McCann’s $3 Billion Parting Gift to UBS
(Corrects headline to say $3 billion, not $300 billion.)
The tab is rising on UBS Wealth Management Americas’ broker loan program, thanks to its massive recruiting push in the fourth quarter.
The broker-dealer ended 2015 with a whopping $3.2 billion of recruitment loans to financial advisors on its balance sheet, up almost $300 million or 10 percent from $2.9 billion as of September 30, UBS AG said Tuesday as it reported generally lackluster wealth earnings worldwide.
The “loans” are forgivable, subject to vesting requirements, meaning new recruits don’t have to return any of the bonus if they stay for terms that generally runs nine years or more while UBS slowly amortizes its debt to them each year.
They also are part of the legacy of Robert McCann, the former president of the Swiss banking giant’s U.S. broker-dealer and of all UBS businesses in the Americas. McCann is generally credited with reviving the money-losing U.S. business after his 2009 arrival in the depths of the financial crisis. But in addition to dramatically cutting the size of the brokerage force and revving up revenue in nontraditional areas such as loans and insurance, he also spent heavily to recruit high-echelon advisors.
McCann shifted this year to a largely honorary role as chairman of UBS Americas. UBS Wealth Americas ended 2015 with 7,140 advisors, less than half the brokerage force of rivals Morgan Stanley, Merrill Lynch and Wells Fargo Advisors.
A company spokesman did not respond to requests for comments on whether Tom Naratil, McCann’s replacement, was sent to rein in costs.
An American who has worked at UBS and its predecessor PaineWebber for more than 30 years, Naratil has been on the Zurich bank’s executive board since June 2011 and was group chief financial officer of UBS AG from 2011 to 2015. As several readers have told us, they are concerned that he is an operations and numbers man who Zurich dispatched to rein in costs.
In its fourth-quarter reports on Tuesday, UBS Wealth Americas said that general and administrative expenses, which exclude compensation costs and commitments, soared 127% in the U.S. business to $348 million from $127 million a year ago.
It also saId that three-quarters of the 151 brokers it recruited in the October-December period ranked in its top two quintiles of producers.
They didn’t come cheap. The $198 million of new recruiting loans extended last quarter average $1.31 million per new broker. That compares with average broker production at the firm of $1.06 million, which UBS officials said is the highest in the U.S. wealth management industry despite falling 5 percent from last year’s third quarters.
In the fourth quarter of 2014, UBS’s hiring commitments were 6% lower at $187 million.
The $300 million jump in recruiting-loan debt last quarter also likely understates what the brokerage has been spending since some older loans ran off the balance sheet and upfront cash to compensate new brokers for deferred money left at their old firms is not included.
In the waning days of 2015 and the early ones this year, however, UBS Wealth Americas has continued to write checks to attract top brokers from Credit Suisse and other European banks that are exiting the U.S. wealth management market. UBS has hired more than 70 of Credit Suisse’s roughly 170 orphaned “private bankers” in the U.S., and faces a raiding claim as a result.
UBS Group AG Chief Executive Officer Sergio Ermotti told reporters Tuesday he is confident that his U.S. managers abided by all rules in its recruiting practices.