UBS’s US wealth management push lacks momentum

UBS CEO Ralph Hamers speaks at a press conference in Zurich, Switzerland, February 20, 2020. REUTERS / Arnd Wiegmann

LONDON, October 26 (Reuters Breakingviews) – UBS (UBSG.S) Managing Director Ralph Hamers has found a disappointing answer to his US wealth management conundrum. The Swiss bank will lend more to wealthy clients and recruit new ones through a digital service. It might be better to grow or sell.

The Dutchman’s plans, unveiled on Tuesday along with third-quarter results, envision UBS offering more mortgages and business loans to wealthy American clients through its existing network of financial advisers. In addition, Hamers will launch a mobile application to target so-called affluent customers, those with assets worth $ 250,000 to $ 2 million.

This push should help increase margins in one of UBS’s least profitable businesses. The Americas unit of the bank’s wealth management division on Tuesday announced a pre-tax profit margin of 20% in the third quarter, less than half of what the Swiss, European and Asian parties do on average.

This is because American financial advisers are paid according to a market standard with large commissions for the sale of products like mutual funds. If UBS offered a fixed salary and a bonus, like in other parts of the world, advisers would take their clients to another company. Hamers’ plan to offer more banking products like mortgages and bypass advisers entirely through an online offer could weaken their bargaining power.

The problem is, he’s not the only bank CEOs targeting wealthy Americans. Giants like JPMorgan (JPM.N) and Goldman Sachs (GS.N) have been trying for years to increase their share of revenue from paid businesses like wealth management. Morgan Stanley (MS.N) is arguably the most advanced, after last year’s acquisition of digital broker E * Trade, which gave it a proven trading app and 5.2 million accounts receivable.

One option is to emulate Morgan Stanley by buying a rival E * Trade. But a potential target like Interactive Brokers (IBKR.O) has a market cap of $ 31 billion – half the value of UBS shares – and is trading at 99 times expected earnings for next year. Alternatively, Hamers could sell the US unit to Goldman or another bank eager to strengthen. It would mean pulling out of the world’s largest wealth management market. But Hamers could likely extract a top valuation for a company that has relatively little overlap with the rest of its bank. When it comes to wealthy Americans, it’s best to go big or go home.

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NEWS CONTEXT

– UBS on Oct. 26 said it generated $ 9.1 billion in revenue in the third quarter of 2021, up 2% from the same period a year earlier. Pre-tax profit increased 11% to $ 2.9 billion.

– The largest absolute increase was recorded in the bank’s wealth management business, where pre-tax profit rose 43% year-on-year to $ 1.5 billion.

– Managing Director Ralph Hamers has announced plans to launch a digital wealth management product for so-called mass affluent clients in the Americas. This service would be provided online rather than through its current network of US financial advisers.

– Hamers also said he wanted to increase the revenues of “grassroots banks” in the Americas, including by increasing loans and deposits.

– UBS stock was up 1.5% to 16.61 Swiss francs at 07:35 GMT on October 26.

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

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