January 7, 2020 / 12:37 PM / 14 days ago

Breakingviews - UBS goes for growth with wealth management rejig

Switzerland's national flag flies below a logo of Swiss bank UBS in Zurich, Switzerland July 31, 2019.

MILAN (Reuters Breakingviews) - UBS is kicking off the new decade with a makeover. Fresh from hiring top private banker Iqbal Khan from rival Credit Suisse, the Swiss bank is axing unnecessary layers in its flagship wealth management unit to serve rich clients better and faster, according to an internal memo seen by Reuters Breakingviews on Tuesday. Only 2% of the unit’s jobs will go, though. UBS will need to crank up lending to the better-off to get its cost structure into line with leaner competitors.

The Zurich-based bank, which oversees $2.5 trillion of invested assets, is due a rejig. Costs at its mammoth wealth division – jointly led by Khan and veteran executive Tom Naratil – gobbled up about 78% of income in the third quarter of 2019. That’s well above the 62% achieved in the same quarter by Credit Suisse’s international wealth management unit, which Khan used to lead. Smaller cross-town rival Julius Baer reported a 71% cost-to-income ratio in the first half of 2019.

UBS’ new plan is not much about cutting costs, though. The bank is planning to eliminate 400 to 500 jobs from the division’s nearly 23,000 staff in the next year or so, chiefly in management and administration, according to people with knowledge of the matter. That alone will not bridge the cost gap with competitors.

The focus instead will be on reviving sluggish growth. Getting relationship managers closer to clients, as the new, leaner management structure aims to do, should help them to make decisions more quickly, and free up time to recruit new wealthy customers.

Given ultra-low interest rates, however, attracting more assets alone won’t be enough to boost income. The main source of growth will probably come from offering financing and structured solutions to the rich, which can carry fat margins. UBS’ wealth division has extended loans worth $176 billion. UBS hopes to boost that with $20 billion to $30 billion of net new loans per year.

Offering credit to people who are already wealthy should be less risky. If UBS’ growth bet pays off, it may avoid any extensive cost pruning. Still, any rapid growth in lending involves dangers. The durability of UBS’ revamp may take a few years to reveal itself.

Breakingviews

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