Former Merrill exec Bob McCann is helping to spark a turnaround in the UBS wealth management unit
UBS AG, Switzerland's biggest bank, reported a surprise third-quarter loss at its investment bank on a slump in trading. But the company's wealth management unit recorded its first net new client investments since 2008.
UBS posed a 406 million-franc ($418 million) pretax loss at the securities unit that missed the 182 million-franc profit estimate of analysts surveyed by Bloomberg.
Chief Executive Officer Oswald Gruebel, in a statement, blamed “very low levels of client activity” and a charge on the bank's own debt for the investment-banking loss. Wealthy clients added 1.2 billion francs, the first inflows since before the collapse of Lehman Brothers Holdings Inc.
“The disappointment of the loss at the investment bank overshadows the return to inflows at the wealth management division,” said Simon Maughan, an analyst at MF Global in London. “We were really expecting this to be a turning point for the bank.”
‘Unusual' Quarter
Net income was 1.66 billion francs in the quarter, boosted by an 825 million-franc tax gain, compared with a loss of 564 million francs a year earlier, the Zurich-based bank said today.
“The third quarter was unusual in that there were very low levels of client activity as well as a strengthening of the Swiss franc against most major currencies,” Gruebel, 66, said in the statement. “This had an impact across all of our businesses. However, we are optimistic that an uptick in the fourth quarter will benefit all of our business divisions.”
The wealth management unit reported a 15 percent increase in pretax profit in the third quarter to 492 million francs from a year earlier, while earnings at the retail and corporate business rose 23 percent to 446 million francs. Wealth management Americas had a loss of 47 million francs, compared with a 110 million-franc profit a year before, while asset management earnings fell 12 percent to 114 million francs.
The investment bank's loss narrowed from a 1.37 billion- franc loss a year earlier. Trading revenue fell 17 percent to 1.77 billion francs, missing the 2.48 billion-franc estimate of analysts. UBS booked a 387 million-franc charge on its own debt.
‘Somewhat Cautious'
“With limited capacity or appetite for proprietary trading, UBS struggles to smooth out the ups and downs of client flows,” Dirk Hoffmann-Becking, an analyst with Sanford C. Bernstein, said in a note. “But as and when client flows return, UBS should see a material uptick in performance.”
While the bank is seeing increased client trading in the current quarter, the management is still “somewhat cautious,” Chief Financial Officer John Cryan told journalists on a conference call.
“There doesn't seem to be that market-driven impetus behind our clients' trading or investing through the bank, so that's a reason for some degree of caution,” said Cryan, 49. “Whether that becomes the new normal for a few quarters, it's difficult to say.”
Wealth Management
Rich clients started defecting from UBS in 2008 as the bank piled up record losses in the financial crisis, became engulfed in a U.S. investigation over tax evasion by some customers and lost client advisers. UBS also gave up its top spot in the ranking of wealth managers to Charlotte, North Carolina-based Bank of America Corp., according to a survey by Scorpio Partnership, a London based research firm.
Since then Gruebel, who joined UBS in February 2009 out of retirement, hired Robert J. McCann, 52, a former Merrill Lynch & Co. executive, to run wealth management in the Americas and brought in Lukas Gaehwiler, 45, from Credit Suisse as CEO for Switzerland and co-head of the wealth management and Swiss bank unit with Juerg Zeltner, 43.
In August, the bank hired Jakob Stott, 55, previously with JPMorgan Chase & Co., to run the wealth management business with European clients that hold their assets where they reside. Christian Wiesendanger was hired from Credit Suisse to head wealth management in Switzerland and Paul Raphael, who has worked for Salomon Brothers, Merrill Lynch and Credit Suisse, was named to run the business in emerging markets. All three were hired to start at UBS on Oct. 1.
‘Few More Quarters'
“We'd like to see a few quarters of more consistent positive inflows for us to be able to say that we've turned around the situation,” Cryan said. “But there are plenty of reasons to be more confident that the actions that we've taken to improve the net new money situation are now bearing fruit.”
Gruebel has described halting redemptions this year as “imperative” after wealthy customers withdrew a net 251.6 billion francs in the 27 months through June.
UBS has also now put its dispute with the U.S. over tax evasion by some of its clients in the past. The U.S. Justice Department last week dismissed the case against the bank after the expiration of the 18-month deferred prosecution agreement UBS signed to avoid criminal charges. The Swiss parliament in August approved the deal to pass on information on as many as 4,450 UBS accounts to the Internal Revenue Service.
