UBS’ latest woes hurting morale of firm’s advisers

UBS financial advisers are the latest wirehouse brokers to have to make excuses for blunders elsewhere in their company.

The $2.3 billion loss incurred by London-based UBS AG trader Kweku Adoboli has advisers in the U.S. wealth management unit fielding questions from concerned clients about whether their money is safe at the bank. Although it may not cause an exodus of advisers from the firm, it will hurt recruitment and give those brokers already considering a move a good reason to act now.

“If any advisers were thinking about leaving the firm, this is the time to go,” said one adviser, who asked not to be identified.

He said that he has no plans to leave UBS, but he does have his hands full explaining the incident to clients.

“It looks really bad, and my clients want to know how something like this can happen. I hope more heads will roll in the investment-banking division because they should,” the adviser said.

Chief executive Oswald Grübel shouldered the blame for the loss and tendered his resignation early last week. So far, he is the only executive to lose his job, though the board has appointed a special committee to investigate the matter.

Mr. Grübel was replaced on an interim basis by Sergio Ermotti, who was formerly head of the bank’s Europe, Middle East and Africa division.

For an institution that had just begun to put the turmoil of the financial crisis and the investigation of tax evasion by its U.S. clients behind it, the embarrassing loss is a blow to morale for the 6,900 advisers in the U.S. wealth management business.

“It’s disappointing to be in the headlines again — and not for good reasons,” said another UBS broker, who also asked not to be identified.

UBS spokeswoman Karina Byrne said that Robert McCann, CEO of Wealth Management Americas, and Robert Mulholland, head of Wealth Management Advisor Group, have been communicating with advisers actively.

“Their message is that as frustrating as this is, we will weather the storm as we have weathered others,” Ms. Byrne said.

UBS brokers are getting a taste of what Bank of America Merrill Lynch brokers went through this past summer. They were also forced to calm jittery clients who wanted to know if their parent company, Bank of America Corp., was headed for insolvency.

NO LONGER A “GO-TO’ FIRM

According to recruiters, UBS had recently been on a roll.

“They were just getting their sea legs,” said recruiter Mindy Diamond, president of Diamond Consultants LLC.

“They were almost becoming a go-to firm, but not anymore. I can’t imagine an adviser seriously considering making a move to UBS now,” Ms. Diamond said.

With the highly regarded management team of Mr. McCann and Mr. Mulholland, and very competitive recruiting deals being offered, according to recruiters, the firm was increasing its adviser head count again.

After falling from nearly 8,000 down to almost 6,000 after the financial crisis, UBS had 6,862 advisers at the end of June.

“UBS was definitely on an upswing,” said Mark Elzweig, president of an eponymous recruiting firm.

“They had popular leaders and they were paying a lot. In the short term, that will come to a halt,” Mr. Elzweig said.

For existing advisers, the question now is: What next?

The bank’s leadership has said that it will stick to its business model, which integrates investment banking and wealth management, but it also has indicated that it will shrink its banking activities, in part to comply with higher capital requirements under Basel III regulations.

It has yet to provide details about what those changes will be, other than the following comment from chairman Kaspar Villiger in a statement after Mr. Grübel’s resignation: “We are committed to further expanding our already leading global wealth management franchise. The investment bank will continue to strengthen its alignment with UBS’ wealth management businesses … In the future, the investment bank will be less complex, carry less risk and use less capital to produce reliable returns and contribute more optimally to UBS’ overall objectives.”

Although not all UBS advisers are big users of UBS investment banking products, such as initial public offerings, the unit is important for many, said one of the advisers who asked not to be identified.

“Not many of my clients are affected by it, but the investment bank is very important to a lot of clients in the firm,” he said.

Beyond the open question of how the investment-banking platform will change, the turmoil also has caused rumors about a sale of the U.S. wealth management business to resurface.

KNOCKING DOWN RUMORS

Mr. Mulholland felt compelled to address the issue last week in a phone call with branch managers, complex directors and regional managers.

“We are not for sale. It’s the board’s decision not to sell — not just [Mr. Grübel’s].”

A partial transcript was provided by the firm.

There are good reasons for the sale rumors, said Alois Pirker, a senior analyst at Aite Group LLC.

“They’re not big enough. They need the same infrastructure as Merrill Lynch, but they have less than half the number of advisers. It’s a costly proposition,” said Mr. Pirker, who worked at UBS in Europe for seven years.

“They didn’t go anywhere for 10 years, and now times have gotten tougher and the unit is smaller,” he said.

Mr. McCann, who spent 26 years with Merrill Lynch before leaving in the wake of the financial crisis, now feels the pain of UBS advisers. He sent out a memorandum to rally wealth management employees a few days after the trading loss came to light.

“This situation is frustrating and unacceptable,” Mr. McCann wrote.

“And yet you continue to handle it with dignity and grace … As challenging as this feels right now, it will pass. And when it does, no business is better positioned to compete — and win — than UBS in wealth management,” Mr. McCann wrote.

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Related Topics: Banking, ING Group, UBS AG