UBS Wealth Americas Attracts Client Assets Despite Declines in Profit, Headcount
UBS Wealth Management USA posted its second straight quarter of positive net new assets from clients, reversing a long-term trend, but the Swiss bank’s Americas unit reported a 37.2% decline in second-quarter profit and continued advisor attrition.
Net income pretax was off from a “very strong” year-earlier second quarter to $227 million because of rising expenses, declining fees on advisory accounts that were billed on start-of-the-quarter assets and lower net interest revenue.
The Americas wealth business includes just under 6,000 brokers in the U.S. and a few hundred in Latin America and Canada. The total Americas brokerage force of 6,410 as of June 30 was down 4%, or about 268 from a year earlier, including a net 86 departures in the just-ended quarter. (UBS does not break out its U.S.-only advisory force numbers, but brokers viewing their rankings said their numbers have declined to around 5,970 from 6,050 at the start of the year.)
Lower interest rates and advisory account billing reflecting the disastrous March market also affected UBS’ wirehouse peers Wells Fargo Advisors and Merrill Lynch Wealth in the pandemic-economy second quarters those firms reported last week. (Morgan Stanley was the wirehouse exception, reporting a 6% revenue jump.)
Operating revenue at UBS Wealth Americas fell 11.2% to $2.017 billion from $2.271 billion a year ago. By far UBS’s largest geographic wealth division by revenue, the Americas unit is the only one of its four regions to have booked a profit decline, the company said. The bank’s Europe, Middle East and Africa wealth unit reported a 16% jump in pretax profit, its Asia-Pacific region profit soared 71% and its domestic Switzerland weand unit was up 3%.
UBS’s overall quarterly profit of $1.23 billion beat analyst expectations in the quarter, and the bank is considering a resumption of share buybacks, CEO Sergio Ermotti said on an earnings call. Shares of UBS’ American Depositary Receipts were up more than 3.0% in late-morning trading on Tuesday.
The bank’s “very strong performance in Asia and EMEA offset a more challenging quarter in the Americas, where COVID effects were more pronounced,” UBS Group AG Chief Financial Officer Kirt Gardner told analysts.
Asset flows were the good news in the Americas. Clients added $100 million to their accounts during the April-June lockdown period, contrasting with net outflows of $8.3 billion in the year-ago quarter. It was the second positive quarter of new-asset gathering after seven periods of declines in 2018 and 2019. In this year’s first quarter, UBS advisors collected $3.3 billion of net new money from their clients.
UBS Americas clients as of June 30, 2020 had invested assets of $1.37 billion, up 12% from $1.23 trillion at the end of this year’s first quarter.
Gardner touted the generation of new assets as a sign of strength, though he noted that the customary second-quarter outflow of money from U.S. accounts to pay taxes will likely show up later this year to reflect the U.S. government’s extension of the tax deadline to July. The seasonal outflow is likely to be around $5 billion, he said.
Merrill Lynch’s roughly 14,000 brokers last quarter added a net $3.6 billion of new household assets while Morgan Stanley 15,400 brokers brought in $11.1 billion.
Gardner has previously attributed UBS’s customer asset deterioration in the U.S. to brokerage force attrition following the bank’s decision four years ago to reduce recruiting costs and focus on advisor retention.
“Forgivable” recruitment loans to financial advisors on UBS’ balance sheet as of June 30 had declined by 12% to $1.93 billion from $2.20 billion a year ago and from over $3 billion in 2016. UBS also has dipped its toes back into the U.S. recruiting market.
The company’s recent decision to eliminate fees for U.S. wealth clients on bank-managed separately managed accounts added $10 billion to UBS Asset Management in the quarter.
Addressing the outlook for having employees return to work amid the pandemic, Ermotti said that 70% to 80% are now working remotely, and up to one-third may permanently adopt a schedule of working from home or showing up only part-time in their offices. That could lead to some real-estate cost reductions, he said.
Ermotti was addressing potential efficiencies in Switzerland, and not in the U.S., a company spokesman said.