UBS Nears Wealth Management Turnaround as Outflows Taper Off
UBS AG (UBSN), Switzerland’s biggest bank, will probably report a fourth straight quarterly profit tomorrow and the lowest wealth management redemptions since 2008.
The bank may post net income of 1.16 billion Swiss francs ($1.2 billion) for the third quarter, compared with a loss of 564 million francs a year earlier, according to the median estimate of 16 analysts surveyed by Bloomberg News. Net withdrawals by wealthy clients may have slowed to 2.6 billion francs from 26.6 billion francs, the survey found.
Chief Executive Officer Oswald Gruebel, who joined Zurich-based UBS in February 2009 and returned the bank to profit in less than a year, set a goal of stopping asset outflows this year. Clients defected as UBS piled up record losses amid the financial crisis and U.S. authorities accused it of helping Americans evade taxes. Three of 10 analysts surveyed said UBS may have already halted redemptions.
“This may be the quarter that it turns around, that’s the feeling I get,” said Christopher Wheeler, a London-based analyst at Mediobanca SpA who is forecasting 4.5 billion francs of net new assets in the third quarter. “There’s been a massive change in wealth management over the last 12 months. A whole array of people has been put in place.”
A turnaround at the division may give UBS shares an additional boost, analysts said. UBS gained 9.4 percent this year in Swiss trading, compared with a 20 percent drop in Credit Suisse (CSGN) Group AG, Switzerland’s No. 2 bank, and a 2.3 percent decline in Bloomberg’s European banking index.
A year ago, 31 percent of analysts following UBS advised investors to buy the stock. That rose to 57 percent of analysts in the past three months.
UBS clients have pulled a net 251.6 billion francs from the company’s main wealth management divisions since March 2008, leaving 1.61 trillion of assets under management at the end of June, company reports show. It ranks second among wealth managers behind Charlotte, North Carolina-based Bank of America Corp., according to a July study by Scorpio Partnership of London.
While UBS started attracting new funds in the first half of this year, that wasn’t enough to counter money leaving as a result of departing client advisers and pressure on banking secrecy, Juerg Zeltner, who heads wealth management outside the Americas, said in July.
Outflows slowed to 8.1 billion francs in the second quarter from 15.4 billion francs in the first three months of the year, with positive contributions from Asia and the business with ultra-high-net-worth individuals, who typically have at least $50 million in invested assets.
“The trend in the previous quarters has been extremely positive, so it’s just a question of time when flows turn around,” said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets who is forecasting 3.3 billion francs of inflows. “The difference won’t be that big in numbers, but it’s huge psychologically.”
Gruebel, 66, in April hired Lukas Gaehwiler, 45, from Credit Suisse as CEO for Switzerland and co-head of the wealth management and Swiss bank unit with Zeltner, 43. A year ago, Robert J. McCann, 52, a former Merrill Lynch & Co. executive, joined UBS to run wealth management Americas.
In August, the bank hired Jakob Stott, 55, previously with JPMorgan Chase & Co., to run the wealth management business with European clients that hold their assets where they reside. Christian Wiesendanger was hired from Credit Suisse to head wealth management in Switzerland and Paul Raphael, who has worked for Salomon Brothers, Merrill Lynch and Credit Suisse, was named to run the business in emerging markets. All three were hired to start at UBS on Oct. 1.
The bank is hiring 30 to 40 private bankers a month, Zeltner said in July, adding that he’s prepared to pay what it takes to get “industry experts” and start seeing an increase in the total number of advisers in the second half of this year. The number of client advisers fell to 4,112 at the end of June from more than 5,600 at the beginning of 2008.
In the Americas, McCann brought in at least five former colleagues from Merrill Lynch to help him lead the unit. The bank said in August it plans to start offering loans and banking products to affluent clients.
“Wealth management adviser headcount should have bottomed out,” Matthew Clark and David Hyman, analysts at Keefe, Bruyette & Woods, said in a note, citing it as one of the reasons for their forecast for an end to net outflows. The “U.S. tax dispute appears resolved” and “peers indicate solid flow environment.”
Credit Suisse last week reported net new money of 12.4 billion francs at its wealth management business. Chief Executive Brady Dougan, 51, said the bank saw inflows in all regions.
UBS can also now put its dispute with the U.S. over tax evasion by some of its clients in the past. The U.S. Justice Department last week dismissed the case against the bank after the expiration of the 18-month deferred prosecution agreement UBS signed to avoid criminal charges. The Swiss parliament in August approved the deal to pass on information on as many as 4,450 UBS accounts to the Internal Revenue Service.
UBS accumulated more than $57 billion of writedowns and credit losses during the financial crisis after amassing holdings in U.S. subprime mortgage-related debt that collapsed in value, data compiled by Bloomberg show. Switzerland rescued UBS in 2008, investing 6 billion francs to help the bank spin off $39 billion of toxic assets into a Swiss central bank fund.
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