UBS pledges lower costs as it merges private banks

UBS is finally merging its two private banks, promising lower costs, higher profits and better client service by combining its international wealth management operation with its American one.

The Swiss bank announced its latest wealth management innovation as it revealed a SFr2bn share buy-back programme, despite less ambitious profit targets and a sharp fall in investment bank profits in the fourth quarter.

The fourth-quarter results also included SFr2.9bn in write-offs as a consequence of Donald Trump’s US tax reform, the biggest hit flagged by any European bank so far, though UBS said the write-off had only a “negligible” impact on its capital ratios.

Shares in the Swiss bank were down 1.6 per cent at SFr19.

UBS has traditionally kept its international wealth management division separate to its American one, arguing that separation was preferred since the business models in both countries are different. 

On Monday, the bank said “regional variations in the client service model will be maintained” and supporting functions will be “more closely aligned and integrated” when the two divisions are merged on February 1. 

“It will mean improved efficiency, more sharing of best practices, greater returns on our investments and enhanced client service,” said group chief executive Sergio Ermotti, adding that the units had been working more closely for the past two years.

The merged division will be run by Tom Naratil, who heads Wealth Management Americas, and former Commerzbank boss Martin Blessing, who was appointed to lead the international private bank after the surprise departure of its veteran steward Juerg Zeltner in December. 

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The international wealth division made adjusted pre-tax profits of SFr640m for the quarter, worse than the SFr675m analysts expected but far better than the SFr511m a year earlier. Wealth Management Americas made adjusted pre-tax profits of SFr390m, beating the SFr358m a year earlier and SFr357m expected by analysts. 

At group level, UBS said it would buy back SFr2bn of shares between 2018 and 2020, including up to SFr550m this year, and would pay an ordinary dividend of SFr0.65 for 2017, up 8 per cent on 2016. 

UBS announced a cost/income target described by analysts at Morgan Stanley as a “more realistic 75 per cent” for 2018 to 2020, from a previous 60 to 70 per cent for 2017. Similarly, UBS’s return on tangible equity target for 2018-2020 is 15 per cent versus the “above 15 per cent” it guided for earlier periods.

At the investment bank, which has often outperformed after being dramatically curtailed under UBS’s post-crisis restructuring plan, bottom line fourth-quarter profits fell to just SFr49m from SFr306m a year earlier. 

One-off restructuring charges accounted for some of the hit, but even on UBS’s “adjusted” basis, pre-tax profits excluding litigation were SFr173m, versus the SFr240m expected by analysts and SFr358 a year earlier.

The latest results were hurt by a SFr79m loan loss, “mainly related to” a margin call — where a client is asked to put up more money if their investments lose value. 

Revenue at UBS’s revamped fixed income division fell 37 per cent in the fourth quarter, reflecting the same challenging market conditions that prompted the big US banks to report a combined 28 per cent fall in fourth-quarter fixed income revenues, as calculated by analysts at Autonomous. 

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Analysts at Morgan Stanley described the underlying results as “in line” with expectations, pointing to a “strong equities business” and “weak” fixed income. Equities revenues were up 1 per cent year on year.

Overall, the Swiss bank reported pre-tax profits up 32 per cent to SFr5.4bn last year, which compared with SFr5.3bn expected on average by analysts. Last year’s net profit was SFr1.2bn, slightly lower than analysts expected and down from SFr3.2bn in 2016. 

Mr Ermotti said 2017 had been an “excellent year”.