UBS Beats Estimates; Net New Money Expands in Americas: Q3 Earnings

The U.S.-based wealth management unit had about 6,900 advisors and inflows of $4.5 billion in the most-recent quarter.

Despite highly publicized losses from the actions of a rogue trader, Swiss-based UBS reported better-than-expected third-quarter profits on Tuesday of 1.018 billion Swiss francs, or 0.27 Swiss francs per share, vs. profits of 828 million Swiss francs, or 0.47 Swiss francs per share, a year ago. In the second quarter, the bank had profits of 1.654 billion Swiss francs, or 0.26 Swiss francs a share.

Net new money from clients worldwide was 4.9 billion Swiss francs, up from 1.2 billion Swiss francs a year ago but down from 8.7 billion Swiss francs in the previous quarter.  

The trading loss “was partly offset by an own credit gain of nearly 1,765 million [Swiss francs] and a gain of 722 million [Swiss francs] from the sale of treasury-related investments,” the company said in a press release.

Third quarter net new money for the U.S.-based wealth-management operations, led by Bob McCann, was 4.0 billion Swiss francs (or $4.5 billion) compared with 2.6 billion Swiss francs in the second quarter and 0.3 billion Swiss francs a year ago. These figures exclude dividends and interest.

Year-to-date net new money was $11.6 billion as of September 30 versus outflows of $9 billion in the first nine months of 2010.

“Financial advisors employed with UBS for more than one year and net recruiting of financial advisors contributed to the improvement in net new money,” the bank said in a statement.

Net new money at UBS Americas wealth-management unit, including dividends and interest, was $9.5 billion, up 20% from $7.9 billion in Q2 and up 102% from $4.7 billion in Q3'10. At rival Morgan Stanley, these figures were $15.5 billion in Q3'11, $2.9 billion in Q2'11 and $5 billion in Q3'10.

Advisor Headcount, Assets, Production

The number of financial advisors in the unit rose to 6,913 compared with 6,862 in the second quarter and 6,783 a year ago.

Client assets for the group, though, dropped to 686 billion Swiss francs vs. 694 billion Swiss francs in the previous quarter and 743 billion Swiss francs in the same quarter of 2010.

Yearly fees and commissions per advisor at UBS Americas averaged $895,000 per FA in 3Q, up 1% from $884,000 in Q2, and up 14% from $782,000 in Q3’10.  

According to UBS, this puts the unit ahead of peers at Merrill Lynch ($854,000), Morgan Stanley Smith Barney ($747,000) and Wells Fargo ($612,000/FA). The Swiss-based investment bank says it was the only U.S. wirehouse firm to report growth in revenue per FA, or production, in Q3 vs Q2.

In terms of assets under management per FA, UBS Americas averaged $103 million vs. $90 million for Merrill Lynch, $90 million at Morgan Stanley and $69 million at Wells Fargo.

Financial Performance

In the third quarter, operating income for the Americas unit grew 1% from the previous quarter but fell 3% from the same year-ago period to 1.295 billion Swiss Francs. Pre-tax income dropped 1% from the second quarter to 139 million Swiss francs, up from a loss of 47 million Swiss francs last year.

Year to date, operating income was 3.925 billion Swiss francs vs. 4.185 billion Swiss francs in the same year-ago period. Pre-tax income for the first nine months of 2011 was 391 million francs vs. a loss of 99 million francs in the first nine months of 2010.

The costs-to-income ratio for wealth management in the Americas in the first nine months of 2011 was 90% vs. 102% in the same year-ago period.

Operating expenses for the first nine months of the year decreased 17% in Swiss francs, UBS says, while they fell 1% in U.S. dollars due to lower litigation provision charges, restructuring charges and depreciation expenses. These declines, however, were “partially offset by higher financial advisor compensation resulting from revenue growth, as well as higher expenses for compensation commitments and advances related to the recruitment of financial advisors,” the company said in its third-quarter report.

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