suisse's collapse, including the significant regulatory concessions. Unfortunately, the proposals on capital requirements both at the ordinance and law level do not meet these standards. These proposals would unduly penalize UBS, which has operated without regulatory concessions and was in a position to credibly step in and rescue Credit Suisse, contributing to the stability of the Swiss and global financial system in March 2023. One critical shortcoming of the proposals is that they don't differentiate between going concern capital and loss-absorbing capacity in recovery and resolution. This disregards the availability of other loss-absorbing instruments, which in our case amount to $20 billion in AT1 and $100 billion in loss-absorbing debt. As you can see, we support or broadly support all the initiatives in principle except for those related to capital. Our sustainable and diversified business model and strong capital and liquidity positions contribute to the resilience of the Swiss financial center and are complemented by a credible recovery and resolution plan that we have developed over many years. We continue to support efforts to further enhance our resolvability, although some important clarifications are needed. This. Chart illustrates why we believe the proposed capital measures go well beyond the global norms, despite intentions to align with international standards. It also shows that while some regimes are more demanding than others on certain elements, they compensate for that in other areas, resulting in a more balanced capital regime. That is why it is critical to look at the full regulatory picture and not just isolated components. This chart illustrates how the proposed changes would significantly undermine our competitive position when comparing minimum requirements. The Swiss regime, particularly after the full implementation of Basel III, is one of the strictest globally. Due to this, our current regulatory requirements are already much higher than peers on a like-for-like basis. Our current true minimum on a comparative basis is therefore actually closer to 16%, which is well above peers, many of which have a much higher risk profile. No matter how CET1 capital ratios are presented, the legislative proposals still result in an increase of around CHF 24 billion in CET1 capital, and equity is the most expensive form of financing. Considering that UBS's cost of equity as determined by the market has remained stable at around 10% over the last 10 years, this level of capital overshooting is not something we can accept. With that, I hand over to Todd, who will take you through our position in more detail. Thank you, Sergio. Let me dive a bit deeper into this. The ordinance proposals and how we framed our response. It's important to reiterate that in addition. To being excessive and misaligned with international. Standards, the proposals fail to address the key lessons learned at Credit Suisse's parent bank, which was the stated intention of the Swiss Federal Council's proposals from the beginning. If adopted as proposed, the ordinance changes, which I'll cover momentarily, would eliminate around CHF 11 billion or 12% of group equity as eligible capital. By contrast, at the parent company level, the ordinance proposals would erode CHF 3 billion or 3% of UBS AG's standalone equity as eligible capital. Turning to Slide 7 and starting with capitalized software, the use and development of software is fundamental to how banks operate and compete. Software supports the running of daily operations, augments a bank's risk control environment, enhances the client experience, and enables strategic transformation. Generally speaking, software, whether purchased or internally developed, is commonly capitalized on a bank's balance sheet to reflect future economic benefits and is amortized over its expected life. The proposals would entirely remove capitalized software from regulatory capital, thereby ignoring the importance of software as a strategic competitive differentiator. For a financial institution like UBS. Even during periods of severe stress, software assets maintain their utility and remain essential to serving clients and preserving the value of the franchise. In this light, Credit Suisse's capitalized software assets retain their economic and accounting value throughout its crisis. It was only upon the acquisition by UBS and our decision to migrate retained Credit Suisse businesses onto UBS's existing systems that partial write-downs were required. Additionally, a full deduction of capitalized software from regulatory capital would be misaligned with international standards, ultimately impeding on UBS's competitiveness. Only a handful of jurisdictions apply such an extreme approach, mainly because capitalized software in those jurisdictions is generally treated as an intangible asset for financial reporting purposes. On the other hand, capitalized software is afforded full regulatory capital credit in the U.S. to align with its accounting treatment. In the EU, capitalized software counts as regulatory capital and is required to be amortized over a three-year period. Regardless of the applicable financial reporting treatment. Turning to DTAs on slide 8, the proposal to fully deduct from regulatory capital deferred tax assets arising from temporary differences is without precedent. No peer jurisdiction, whether the EU, UK, or U.S., applies such extreme treatment. Temporary difference DTAs are very common across banks and apply to a wide variety of situations whereby the expense for financial reporting purposes precedes the timing of the deduction for tax purposes. Common examples include charges for credit losses, deferred compensation, and litigation where the tax benefit comes later in time, thereby informing an asset on the balance sheet to mitigate risks in ultimately realizing their value. International standards already limit the recognition of these assets to 10% of regulatory capital and apply risk weights of 250%. The argument that the current regulatory capital treatment of temporary difference DTAs is pro-cyclical is not supported by the facts. The DTA write-downs at Credit Suisse were not caused by flaws in the regulatory framework, but rather were a result of management decisions to substantially restructure Credit Suisse's investment bank. The majority of UBS's temporary difference deferred tax assets are linked to our core wealth management business in the U.S., and these have proven to be resilient even in times of financial stress. Moreover, our fundamentally different business model, in contrast to Credit Suisse, makes similar write-downs of our DTAs highly unlikely. Finally, turning to slide 9 on PVAs, prudential valuation adjustments reflect an uncertainty overlay in a bank's capital relating to difficult-to-value securities and derivatives. The Federal Council justifies stricter treatment of PVAs by referencing the extensive security position write-downs on Credit Suisse's balance sheet at the close of the acquisition. We believe this argumentation is incorrect. The write-downs reflected purchase price allocation adjustments that UBS considered appropriate as part of standard acquisition accounting. PVAs are designed to account for valuation uncertainty in ongoing business operations and should therefore be viewed in the context of our Level 3 asset profile. Today our holdings amount to only one-tenth of what Credit Suisse and UBS reported on a pro forma basis in 2007. Since 2Q23, through the rundown of our Non-Core and Legacy portfolio, we have further reduced Level 3 assets by around 60% to $16 billion, which is less than 1% of our total balance sheet. The proposed PVA measures do not reflect the progress UBS has made in substantially reducing the valuation uncertainty on its balance sheet. Finally, a brief word on AT1. AT1 instruments play an essential role in a crisis. The fact that UBS was able to restart AT1 issuances with strong demand soon after the rescue of Credit Suisse is evidence of investor confidence in these instruments, including importantly under the current Swiss regime. Notwithstanding Credit Suisse events, we support steps to further strengthen AT1 instruments as an effective recovery tool provided reforms remain consistent with established international practice. Our principal concern with the current proposal is the automatic suspension of AT1 coupon payments after four consecutive quarters of cumulative losses, regardless of capital strength. We believe a more appropriate and transparent approach is to link any restriction on interest payments to the breach of a clearly predefined capital ratio trigger. As you can see from the timeline on slide 10, the regulatory process remains ongoing, with the Federal Council's publication of final ordinance changes expected by mid next year at the latest. The consultation on proposed law changes relating to foreign participations is just underway and is set to conclude early next year, with parliamentary deliberations expected to extend into 2027. Given the wide range of potential outcomes, it is premature to discuss mitigating actions at this stage. We will share details of our plans once there is sufficient clarity, ideally on the basis of a balanced and reasonable solution when compared to that contained in the current series of proposals. With that, let's open up for Q&A. We will now begin the Question and Answer session. Anyone who wishes to ask a question may press star and 1 on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from Giulia Miotto from Morgan Stanley. Please go ahead. Yes. Hi, good morning. Thank you for the presentation and the document. It's very clear. I have two questions. The first one, you make a very strong point as to why this is not internationally aligned. But. If Switzerland doesn't change anything, would you consider moving headquarters? There have been several articles in the press on this topic. Thank you. The second question is about what would be an acceptable solution for you, especially on the foreign subsidiary points. Thank you. Thank you, Giulia. I'm sorry to disappoint you, but I'm not really in a position to answer this question. First of all, as I mentioned, and we mentioned many times, our ultimate goal is to have a reasonable solution out of this political process so that we can continue to compete as a global bank out of Switzerland with our current business model. We are not going to enter into any speculations or commenting even on media articles or representations about our intentions to do to take any steps in that sense. Also, in respect of, let me point out once again that this is not a negotiation and I'm hearing all the time that we should compromise or we should be willing to compromise. As you can hear and see, our tone and approach to these topics are constructive. We do recognize that there are lessons to be learned out of the Credit Suisse crisis, but they need to be comprehensive and they need to be balanced and they need to be internationally aligned. In my point of view, if they fulfill that requirement in a balanced way, then it is what it is and we would see that as a balanced outcome. A compromise is usually something that happens between two people negotiating, in which we are not a party on any negotiation. Thank you. The next question comes from Chris Hallam from Goldman Sachs. Please go ahead. Yeah, good morning, everybody. Two questions. First, when do you expect to get confirmation on the transition period for the initial deductions on software, DTAs, PVAs? Do you expect to have that by the time of fourth quarter results in order to be able to guide for 2026 capital planning and capital distribution? I suppose that really reflects your 27-1-1 capital position. Second, I guess slightly differently on AT1s, I suppose one peculiarity of the proposal is that a well-capitalized but a less profitable bank would be disincentivized to undertake the required restructuring to fix their business because of that four quarter look back proposal. That clearly has echoes, I guess, from the Credit Suisse failure. That feels fairly illogical intuitively. What's your sense on the probability that that is the end state that we get to on Swiss AT1s? Let me take the first one and Todd can take on the second. On the timing, I think this is, you know, it's not likely that we're going to get a clarity by the beginning of the year when we will announce our capital return policy for 2026 because the submissions, as you know, ended yesterday. I think that the SIFA will have to go through the analysis of all submissions, and we are not in control of the timing, but it looks a little bit optimistic to expect an outcome in such a short period of time. It remains a decision of the governments how they want to eventually announce and implement what they are proposing. The only thing we know is that it is unlikely to be before January 1, 2027. This is unfortunately, you know, probably early on next year we're going to have more visibility on that. You know, again, it's not a question that we can answer directly. Chris, on the AT1 point. I agree with your general comment. It would seem the current proposal would. Seem to be a disincentive to restructure because at the end of the day. It's always facts and circumstances based for a given institution. How deep would the restructuring be? Would it actually be appropriate in any event to suspend payments on the AT1 given. The depth of restructuring. I generally agree with that. You can get into situations or envision situations where. This proposal would create a real issue. When there isn't a real issue. It's making an issue out of it. One that isn't where, for example, a. Bank may be going through financial stress or some other aspects that are less significant, less serious, and as a result, automatically suspending the coupons because of four consecutive cumulative losses. Quarters of cumulative losses would seem to me to be pro-cyclical. The question though on restructuring is a question of that hypothetical bank and the situation it's in and the depth of the restructuring it has to go through in order to recover. Let me add on to what Todd mentioned. I think that is touching on an idiosyncratic situation in such scenario. Let me play out another scenario in which you have a more economic downturn in which for some reason the entire banking system is going through a low level of profitability or small losses, but still having the resilience to be there and serve clients and prepare for better days. In such a scenario, if you are the only bank that has to do with that kind of write down, although every other bank is having similar profitability issues, then it's a stigma that you create on a single institution rather than being something that is aligned. It's very difficult to see. I understand the reasoning because of what happened at Credit Suisse. Those were substantial losses that were also creating an even bigger hole in their parent bank capital. That's not a good reason to then fix it in this way. Thank you, Prekla. The next question comes from Kian Abouhossein from JPMorgan. Please go ahead. Yes, thanks for taking my questions. The first question is on the ordinance measures. Can you still bundle those into the legislative package or is that not possible anymore? What would have to happen if it is possible to basically get there? What are the key hurdle dates or events that we would have to watch out for? The second question is just taking a step back. Who are you actually now talking to? Considering that this seems to be a very political process, looking at the impact of the documents that are coming out, it seems to be a very domestic, focused audience. I mean the documents are not even. In English, most of them. Rather than do they have a good understanding of how it sets you apart from international competitors and do they really care? That's the impression I get. They don't really care. Can you just talk about your feedback from your negotiations and talks with the other parties, I guess with the government at this point of where we are? On the first question, I think that, yeah, in theory things can somehow come together. This is a decision of the Swiss Federal Council to either implement immediately after they consider all the submissions on the consultation or to wait until they analyze the submissions related to the consultation that just opened. It's in their prerogative to think about what they want to do. I have no indication that they're going to take one direction or the other. As we stand right now, it looks like the ordinance will be implemented before. This is a political process and one in which, depending on the input from various parties, including banks and the broader economy, it may lead to a different outcome. In a nutshell, the answer to your question is yes, it's still possible to bring them together, not formally, but de facto because they would then be implemented and addressed at the same time. Then. Look, we are talking. First of all, now we are talking reactively by, you know, in the consultation by answering formally to many points that we raised in the past and making it even clearer our position, complementing it with more data points and more in-depth analysis. I think that it's fair to say that as we went deeper in analyzing, you know, not only, you know, more the international standards and how other jurisdictions are operating, that has given us even more conviction that the proposal we see right now on capital are not balanced and not really in line with addressing the true lessons learned from the Credit Suisse crisis. In respect of who we are talking to, we are responding to solicitations, also formal solicitations for the economic commissions that will want to hear our views, both the upper and the lower economic chambers. For example, we are responding to requests for comments and clarification by political parties and the broader society and economic associations. You know, that's the level of interaction. In response to your topic, yes, I'm sorry if our machine-translated with human touch English version didn't work out well, but it's our first best attempt to address this issue. Of course, you know, being a political submission has to be done in one of the official languages in Switzerland, which in that case is. We took the most, you know, popular or the biggest one, the German version. Let me tell you that many more people than, so you know, many more people that we will, you know, we are made to understand they care about what's going on right now. I think this is fair to say that all the noises around what's going on in Switzerland are quite unnecessary in my point of view. Of course, we are lucky that we have been able to manage this in a fairly benign market situation. Our integration is progressing well. I think the last things we need is this kind of noise around Switzerland, which in my point of view did a fantastic job during the three days of the crisis. Of course, right now it's time to really reconsider how we communicate and how we approach this kind of issues. Again, it's not in my control, it's not in our control and we do our best to contribute to a healthy and fact-based discussion. Thank you. The next question comes from the line of Amit Goel from Mediobanca. Please go ahead. Hi, thank you. Yeah, two questions from me. One just in terms of the phasing of the ordinance. I think previously you stated that you would expect a kind of a four year plus phase in period. I just wanted to check whether that expectation has changed or not based on the commentary in the response. Secondly, I guess within the response as commentary about you. There's not a. It is very hard then to do a holistic or at least for the government to do a holistic kind of impact study or QIS. I was just kind of curious whether then you know, whether you would basically effectively do that and could present that as part of the kind of helping, you know, the politicians understand the potential consequences and impact of the measures if they were implemented holistically. Thank you. The issue on the phasing is that what we have reiterated in our submissions is that it's still clear that it's common in this kind of situation to have a phase-in. You saw that in the lower part of the proposal; it is clearly stated at seven years. We have been made to understand that it's also going to be the case for the ordinance, and this is going to start from 2027. The fact that it was not clearly stated in the proposal of the ordinance made us, just for good order, point out that this is still missing. I think that I believe it's quite common and clear that we will have a phase-in. I think that the four years—I don't remember us saying four years, but probably, if we mentioned it, it is the minimum common reasonable timing for phasing in something like that. It's just for good order that we are pointing it out. We haven't really changed our understanding and conviction that it's going to be a phase-in also for the ordinance when it comes. We will analyze this issue. To be honest, I think that we will need to seriously think about if it's better for us to do it or, I mean, for us a UBS one would be always taken with a little bit of, you know. I don't. know how to formulate it diplomatically, probably in a way that is a suspicious way. We would rather have independent people having such studies and being able to outline in a balanced way what it is. In case we don't see any of them happening, we may consider having our view on the matter so that at least we are on the record, but hopefully it's not going to be necessary. Thank you. Just to clarify, were you saying you anticipate or you'd expect a seven year phase-in? No, we don't know. We don't know. It's not because the current proposal on subsidiary 7 years that the same will be applied to the ordinance. We would say that most likely a minimum of four is likely to happen for the ordinance, while on the low one it's already clear, it's seven. Got it. Thank you. The next question comes from the line of Stefan Stalmann from Autonomous Research. Please go ahead. Good morning. Thank you very much for the presentations. Very useful. I wanted to ask, please, on the original document on page 21, it says that full deduction from CET1 capital will correspond to an increase in capital coverage of foreign subsidiaries from 60% to 130%. I was wondering what the math is behind the 130%, please. The second question, I appreciate that you don't want to talk about mitigation yet, but I'm wondering in particular about your DTA, some timing differences. You have quite a substantial amount there that relates to the treatment of U.S. real estate and I'm not quite sure what that actually is. It seems a bit different to what I see at other banks. Could you maybe explain what's driving this relatively large DTA item related to U.S. real estate and whether that could actually be changed? Thank you. Hi, Stefan. On the first question, the maths on the more than 100 to 130. Is just factoring in. At 1. It's the whole Tier 1 stack that is the maths behind on the DTA question in terms of the real estate. That's part of the stack of temp difference DTAs in the U.S. As you point out, we have effectively generated these temp difference DTAs because we have deferred the tax deduction on a lot of the real estate. Leaseholds that. We have in the branch network in the U.S. deferred the deductions in relation to the leaseholds that create temporary difference DTAs and historically have also accounted for at least up to 10% regulatory capital. In addition to that, we also have the more standard temporary differences that I've called out, including deferred compensation as one example, expected credit losses as another. It's an array of that, but the real estate position that you point out does in fact relate to the. Branch network. In the U.S. business. And. Historically, has been a substantial component of our DTA stack in the U.S. Are. You are effectively depreciating your leaseholds faster than the IRS recognizes for your taxable purposes? Yes, we've effectively pushed out the tax deduction beyond the book expense, correct. We amortize the leaseholds under the accounting standard and we take the tax. Benefit over a longer period of time. Under U.S. tax principles. Thank you, very helpful. Thank you very much. was the last question. Thanks for calling in. I hope you found the document useful, and my colleagues in the IR team are at your disposal if you have any further clarification. Thank you and have a nice day. Ladies and gentlemen, the conference is now over. Thank you for choosing UBS Group AG and thank you for participating in the conference. You may now disconnect your lines. Goodbye.