Early signs of hope at UBS
Although UBS continues to suffer outflows, the bank’s efforts to rein in costs are starting to take effect. Total assets under management have risen due to investment performance and it is well positioned to take advantage of the expanding wealth management sector in emerging markets, writes Sebastian Dovey
UBS continued to struggle with outflows during 2009, with total outflows reaching SFr101.4bn (€70bn), down from SFr123bn in 2008, but there appear to be early signs the Swiss private banking giant is on the cusp of turning things around, and that it might even reclaim its crown in the future. While outflows for the International division increased, a significant proportion (SFr16.7bn) of these outflows can be attributed to the tax amnesty offered by the Italian government, which led to the repatriation of $137bn (€100bn) of assets by December 2009 from various offshore centres. The Swiss and US divisions performed much better with outflows slowing down by SFr17.3bn and SFr4.3bn respectively. Overall, in fact, the bank has managed to increase total assets under management by 3.2 per cent to SFr1,651bn, with the Swiss & International division and the US division contributing 1.1 per cent and 7.1 per cent respectively to the assets under management (AUM) increase. This strong showing on the AUM front is largely attributable to wealth recreation as the bank benefited from strong market performance across most asset classes since March. While this does not mean net new assets (NNA) today, potential clients will not fail to notice (or be attracted to) the investment management performance in volatile market conditions. To underscore this, on the positive side the bank is starting to benefit from money coming back onshore, and with UBS well positioned through its established presence in Asia Pacific (Apac) and Latin America it stands to benefit from the growth in the wealth management sector in these two regions. In fact, Apac is the only region to show a positive net new money inflow in 2009. In addition, the bank’s 12 month effort to rein in costs has begun to have an impact. Pre-tax profit margins rose from 25.9 per cent in 2008 to 34.5 per cent in 2009. Once again, the US division stood out here with a substantial improvement in the cost/income ratio. In comparison, the Swiss & International division had a higher cost/income ratio than the year before due to a one off charge of SFr970m associated with the US cross border settlement. Separately, in terms of headcount, over the course of 2009 UBS lost 2,577 relationship managers (RM), bringing the total RM headcount down to 10,226. This has had the mathematical effect of increasing average AUM per RM to SFr196m for the International division and SFr97m for the US division, up from SFr149m and SFr75m. Both data points now put the bank in the upper quartile of operators. However, although this may look like a silver lining, Scorpio’s research benchmarking of the industry business models, has shown that profitability per RM tends to decrease as the number of clients and AUM under RM control increases. So, UBS is not out of the woods yet and will need to continue the skill of balancing a corporate tanker on a financial tightrope. Sebastian Dovey is managing partner at Scorpio Partnership, a consultancy dedicated to the global wealth management industry
