UBS Reports Slowdown in Emerging Market Wealth Inflows

UBS AG (UBSN), the world’s largest private bank for the rich, said net inflows from wealthy clients in emerging markets slowed in the third quarter.

Net new money growth in the three months through September for Zurich-based UBS’s emerging markets division, defined as including Russia, eastern Europe, the Middle East, Africa and India, was 1.8 percent, down from 8.1 percent a year earlier, the bank reported today. Net inflows from clients in the Asia-Pacific division grew at less than half the pace of the prior-year period.

UBS is focusing on affluent clients in developing economies as government debt loads and a crackdown on offshore tax evasion cloud prospects in Europe. Switzerland’s largest bank, ranked No. 1 globally by client assets by Scorpio Partnership, is also boosting business with ultra-wealthy families with at least 50 million Swiss francs ($56 million) of investable assets.

The slowdown in net new money was primarily a result of “deleveraging,” with lower demand for Lombard loans, Chief Financial Officer Tom Naratil told investors and reporters on a conference call today. A Lombard loan is usually defined as credit granted against securities pledged as collateral.

UBS defines net new money growth as net client inflows over the quarter as a percentage of assets under management reported at the end of the previous quarter.

Customers became more cautious about borrowing and making transactions due to the debate over whether the Federal Reserve would reduce the pace of its monthly securities buying during the quarter, Naratil said.

Tapering Concern

“It’s more than just seasonal,” Naratil said, referring to a “traditional summer slowdown” in wealth management clients’ activity.

The Fed decided in September it wouldn’t taper bond purchases designed to support the U.S. economy. The central bank also revised down its projection for growth in U.S. gross domestic product. Private banking clients will remain reluctant to invest “over the coming quarters,” UBS Chief Executive Officer Sergio Ermotti said on Sept. 19.

UBS reported 600 million francs of net new money from emerging markets, compared with 2.4 billion francs in the third quarter of 2012. Net inflows from Asia-Pacific were 2.4 billion francs, down from 3.8 billion francs a year earlier.

Inflows from emerging markets and Asia accounted for about three-fifths of the 5 billion francs of net new money reported for the whole of UBS’s wealth management unit, which doesn’t include the Americas, the bank said today. Invested assets climbed to 871 billion francs as of Sept. 30, from 862 billion francs at the end of June, at the unit.

“We expect that our wealth management business will continue to attract net new money, reflecting new and existing clients’ steadfast trust in the firm,” Ermotti and UBS Chairman Axel Weber said in a letter to shareholders published in the financial report today.

Wealth management earnings fell 4.6 percent to 555 million francs from 582 million francs a year earlier, as the business’s gross margin, which measures how much revenue it makes on assets under management, dropped 4 basis points to 85 basis points. A basis point is one hundredth of a percentage point.

To contact the reporter on this story: Giles Broom in Geneva at gbroom@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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