UBS’ U.S. retail brokerage takes a hit

UBS AG’s retail-brokerage operations in the United States lost $63.8 million pretax in the second quarter, reversing a pretax profit of $14.3 million in the first three months of 2010.
UBS Wealth Management Americas, the only division of the Swiss banking giant to report a loss, took a restructuring charge of $139.1 million in the quarter, tied largely to the continuing consolidation of its branches. Without the charge, the fourth-largest U.S. brokerage had a pretax operating gain of $75 million in the second quarter.
The operating profit was driven by higher fee income and commissions.
The company, which last year recruited Merrill Lynch veteran Robert McCann to revamp the U.S. brokerage operations, said brokers employed by the company for more than a year generated net new money from clients for the second straight quarter. That’s a milestone for the loss-battered unit, which has endured more than a year of declining revenue amid tax scandals, auction-rate-securities issues and the loss of top brokers.
UBS Wealth Management Americas — which Mr. McCann has said he wants to populate with between 6,500 and 7,000 financial advisers, less than half the total of Morgan Stanley Smith Barney LLC — had net outflows of $2.5 billion in the second quarter, compared with net outflows of $6.9 billion the previous quarter.
Including interest and dividends paid to clients, the U.S. brokerage unit said it had net inflows of $1.9 billion in the three-month period through June.
The pretax loss at the unit and its parent was less than analysts had expected.
“We’re making progress against the strategy that Bob outlined, and we’re making progress against our U.S. competitors,” said Karina Byrne, a company spokeswoman.
The brokerage has more invested assets per adviser than its three larger competitors — Bank of America Merrill Lynch, Morgan Stanley and Wells Fargo Advisors — and is second only to Merrill in terms of its brokers’ productivity, Ms. Byrne claimed. (Click here to see a chart of how UBS compares to BofA Merrill, Morgan Stanley Smith Barney, and Wells Fargo Advisers.)
UBS Wealth Management Americas’ expenses continue to surpass its income in part because of forgivable loans and other “legacy” recruiting bonuses doled out in 2009 before Mr. McCann’s arrival, she added. The unit’s cost-to-income ratio last quarter was 102.3%, and Mr. McCann aims to reduce that to 80% to 85% within three to five years, she said.
But near-term conditions for a rapid reversal remain dim.
UBS AG, the unit’s Zurich-based bank, said it anticipates “more subdued client activity levels” across all its businesses because of “concerns about the sustainability of the global economic recovery.”
Overall, UBS AG reported a third consecutive quarterly profit Tuesday in its overall operations, largely on higher-than-expected trading revenue.
The bank’s stock price recorded its biggest gain in 11 weeks after the parent company reported net income of 2.01 billion Swiss francs ($1.91 billion), reversing a net loss of 1.4 billion francs a year earlier. The profit beat the 1.12-billion-franc median estimate of 11 analysts surveyed by Bloomberg News.
UBS AG shares closed up more than 11% in European trading.

Related Topics: UBS Wealth Management