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UBS Wealth Americas hits billion-dollar profit goal

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[February 07, 2014]  By Jed Horowitz

NEW YORK (Reuters)  For Robert McCann, who took control of UBS AG's loss-ridden U.S. brokerage business four years ago, 2013 proved to be a very good year.

UBS Wealth Management Americas made $1 billion in annual pretax operating profit, hitting the "ambitious" target McCann outlined in early 2010, Switzerland's largest bank said in a statement accompanying its earnings report on Tuesday.

The U.S. brokerage unit, formerly known as PaineWebber, also broke another barrier, ending the year with client assets of $1.02 trillion, up 16 percent from 12 months earlier.

Consultants were disconcerted by some other numbers in the earnings report, however. Net new money collected by the business's 7,100 brokers fell by 44 percent in the fourth quarter of 2013 to $4.9 billion from a year earlier, while fee-based managed account assets grew about 7 percent in the quarter, well below growth rates at larger rivals Merrill Lynch and Morgan Stanley.

"McCann has done a phenomenal job of increasing profitability, but there are some caveats," said Alois Pirker, head of the wealth management practice at consulting firmer Aite Group. "The net new money leaves a sour taste, and they've got to attack the fee area to keep up with competitors."


Major brokerage firms have been incentivizing their brokers to put clients into fee-based accounts that produce revenue regardless of whether clients actively buy or sell investment products. Fee-based revenue that UBS calls "recurring income" grew 3 percent at the broker for the year while more traditional commissions rose 10 percent, the bank said.

Pirker said the fee-based growth was disappointing while the firm's jump in assets came primarily from clients of newly hired brokers that McCann has been recruiting for several years with expensive pay packages. The recruiting has slowed somewhat, with recruitment "loans" that are forgiven if brokers stay for a fixed time period falling to $3.06 billion at yearend from $3.24 billion one year earlier.

McCann, he added, has attacked expenses by, among other things, cutting thousands of low-producing brokers. At the end of 2013, costs fell to 85.9 percent of the U.S. brokerage's income from 90 percent in 2011, but were up from the third quarter on higher compensation.

A spokesman for UBS Wealth Management Americas did not immediately respond to comment on the slowdown in new asset growth or the forgivable loans.

SELLING THE BANK

In the fourth quarter of 2013, the American wealth unit's pretax profit hit a record $254 million, up 17 percent from the third quarter and 64 percent from a year earlier. Excluding one-time charges, including those related to its parent company's restructuring, UBS Wealth Americas' profit rose 22 percent from the third quarter to $283 million.

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The spokesman did not comment on whether McCann and other executives he has recruited from his long career at Merrill are compensated on profit before the subtraction of costs allocated from the Swiss parent. Like other large brokerage firms owned by banks, McCann has been trying to guide his advisers to sell more bank products such as lines of credit, mortgages, insurance and trust services.

The U.S. brokerage ended 2013 with $39.1 billion of client loans, up from $34.1 billion a year earlier. The loans were focused on credit lines to wealthy clients secured by stocks and bonds and residential property.

UBS Wealth Americas brokerage force grew by 78 during the year to 7,137 advisers in about 320 branches. The average revenue they collected rose 14 percent in the fourth quarter from a year earlier to $1.04 million, which the bank said is higher than any of its peers. Average broker productivity at Merrill Lynch, which has just under 14,000 advisers, was $1.03 million at the end of last year.

McCann's guidance of Wealth Management Americas appears to have scored points with UBS's group chief executive Sergio Ermotti, a former colleague from Merrill Lynch. "WMA's results are further proof that our strategy is working," Ermotti said on a conference call with analysts, adding that ultimate success will come from "strengthening our focus on banking and lending and cross-business collaboration."

Looking forward, UBS executives said in a statement that global market conditions remain captive to "unresolved issues in Europe, continuing U.S. fiscal and monetary policy issues (and) emerging markets fragility," but also said that its global wealth businesses "will continue to attract new money, reflecting new and existing clients' steadfast trust in the firm."

Profit at UBS's broader wealth management division grew 18 percent in the fourth quarter from a year earlier, but margins were flat amid higher bonuses and other expenses. Some analysts said they were disappointed by the margin and so-so results in collecting new client assets.


Switzerland's largest bank said its net profit swung to $1.02 billion in the fourth quarter, reversing a year-earlier loss, on a large gain from deferring taxes and stronger stock trading revenue.

(Reporting by Jed Horowitz; editing by Rosalind Russell)

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