The company wealth management business is now split in two Wealth Management and Swiss Bank and Wealth Management Americas. The former had total income of CHF7.4billion (US$8 billion) and expenses of CHF5.05 billion for a pre-tax profit of CHF2.3 billion. The latter had total income of CHF5.6 billion and expenses of CHF5.7 billion for a pre-tax loss of CHF130 million.
More importantly in terms of measuring client trust in the business and its future performance is the strong reduction of client asset outflows (net new money NNM) reported. The international business had outflows of CHF12.1 billion, much down on the CHF79.9 billion for 2009. Asia was a major new source of business, as was Switzerland, ultra-high net worth clients segment.
These data points are in themselves interesting but to fully understand the numbers and context we must look through the best part of the last decade, a period which for UBS splits very much into two growth and ascendancy and survival and rejuvenation.
Part one of the story growth and ascendancy is the period roughly up until mid-year 2007 and is about meteoric growth and global wealth management market dominance where UBS sat atop the global rankings of wealth management firms for the bestpart of the decade.
The following chat reveals a 131% growth rate of assets under management through the period 2002 to 2007. UBS sat atop of the sector trillionaire AUM club along with Citigroup and Merrill Lynch. However,while Citigroup and Merrill Lynch were dominated by their onshore US brokerage businesses, UBS could lay claim to being the only truly global private client wealth management beast. In fact, by our measure of HNW private client assets held in the industry, UBS had a 10.9% market share.
How did the bank get to this position? This is a story of aggressive growth with wealth management identified early as the strategic opportunity. Identifying wealth management was followed by an almost manic (but structured) pursuit of opportunities in multiple markets which included M&A and the related development of an onshore strategy, plus market leading support initiatives such as education and training and marketing, branding and sponsorship.
Then came the shock the 2007 sub-prime crisis and the start of the global financial crisis and we enter part two of the story survival and rejuvenation. UBS was fully caught up in the maelstrom and the firm fortunes were about to take a battering.
The bank, via its investment banking unit, ran up catastrophic losses in the sub-prime collapse and by the end of the fourth quarter 2008 it had written down approximately US$43 billion, at the time the most of any bank globally. The impact was widespread a US$60 billion bail-out by the Swiss National Bank, the ending of the bank market leading ne-bank strategy to protect the wealth management from the contagion of investment banking losses, the removal of its historic CEO and then Chairman Marcel Ospel (April 2008) and then his replacement as CEO Marcel Rohner (February 2009), the start of client asset outflows which did not stop until Q4 2010, and ultimately a reputation in tatters. To top it all, the bank also lost its status as the world largest private client wealth manager by the end of 2008 to Bank of America, the savior (and asset beneficiary) of Merrill Lynch.
More bad news was on its way, however, this time in the shape of arevenue hungry US tax collector, the Internal Revenue Service (IRS), which accused UBS of helping 52,000 US citizens avoid taxes between 2001and 2008 by hiding money offshore. UBS, in an effort to cut its losses, paid a US$780 million fine but the case rumbled on and further bruised the bank reputation. Then came the auction-rate securities scandal, a furtherfine of US$150 million, and Madoff. By this point, mid-2008, the firm was reporting client outflows (CHF19.3billion for Q2) and a loss of CHF358million compared to a profit of CHF5.5billion one year earlier.
Crisis now seemingly followed crisis and a radical approach was now overdue with a new dominant figurere quired after Ospel. Demonstrating the pragmatism that marked its growth, the Swiss firm sacked Rohner and brough in the retired ex-CEO of Credit Suisse Oswald Grübel in February 2009. His hard-headed experience was seen as the answer to coming through from the on-going fire fight.
While 2009 (and even now) saw a struggle with outflows (2009 saw total out flows of CHF101.4 billion enough to make a top 30 global player) the signs were already there that the giant was on the cusp of re-awakening. Grübel task was complex but he has driven through several areas of change and rejuvenation which we believe are highly relevant.
First, he got to grips with the bank cost base, a key part of which was a reduction in head count. Over the course of 2009 UBS lost 2,577 relationship managers (RM), bringing the total RM headcount down to 10,226. This has had the mathematical effect of increasing average AUM per RM to CHF196 million for the International division and CHF97 million for the US division, putting the bank in the upper quartile of operators.
Grübel also focused on stabilizing the US business as a central plank of the bank global profit pool. Despite being one of the top five US brokerage houses, it has stubbornly remained a headache and loss making and (continually denied) rumors persist that it will be sold off. We very much doubt that will be the case such is the support that has been provided to ex-Merrill Lynch Global Wealth Management head, Robert McCann, brought in as CEO in late 2009 to revive a business that at that point was locked in battle with the IRS. Indeed, outflows have significantly fallen and efforts such as McCann Renewal Team Advisory Council have almost brought the unit back to profitability.
The firm also majorly re-entered the branding and advertising arena, after having pulled back from the ou and Us campaign during the downturn. In August 2010 it re-launched a global branding and advertising campaign under the new slogan of e will not rest which provides a unified message to clients and staff across jurisdictions. The campaign debuted in Switzerland and Asia and then moved to the rest of Europe, Africa and the US.
In general, the wealth management industry still has a long road to travel before it will fully regain its trusted advisor status, but central to this, in our opinion will be concentrated marketing efforts, critically fully aligned with business strategy. UBS is the leading example of a major player adopting and benefitting from this work.
Further, extremely important in the new world of wealth management where clients are global and highly mobile, is the interplay between onshore and offshore. UBS got in early here as described but strategically the bank has again focused on aligning its offshore and onshore businesses to maximum effect. It remains very well placed to do this given its efforts over the last decade to build onshore inkey markets despite some retrenching during the crisis. To underscore this, on the positive side the bank is starting to benefit from money coming back onshore, and it is well positioned through an established presence in key growth markets such as Asia and Latin America.
So, we have jumped about a bit here and seen the Swiss global wealth management giant rise, fall back and fire fight its way back to profitability through the crisis. The point is, however, through all this it remained a top 3 global wealth management player by AUM. If we look at the business now and think about its future, we would argue the deep nuts and bolts put in place during its growth cycle through to the end of 2007 coupled with its aggressive approach to evaluating and publicly stating its faults and the measures it would take to make amends, has been a key element of winning back client trust. UBS will very possibly once again sit atop the pile of global wealth managers in the very near future.
