UBS adds US$16b from rich clients as assets hit record

[ZURICH] UBS Group AG's rich clients added US$15.7 billion in new money last quarter, giving a boost to star hire Iqbal Khan as he seeks to reinvigorate the key wealth management unit.

The inflows lifted assets overseen for the affluent to a record US$2.5 trillion, UBS said in a statement Tuesday. The asset management unit won US$24.1 billion in long-term net inflows. While profit beat analysts' estimates, UBS said it will book a roughly US$100 million charge in the fourth quarter to restructure its investment bank, and warned that lower interest rates will hurt income from lending compared with last year.

"We continue to take actions to grow profitability," chief executive officer Sergio Ermotti said in the statement.

Mr Ermotti is seeking to turn the corner after a year marred by huge legal fines, questions about succession planning and a deepening slump in the share price. In August, he shook up the management board, hiring former Credit Suisse Group AG banker Khan to co-run the wealth management unit and positioning him as a potential successor. But Mr Khan's start at UBS was overshadowed by a spying scandal that exposed a deep rift with his former boss.

UBS was one the first banks to pivot away from investment banking and toward wealth management after the financial crisis, becoming a model for rivals including Credit Suisse. But increasing competition for rich clients, negative interest rates and a slowing economy are putting pressure on that business.

UBS said in August that it would expand a policy of charging affluent clients for excess cash holdings.

TRAILING SHARES

Shares of the lender have lost 6.5 per cent this year, compared with a gain of 15 per cent at Credit Suisse, where a three-year restructuring modeled on UBS's pivot to private banking is beginning to bear fruit. To lift the stock, UBS has earmarked US$2 billion for share buybacks through 2020. It is nearing its US$1 billion target in buybacks this year.

Global wealth management is by far the biggest of UBS's units, contributing more than twice as much revenue and pretax profit last year as the investment bank. But lower interest rates are eating into earnings from lending, with net interest income at the business declining about 3 per cent from a year earlier, and recurring fee income falling as well.

Mr Khan, in a memo to employees after he started this month, pointed to "unrealised potential" within the wealth management business. Key will be his take on developing UBS's offering to wealthy clients in Asia, a region that wasn't under his control at Credit Suisse and which attracted the bulk of the inflows last quarter.

Mr Khan is running the business alongside co-head Tom Naratil, who focuses on the Americas. He joined under a cloud after it emerged that Credit Suisse had private investigators follow him to make sure he didn't try to encourage others to defect.

The scandal exploded onto the front pages of local tabloids and exposed a personal feud between Mr Khan and his former boss, Tidjane Thiam. One of Mr Thiam's key lieutenants left the bank after he was found responsible for ordering the surveillance.

TRADING UNIT

Mr Ermotti is also making changes to the investment bank, reshuffling senior management and combining trading operations in changes that may ultimately eliminate hundreds of positions, people with knowledge of the plan have said. The bank is cutting about 40 jobs in the Asia-Pacific region as part of the shake-up, a person familiar with the matter has said.

The restructuring should save the bank about US$90 million annually, Mr Ermotti said in an interview with Bloomberg TV, adding that job losses won't be substantial.

Adjusted pretax profit at the unit fell 59 per cent from a year earlier, as the bank earned less from advising on deals as well as from trading. Equities trading revenue declined almost 7 per cent, compared with a gain of about 1 per cent at the five biggest Wall Street firms.

UBS is seeking to boost collaboration between dealmakers and its wealth-management unit, while sharpening a focus on industries most of interest to its richest clients.

The bank has had a rocky year so far. It was dealt a US$5 billion penalty in a French tax case in February that it intends to appeal.

After warning of a difficult market in the first quarter, it announced US$300 million in additional cost cuts. Mr Ermotti previously signaled that the bank may struggle to reach its 15 per cent adjusted return on tangible equity capital, instead saying that the bank could achieve a level on par with last year's 13 per cent return.

BLOOMBERG