UBS CEO Recommits to U.S. Wealth as Clients Pull Assets and Brokers Leave
UBS Wealth Management’s clients in the Americas pulled more than $17 billion from their accounts last year, while more than 300 of their advisors left, but the Swiss bank’s top executive gave the U.S. wealth business a vote of confidence on Tuesday.
UBS AG’s pretax profit for its Americas wealth unit fell by 10% in the U.S.-dominated region in the fourth quarter. It was the only one of the bank’s four core geographies with negative net new money as clients pulled a net $9 billion in the quarter and a net $17.4 billion in 2019.
Ermotti, who hired Credit Suisse wealth executive Iqbal Khan during the quarter to craft a new strategy to service the world’s “ultra-high-net-worth” population by selling more loans and investment products, dismissed the client outflow as largely the exit of two large but “low margin” Americas accounts.
UBS underscored its commitment to wealth management by keeping the division’s financial targets unchanged while lowering goals for profitability and expense-cutting for the bank as a whole—a surprise move that pummeled UBS shares by more than 4%.
“Through our U.S. capabilities, we will continue to leverage our franchise as the leading global player and create significant shareholder value over the years to come,” Ermotti said. “We believe this business will generate higher returns going forward because of higher mandate penetration.”
UBS forecast pretax wealth profit growth globally of 10-15% between 2020 and the end of 2022.
UBS, whose brokerage force is half the size of its wirehouse peers in the U.S., has less room than Morgan Stanley and Merrill Lynch parent Bank of America to cut expenses, Ermotti told an analyst who expressed impatience with its failure to keep up with those companies’ profit margins.
Morgan Stanley reported a 54% fourth-quarter in net new client wealth assets to a record $24.9 billion. Merrill advisors and BofA private bankers attracted $8.1 billion of net new assets in last year’s fourth-quarter.
While Morgan Stanley has recently revived its recruiting of experienced advisors, UBS is sticking with the strategic cut it made in hiring budgets two-and-a-half years ago under wealth division cohead Tom Naratil. Recruiting is “very dilutive” to profit, Ermotti said, and the strategy will help margins.
Forgivable loans to financial advisors, tied largely to recruiting and retention, fell 11% year-over-year to $2.053 billion from $2.296 billion one year ago, and was above $3 billion when Naratil took announced the U.S. recruiting retrenchment in mid-2016.
UBS ended 2019 with 6,549 advisors in the U.S., Latin America and Canada, down 78 from three months earlier and off 301 for the whole year. More than 6,000 are in the U.S., and their average revenue intake of $1.4 million is the highest in the industry, Ermotti boasted. He also touted gestures such as eliminating fees on UBS-managed separately managed accounts as an effective marketing tool that is bringing assets in-house to the benefit of shareholders.
UBS Wealth America’s pretax profit in the fourth quarter of $255 million, down from $284 million in the year-earlier quarter, overshadowed the bank’s other wealth business regions. Its quarterly revenue of $2.29 billion was about flat with last year’s quarter.
Expenses in the quarter ticked up to $2.04 billion from $2.02 billion, and the Americas wealth unit’s cost-to-income ratio—the percent of each revenue dollar eroded by compensation and other costs—remained flat with last year at a hefty 88%.
UBS’s target cost-to-income ratio in global wealth management is 65-75%, the company said, and its net-new- money flow goal is 2-4%.
Ermotti’s remarks could tamp rumors that regularly arise among rivals that UBS will follow Credit Suisse in withdrawing from the U.S. wealth management market.
“Through our U.S. capabilities, we will continue to leverage our franchise as the leading global player and create significant shareholder value over the years to come,” he said.
-Jed Horowitz contributed to this story.