UBS to overhaul its retail business

As part of a massive overhaul of its U.S. wealth management business, UBS AG is set to shed up to 2,000 jobs, shrink its regional operations and consolidate a number of branches here over the next several months.

As part of a massive overhaul of its U.S. wealth management business, UBS AG is set to shed up to 2,000 jobs, shrink its regional operations and consolidate a number of branches here over the next several months.

According to multiple sources, the Zurich, Switzerland-based banking company is set to unveil the restructuring of its U.S. wealth management unit to employees this week, following the announcement by group chief executive Oswald Grubel last Wednesday that UBS will cut nearly 8,700 jobs worldwide in light of a $1.8 billion loss the company is expected to post for the first quarter.

While the majority of the cuts in the U.S wealth management business will involve support personnel, a number of advisers — notably rookie reps and low-performers — are expected to be let go over the next several months. Sources have estimated that more than 500 UBS advisers could be laid off before the end of the year, which would represent more than 6% of the 8,000 advisers the firm boasts in the United States.

A UBS spokeswoman declined to comment on the specific number of cuts, but confirmed that a significant portion of the global layoffs will take place in the U.S. wealth management business.

UBS this week also is expected to announce that it will shrink the regional structure of that business — a move that will allow it to eliminate managerial positions as well.

The wealth management business at UBS apportions its sales force among eight U.S. regions, but sources said that UBS execs this week will notify employees that it will pare the number of regions to just three by 2010.

It’s unclear at the moment exactly who will head these three regions for UBS, but sources suggested that David McWilliams — who recently joined UBS from New York-based Merrill Lynch & Co. Inc., where he was a managing director in that firm’s brokerage business — is likely to head one of the three regions.

These sources added that UBS also will look to combine a number of its branches over the next year as part of the overhaul and eventually could consolidate its 400 branches.

“It’s all about the bottom line,” said a UBS adviser who asked not to be identified. “We’ll have to find a way to do more with less.”

Indeed, all of these moves — which UBS initially planned to disclose to employees last week — are part of the cost savings plan that Mr. Grubel stated will save the banking company up to $3.4 billion by the end of 2010.

“Grubel seems pretty determined to keep the businesses intact, so it appears that he’s looking to ultimately downsize everything and create a smaller but more stable organization,” said Simon Adamson, an analyst who covers UBS for CreditSights of New York.

Mr. Grubel, who replaced Marcel Rohner as group CEO in February, is unlikely to sell off any of UBS’ major businesses over the next several months despite persistent rumors that the wealth management business may be on the block, sources noted.

UBS this year reportedly explored the possibility of selling off the U.S. wealth management business to either Charlotte, N.C.-based Wachovia Corp. or New York-based JPMorgan Chase & Co. But since UBS sold 55 of its branches — with roughly 320 reps — to St. Louis-based Stifel Nicolaus & Co. Inc. at the end of March for upwards of $46 million, sources noted that talks of selling the broader wealth management business have come to a halt.

For now, Mr. Grubel appears to be most focused on immediately repairing the company’s balance sheet and improving its declining capital position, noted Frank Braden, an equity analyst with Standard & Poor’s of New York.

But the more serious long-term challenge may be repairing the reputational damage UBS has experienced over the last year, which most recently has centered around charges that it helped thousands of affluent Americans evade taxes.

UBS is now losing both clients and advisers because of claims that it placed more than $20 billion offshore for these wealthy U.S. clients, Mr. Adamson said.

“And the big worry now is that the value of UBS’ wealth management franchise is eroding,” he said.

The company’s wealth management business overseas appears to have already taken a hit. UBS last Wednesday reported that its Swiss wealth management and banking business experienced $20 billion in net outflows during the first quarter.

In the United States, however, the story was quite different. The UBS wealth management business here recorded $14 billion in net inflows during the first three months of the year, one of the company’s lone bright spots for the quarter.

In part, these inflows were due to UBS’ strategy late last year of using outsize recruiting packages to court scores of top-performing reps at rival wirehouses, industry sources noted.

In the fourth quarter, the firm handed out recruiting deals worth up to 260% of reps’ annual revenue at their prior firm — a move that allowed UBS to recruit more than 130 financial advisers with $14 billion in combined assets in the last two weeks of November alone, according to one source, who asked not to be identified.

“It’s a step in the right direction,” said Danny Sarch, president of Leitner Sarch Consultants Ltd. in White Plains, N.Y. “If you can’t compete in size with the other wirehouses, you have to find a way to be more effective and get better production,” he continued. “But it will come down to how they execute.”

E-mail Mark Bruno at [email protected].