UBS’s U.S. wealth management push lacks oomph

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LONDON, Oct 26 (Reuters Breakingviews) – UBS (UBSG.S) Chief Executive Ralph Hamers has discovered an underwhelming reply to his U.S. wealth management conundrum. The Swiss financial institution will lend extra to wealthy purchasers and recruit new ones by way of a digital service. It may be higher off bulking up or promoting out.

The Dutchman’s plans, unveiled alongside third-quarter outcomes on Tuesday, envisage UBS providing extra mortgages and enterprise loans to U.S. wealth prospects by way of its current community of monetary advisers. Separately, Hamers will launch a cell app to focus on so-called prosperous purchasers, these with belongings price $250,000 to $2 million.

The push ought to assist increase margins in one among UBS’s least worthwhile companies. The Americas unit of the financial institution’s wealth management division reported a 20% third-quarter pre-tax revenue margin on Tuesday, lower than half what the Swiss, European and Asian bits make on common.

That’s as a result of U.S. monetary advisers are paid in line with a market commonplace with hefty commissions for promoting merchandise like mutual funds. If UBS provided a hard and fast wage and bonus, as in different components of the world, the advisers would take their purchasers to a different agency. Hamers’ plan to supply extra banking merchandise like mortgages, and bypass advisers totally by way of a web based providing, might weaken their bargaining energy.

The downside is that he’s hardly the one financial institution CEO focusing on wealthy Americans. Behemoths like JPMorgan (JPM.N) and Goldman Sachs (GS.N) have been making an attempt to spice up their share of income from fee-based companies like wealth management for years. Morgan Stanley (MS.N) is arguably furthest forward, following final yr’s acquisition of digital dealer E*Trade, which gave it a tried and examined buying and selling app and 5.2 million shopper accounts.

One possibility is to imitate Morgan Stanley by shopping for an E*Trade rival. But a possible goal like Interactive Brokers (IBKR.O) has a market capitalisation of $31 billion – half of UBS’s fairness worth – and trades at a punchy 99 instances anticipated earnings for subsequent yr. Alternatively, Hamers might promote the U.S. unit to Goldman or one other financial institution that’s wanting to beef up. That would imply retreating from the world’s greatest wealth management market. But Hamers might in all probability extract a premium valuation for a enterprise that has comparatively little overlap with the remainder of his financial institution. When it involves rich Americans, it’s higher to go large or go residence.

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CONTEXT NEWS

– UBS on Oct. 26 mentioned it generated $9.1 billion of income within the third quarter of 2021, up 2% from the identical interval a yr earlier. Pre-tax revenue rose by 11% to $2.9 billion.

– The greatest absolute improve was within the financial institution’s wealth management enterprise, the place pre-tax revenue rose 43% year-on-year to $1.5 billion.

– Chief Executive Ralph Hamers unveiled plans to launch a digital wealth management product for so-called mass prosperous prospects within the Americas. That service could be delivered on-line, moderately than by way of its present community of U.S. monetary advisers.

– Hamers additionally mentioned he needs to spice up “core banking” income within the Americas, together with by rising lending and deposit-taking.

– UBS shares have been up 1.5% to 16.61 Swiss francs as of 0735 GMT on Oct. 26.

Editing by Peter Thal Larsen and Oliver Taslic. Graphic by Vincent Flasseur.

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CEO Ralph Hamers of UBS addresses a news conference in Zurich, Switzerland, February 20, 2020. REUTERS/Arnd Wiegmann

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