UBS Americas Wealth Profit Up 16% Despite Asset (and Broker) Outflow
UBS Group AG said its wealth businesses in the U.S. and Latin America posted a 16% jump in pretax profits in the second quarter on lower expenses and higher fee income, despite its second straight quarterly outflow of customer money.
UBS merged its U.S. wealth business into its broader wealth management operations in February, but in presenting its results on Tuesday the Swiss banking giant said its American operations (including a small Latin American presence) remains the largest of its four wealth units.
Its pretax profit of 389 Swiss francs ($391.6 million) outpaced the 308 million Swiss francs earned in its EMEA region, and was just under the combined 396 Swiss franc profits of its Asia-Pacific and Switzerland units. The Asian unit, however, is the fastest-growing part of the wealth business in terms of revenue, UBS said.
The American gains came despite a steady shrinkage in brokers. UBS Wealth Management Americas lost a net 19 brokers during the second quarter, following a 14-person decline in the first quarter. As of June 30, it had 6,937 advisors, compared with 15,682 at Morgan Stanley and 14,820 at Merrill Lynch’s wealth management unit.
“We had a slight reduction in the U.S., where we are not focused on quantity, but quality,” UBS AG Chief Executive Sergio Ermotti said on a conference call with analysts. “Our FAs in the U.S. are the ones who have the highest level of assets, the highest productivity.”
He and the company’s chief financial officer also said that the bank’s decision two years ago to slash broker recruiting has been a major contributor to earnings as compensation expenses in the former PaineWebber business continue to fall. Forgivable loan balances on the Americas balance sheet fell 13% over the quarter as recruiting loans matured, and new recruiting expenses for the quarter were down 23% from the year-earlier April-June period.
The tighter cost controls helped offset a net outflow of $7.1 billion of customer money from the Americas, which UBS attributed to $4.6 billion of seasonal income tax payments as well as diminution related to a “corporate employee share program.”
Morgan Stanley and Merrill Lynch last week gave similar tax-related explanations for declines in net new money during their second quarters, but they both reported positive inflows of new assets. UBS, which targets 2-4% quarterly growth in net new money, had positive Americas flows in this year’s first quarter.
Total invested customer assets at UBS Wealth Americas benefited from market growth, rising 6% to $1.268 trillion as of June 30 from $1.258 trillion as of March 30. Transactional commissions continued to fall among Americas customers, the company said, reflecting investor concern as well as a focus on fee-based accounts that generate revenue regardless of customer engagement in the markets.
Like its rivals, UBS’s brokers continued to sell mortgages and “tailored” loans to their wealthy customers, with loans rising 4% from the year-earlier second quarter (in U.S. dollars).
UBS officials repeated their mantra that the Americas wealth business will thrive because of higher-quality brokers than rivals. With fewer brokers and a smaller inflow of rookies from training programs, revenue per average Americas broker is $1.32 million annualized, based on second-quarter numbers, while assets per advisor were $182 million. Morgan Stanley said its force of more than 15,000 brokers averaged $1.12 million of annualized revenue and oversaw $151 million of customer assets as of June 30.
“The strong performance of WM Americas quarter after quarter is a testimony to our strategy and contributes significantly to the success of UBS Group,” UBS spokesman Peter Stack said in an e-mailed statement.