UBS Wealth Americas’ Profit Hits Record, Execs Promise Improvement in Margin
UBS Wealth Management Americas posted another consecutive record profit in the second quarter while executives at its Swiss parent bank sought to reassure analysts that a focus on lending and fee-based assets would translate into stronger margins.
“We are really looking at accelerating our growth in the U.S. and in Asia Pacific because we expect the wealth pools to grow there the fastest,” Hamers said.
But expenses also rose, driven largely by a 31% year-over-year increase in financial advisor variable compensation in the Americas that prompted questions from analysts about profitability in the region.
The division’s cost-to-income ratio improved to 80.9% from 86.5% a year ago, but margins are “still much lower” than some of its top competitors, noted Kian Abouhossein, head of European Banks equity research at JPMorgan Chase & Co. Another analyst, Patrick Lee, with Banco Santander, questioned why compensation costs for advisors continued to rise despite declines in headcount.
The analysts did not specify rivals, but Morgan Stanley and Bank of America, which each have more than twice as many brokers in the U.S., each reported margins of mid-to-high 20% in the quarter, translating to a 70% to 75% cost-to-income ratio.
Hamers, who became CEO in November, promised further earnings improvement as UBS Americas brokers focused on lending, which generates non-compensable revenue, moving money into advisory accounts, and boosting market share among wealthier clients.
“Our focus, as we also indicated last quarter, in the wealth space and certainly also in the U.S. is that we want to improve our profit before tax, and that’s what we’re looking at,” Hamers said.
UBS added $5.3 billion in net new loans in the Americas in the second quarter driving a 7% increase in loans to $83 billion. Revenue from the loans is not shared with advisors through their payout grid, making it more profitable for the firm, UBS Chief Financial Officer Kirt Gardner said on the call.
“Very importantly, we’re seeing higher levels of lending net interest income, which actually pays very little off the grid and so that has a much higher margin overall,” Gardner said. “We feel very, very comfortable that our trajectory is going to continue to allow us to show positive operating leverage to improve our margins and to generate very attractive returns.”
Fee-based assets of $845 billion were up 6.5% from $793 billion in the first quarter due to a $38 billion boost from rising equity markets and $13.5 billion of inflows, the company said. UBS Americas managed a total of $1.722 trillion of invested assets, up from $1.6742 trillion in the first quarter.
Meanwhile, the firm’s broker count resumed a slow decline reflecting a strategy outlined by Hamers’ predecessor, Sergio Ermotti, who focused on boosting productivity with a smaller brokerage force.
Although the wirehouse revived recruiting over the past year with a focus on large private banking teams, it had 6,274 brokers in the Americas, down 136, or 2%, over the past year and a net 31 over the past three months. Those brokers on average generated around $1.7 million in annual revenue, UBS said.
The program generated an additional $8.3 billion in flows to the company’s asset management business, reflecting a total of $78 billion added since it launched.
Overall, UBS Group AG earned $2 billion in profit in the quarter, beating expectations and boosting its stock almost 5% to $15.25 per share in late morning trading.