UBS profits, advisors fall as Credit Suisse takeover begins

UBS profits fall, advisor count dips as Credit Suisse takeover begins

April 25, 2023 7:46 PM

UBS profits shrank 52% over the past year and it lost 98 net advisors over the past quarter, the firm disclosed in its first-quarter earnings Tuesday — reflecting challenges the bank will face as it seeks to continue growing its wealth unit in a rocky market environment while taking over Credit Suisse.

The Swiss wirehouse missed Wall Street analyst expectations with diluted earnings per share of $0.32, which was 41% below the analyst consensus of $0.54. The stock was down 5% as of market close Tuesday.

Higher expenses and lowered revenues from "negative market performance and lower levels of client activity" contributed to its disappointing results, UBS said in its earnings report Tuesday. The bank minimized its advisor headcount dip, mostly in the Americas, as reflecting attrition among those handling lower client accounts.

The company also reported gains in client assets, reflecting "how clients turn to us as they search for stability," UBS CEO Sergio Ermotti said in an earnings call Tuesday with analysts.

"Net new money in GWM [Global Wealth Management] was $28 billion. Importantly, $7 billion of this came in the 10 business days after the acquisition announcement," Ermotti said, adding that although "our wealth management clients remain on the sidelines," advisors had succeeded in continuing to engage them.

"What is important is deposit shift into money market and T-bills remained with UBS, and we also saw $9 billion in new deposits into our platform."

The GWM unit added $19.7 billion of net new fee-generating assets, and the Americas arm of GWM added $3.8 billion of that.

"US wealth inflows showed a slowing pace of net new fee generating assets in 1Q — $3.8 billion vs 4.2 billion in 4Q," Alison Williams, an analyst at Bloomberg Intelligence, said in an email Tuesday.

"Overall the net interest income outlook for the global wealth unit is more negative as we see deposit outflows and money market inflows — similar to what we saw at Morgan Stanley," Williams said.

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To see the main takeaways from UBS's first-quarter earnings, scroll down the slideshow. For coverage of the firm's fourth-quarter earnings, click here. For a look at the results from the third quarter, click here.

Financials

Firmwide, profits attributable to shareholders of $1.03 billion fell 52% year over year from $2.14 billion. Profits were also down 38% from the last quarter's $1.65 billion.

Revenue of $8.74 billion was also down 7% over the past year, but up 9% over the past quarter.

The firm's global wealth management business posted revenue and profit growth over the past quarter, though those numbers were still down from the past year.

Wealth profits before tax of $1.2 billion were up 15% from the past quarter and down 7% year over year. Wealth revenue of $4.8 billion was up 4% from last quarter, down 2% year over year.

Financial advisors

Advisor headcount worldwide in Global Wealth Management fell to 9,117, according to the first-quarter report. The number was down 1% from last quarter's 9,215 and down 2% from the year-ago 9,300 advisors.

Advisors in the Americas totaled 6,147, falling 2% from last quarter's 6,245 and down 1% from the year-ago 6,199.

The net loss of 98 Americas advisors — in a key market for the firm's growth plans —accounted for the majority of the difference in total headcount, which was also down by 98 advisors in the fourth quarter. In other regions and groups of advisors, the headcount was relatively unchanged with single-digit shifts over the quarter.

Asked by an analyst about this "significant drop" on the call, Chief Financial Officer Sarah Youngwood said it was a "technicality," since the advisors in that group included "both the very high end FA's, but also the people that are in [the] client advice center," referring to advisors who serviced clients with generally less wealth, under $250,000 of investable assets, from a remote advice center.

"It came really more [from] people in the client advice center," Youngwood said of the headcount drop, adding that flows and advisor productivity had remained strong.

"We are continuing to be on the offense in terms of our FA recruitment and organic growth," Youngwood said.

Client assets

Firmwide, UBS ended the quarter with total invested assets of $4.2 trillion. The number was up 5% over the prior quarter's $4 trillion but down 5% year over year from $4.4 trillion.

The global wealth management unit reported $3 trillion of total invested assets, up 5% from last quarter's $2.8 trillion but down 6% year over year from $3.15 trillion.

Expenses

Operating expenses of $7.21 billion jumped 18% over the past quarter and 9% over the past year.

The firm said most of this bump was because of a $665 million provision for litigation over the U.S. government's allegations that UBS had committed fraud in selling residential mortgage-backed securities leading up to the 2008 financial crisis — a "lingering legal risk," Williams said.

"We are in advanced discussions with the U.S. Department of Justice, and I'm pleased that we are making progress towards resolving this legacy matter that dates back 15 years," Ermotti said.

In GWM, operating expenses totaled $3.56 billion — up 1% over the past quarter, down 1% from the past year. Financial advisor compensation of $1.11 billion was up 4% from the past quarter and down 9% year over year.

Remark

Ermotti said the bank planned to close its acquisition of Credit Suisse in the second quarter.

"The combination of UBS and Credit Suisse will result in around $5 trillion of invested assets, which is the equivalent for us of 7 to 10 years of net new money. It will make us the second largest wealth manager in the world," he said.

"We will reinforce our leading position in APAC, Switzerland and EMEA, and will significantly enhance our position in Latin America."

In the meantime, the firm plans to maintain its "advisor recruiting momentum" and "continued growth ambitions in the U.S.," Ermotti said.

"Wealth client attrition risk from the UBS-Credit Suisse combination remains a key deal risk, and while UBS' management provided some broad comments, we expect concerns linger," Williams said.