UBS Americas Books Record Profit in Event-Battered Quarter

UBS Wealth Management Americas reported record profit in the volatile first quarter as a smaller force of advisors generated net new customer assets for the first time in almost two years, while expenses fell.

Executives warned that the shock of the coronavirus economy was not fully reflected in results, since strong recurring fees were based on beginning-of-quarter assets while transactional revenue soared in March when investors pulled money from investments into cash.

UBS ended the quarter with a 4% decline in brokers to 6,496 in the Americas (about 6,050 of whom are in the U.S., according to insiders citing their internal rankings). The bank three years ago pulled back on recruiting in an attempt to cut its overhang of forgivable recruiting loans. (It recorded just under $2 billion of such debt as of March 30, down 12% from 12 months earlier.)

“It was a tale of two halves,” UBS Chief Financial Officer Kirt Gardner said of the quarter on the firm’s earnings call. “January and February were more risk-on due to our strong start to the year and a more positive client sentiment, combined with our own initiatives in client engagement and seasonality. March, on the other hand, brought a sharp switch to risk-off and sudden need to reposition portfolios.”

Despite the declining brokerage force, the U.S. remains the Swiss bank’s biggest geographic region for wealth management. Revenue in the Americas, which also includes Canada and Latin America, grew 10% to $2.4 trillion from the year-earlier first quarter, including a 23% jump in structured product income, the company said.

Expenses as a percent of revenue fell by 2 percentage points to 83%, a record low for the Americas division though well about the 72.3% ratio for the entire company.

Pretax income for UBS Wealth Americas rose 16% to $380 million. That was less profitable than UBS’s burgeoning Asia-Pacific wealth market, where pretax profit rose 117% to $398 million. The Swiss bank’s Europe, Middle East and Africa region booked an 11% pretax profit gain of $259 million in the first quarter and its domestic Swiss wealth unit recorded a 35% jump in pretax profit to $184 million.

Gardner warned that asset-based fees across UBS’s global wealth management business will reflect the coronavirus economy. The ‘recurring’ fees will fall $200 million to $300 million in the current quarter, with the bulk of the decline occurring in the U.S. where clients are billed on a beginning-of-quarter basis. (They are billed monthly in other regions, he said.)

Merrill Lynch and Morgan Stanley Wealth Management similarly posted strong first quarters in wealth management but warned about declines in the immediate future as a result of market valuations and rock-bottom interest rates.

UBS Wealth’s assets under management in the Americas were off 12% as of March 30 from a year earlier to $1.23 trillion, and were down 5% from the end of 2019.

Brokers, however, added a net $3.3 billion in client assets in the January-March period, the first positive flow in the Americas since the first quarter of 2018. Clients in 2019 pulled $17.4 billion from their accounts, including a net $9 billion in the fourth quarter.

UBS said it benefited from higher transactional revenue in the Americas as clients boosted trading once the effects of the coronavirus economy became evident. Client interactions with UBS’s chief investment office doubled from the year-ago quarter, and transaction-based income was up 23% in the Americas. Many investors moved money to structured products pitched by the CIO in a search for higher yields, Gardener said.

UBS AG overall reported a 40% jump in first-quarter profit to $1.6 billion.

Its American Depositary Receipts were up 6.03% in early afternoon trading on the better-than-forecast results.