UBS: U.S. Wealth Prospered Despite Big Asset Outflows
UBS Wealth Management Americas was the breadwinner for its Swiss parent’s global wealth franchise in the fourth quarter despite suffering from elevated client asset withdrawals.
The bank’s strategy of slashing recruiting in the U.S. and juicing greater productivity from its existing brokers paid off in the fourth quarter, UBS executives said. The Wealth Americas business, jockeyed by 6,850 brokers in the U.S. and Latin America, reported a 5% jump in quarterly profit to $359 million from the fourth quarter of 2017.
That made the Americas unit the bank’s most profitable by far in the quarter. (Its second-best unit, wealth management Switzerland, reported $162 million in net income.) UBS Chief Financial Officer Kirt Gardner attributed the Americas wealth jump to higher fee-based revenue and net interest income.
But UBS’s stock plunged on the report, in part because of the diminishing assets and broker outflows. UBS Americas, which last year had the Latin American business folded into the much large former PaineWebber wealth business, lost a net $3.6 billion in the fourth quarter. That represented almost half of the $8 billion of asset outflows at UBS’s wealth businesses globally.
The picture for the Americas business was less favorable for the year. UBS Wealth Americas had a net loss of $4.1 billion in 2018, making it the only net loser on a yearly basis across the Swiss banking giant’s business divisions.
Assets grew at a rate of 0.3% in the Americas, below the 2% to 4% growth target that UBS has presented to investors.
“Our net new money performance was impacted by outflows from net recruiting,” Gardner told analysts on an earnings call.
UBS does not break down advisor counts between its U.S. and Latin American businesses, but said total headcount in Americas Wealth of 6,850 brokers at the end of 2018 was 60 fewer than three months earlier. The brokerage force is less than half the 14,800 and 15,800 that Merrill Lynch and Morgan Stanley respectively reported at yearend.
Several UBS Wealth Americas brokers and branch managers said that numbers they are given to show their relative performance show a continuous slip in brokerage force numbers. UBS broad U.S. franchise was comprised of about 6,320 brokers, down from 6,606 one year ago, according to one of the internal sources, who spoke on condition of anonymity.
A UBS spokesman declined to comment on the source’s accounting.
In October, UBS officials said they had dropped their target of maintaining the Americas brokerage force in a range of about 6,500 to 7,000 brokers.
UBS’s competitors also reported that asset levels were affected in the fourth quarter as customers moved to cash during the volatile period, but UBS has confronted a steady decline since retreating from veteran broker recruiting in 2016 in order to reduce its approximately $3 billion overhang of forgivable loans from earlier hiring sprees.
Invested assets of $1.2 trillion in the Americas wealth unit were down 8% from $1.307 trillion in the third quarter and down 5% from $1.263 trillion a year ago.
Ermotti, while calling the asset declines unsatisfactory, told analysts that he was nevertheless pleased with the U.S. brokerage results.
“[I]n the Americas where net new money was negative, we did better than our key competitors in terms of invested asset developments both on quarter-on-quarter and year-on-year basis,” the executive said.
Fewer hires and “record” inflows of assets among existing producers are “consistent with our strategy,” Gardner said.
Revenue per advisor was up 5% from the fourth quarter of 2017 to a record $1.346 million, the spokesman said.
Similarly, recruitment loans to financial advisors in the Americas on the bank’s balance sheet fell 12% from a year ago to $2.3 billion.
UBS Wealth Americas executives recently reversed punitive steps that would have made it harder for experienced brokers to contact former clients if they left, and continue to preach cost-cutting that they said is proving successful.
In reporting its fourth-quarter results last week, Morgan Stanley said it ended 2018 with $2.3 trillion of customer assets, 3% lower than 12 months earlier and 8% lower than on September 30, 2018. Client balances at Merrill Lynch of $2.193 trillion were down 4.8% from $2.305 trillion in the year-ago quarter and off 8% on a linked-quarter basis.
Both Morgan Stanley and Merrill Lynch, which have also retreated from broker hiring, posted positive net asset flows in the quarter in contrast to the UBS Americas results.
Like its competitors, UBS warned that asset-based fees are likely to be punished this quarter because of the policy of collecting fees at the beginning of each quarter, meaning that the fourth-quarter numbers did not account for the market decline in late November and December.