What is Sergio Ermotti thinking? Given the turbulence in China's stock market, it seems an odd moment for the UBS CEO to announce plans to hire 600 more people in the country. But it could very well be a savvy piece of Swiss timing, and a way to take advantage of weaknesses at international and Chinese competitors.
Ermotti disclosed the hiring plan in an interview with Bloomberg News on Monday, saying the additions -- spread out over the next five years -- will double his bank's presence in China and will include staff across wealth and asset management and investment banking.
Long-time China watchers will say we've been here before. Starting in the early 2000s, banks from Wall Street and Europe have waded into China in waves, only to retreat when the markets got tough or regulation got in the way of planned expansion. Could this time be different?
The reasons for the wealth management push are fairly straightforward. Driven by China, the Asia-Pacific region (excluding Japan) is projected to account for 26 percent of global wealth in 2019 up from 21 percent in 2014, the biggest shift of any region in the world, according to a June report by The Boston Consulting Group.
UBS, which claims to be the world's largest and fastest growing wealth manager, saw a slowdown in net new money flowing into its Asia-Pacific wealth management unit as volatility in the region picked up last year. But the bank recently underscored the importance of this business line in the region when it named long-time Asia private banking head Kathryn Shih as its Asia Pacific president -- its first regional head to come from the wealth side in decades.
Others are trying to tap the same crop of wealthy clients, not least cross-town rival Credit Suisse, whose new CEO Tidjane Thiam has ambitious plans to expand in the region. Credit Suisse said in October that it wants to have about 800 relationship managers in the whole Asia-Pacific region by 2018 from 524 at the end of September, while the bank's research department recently estimated that China's middle class is the largest in the world at 109 million people. (For context, that's more than 13 times the entire population of Switzerland.)
Still, the bigger opportunity for UBS in the near-term could be in investment banking. UBS made $81 million in fees from underwriting domestic Chinese bonds and equities and advising on mergers and acquisitions, up 42 per cent from 2014, according to Freeman & Co. That was more than any other foreign bank.
But the Swiss bank is in a good spot to do even better. Foreign banks in China must obtain licenses and work with local joint venture partners for underwriting and trading in stocks and bonds. Only UBS and Goldman Sachs, though, have licenses for all those business lines -- as well as control over their Chinese domestic brokerage partner too. That gives UBS and Goldman a major advantage over other foreign firms in shaping their own destinies in China and getting direct access to the country's business elites, even as some of their overseas rivals are retreating from a country where they've struggled to generate a return.
Meanwhile, domestic brokerages that typically dominate the local market could be vulnerable too. Citic Securities, the country's top brokerage, is one of several financial firms to be put under investigation by Chinese regulators for their alleged role in the country's recent market turmoil. Other domestic firms, just trying to get through the market rout, are likely hunkering down in the near term. So far, foreign brokers have escaped that level of intense scrutiny.
So while China's domestic marketplace for investment bankers has often been characterized by a shortage of properly qualified candidates that's meant it's long tilted in favor the talented few, it could now be an employers' market. If so, UBS is in a strong position to pick up staff from both foreign and local rivals.
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