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 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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