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Should UBS Sell UBS Americas?

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With the news that UBS (UBS) is trimming its recruiting efforts in the Americas and restructuring its field structure and compensation plans, an Aite Group analyst has said the unit could be put up for sale. But UBS insists this speculation is unfounded.

“UBS [Wealth Management Americas] is not for sale,” the company said in a statement on Tuesday. “Our wealth management franchise is at the core of our strategy, and we are uniquely positioned in the U.S. to succeed. Our WMA business makes up over half of the invested assets in the world’s largest and only truly global wealth manager. WMA continues to have the most productive advisor force in the industry in the largest market in the world.”

This weekend, the New York Post printed a story based on remarks made by Aite’s research director Alois Pirker, who previously worked for the Swiss bank.

“The story was a little overblown… you know the New York Post,” said Pirker during an interview Tuesday with ThinkAdvisor. “It came out of a casual conversation over a beer … but there’s always a chance they might sell it.”

As the analyst points out, “Very rarely will firms put [it] officially out there” that they are selling a business. “So, I would say the conversation does make sense: Should they own it or not?”

The gossip comes about two weeks after UBS said that it plans to raise pay for its top advisors, support retention and reduce advisor recruiting by 40%.

“Do you really want to own a retail brokerage in the U.S. or not? That’s the big question,” the analyst explained. “So far, they have stuck with the strategy, and over the past 15 years or so have showed a lot of staying power – including going through two [financial] crises.”

Five years ago, Pirker says, “I would have said the chance they would sell it was pretty high … I am surprised they still own it.”

Plenty of Pressures

Today, there is “no indication they will sell it,” he adds. However, there are certain trends affecting the industry – namely regulation – “that could make the possibility [of a sale] change.”

“Many international franchises have been selling [their U.S. wealth businesses],” Pirker said. “Deutsche Bank, Barclays and Credit Suisse have been pulling back from the U.S. for the past 12-18 months.”

It also comes as European banks struggle with negative interest rates, which have helped pummel their share prices. Year to date, UBS is down about 20%, while Deutsche Bank has fallen 31% and Credit Suisse by 40%. Plus, they face stringent capital requirements, other regulatory pressures and related strategic decisions, Pirker says.

“Rumors about UBS wanting to sell their U.S. wealth management unit have been out there for years, but what’s probably revived them now is the fact that the firm is scaling back its advisor recruiting efforts,” said New York-based executive search consultant Mark Elzweig in an interview. Adding to the chatter, he says, is the fact that Pirker “is one of the wealth management industry’s most respected commentators.”

“No matter how you spin it, it makes people wonder how serious they are about their retail business,” Elzweig said. “Wirehouses are constantly engaged is trying to attract and retain the most productive salesforce that they can get. It’s their lifeblood.

But UBS insists it has no plans to sell its America’s advisory group.

Earlier this year, Tom Naratil, who heads the unit and UBS’ other operations in the Americas, told The Wall Street Journal: “[The brokerage] has more value to UBS than to anyone else. You can’t sell your deferred tax assets. It makes no sense strategically and less sense financially for Wealth Management Americas to be sold.”

In the first quarter of 2016, the wealth group in the Americas had sales of close to 1.9 billion Swiss francs (about $2 billion), on par with its non-U.S. counterparts. In terms of pretax profits, though, the Americas-based unit brought in 211 million Swiss francs ($220 million), well below the 557 million Swiss francs ($580 million) of the global wealth operations.

Still, its 7,100 advisors in the Americas had average assets of $147 million as of March 31, and the level of average yearly fees and commissions per rep is now $1.064 million, which tops the average 12-month production levels reported by Merrill Lynch (BAC) of $983,000 and Morgan Stanley (MS) of $923,000. A year ago, UBS Group CEO Sergio Ermotti said on a conference call with equity analysts: “This business, with the most productive advisors in the industry, in the largest market in the world, and as part of the leading wealth management franchise globally, is critical to our strategy and to our growth prospects.” 

Plus, “… [A]lmost every dollar we earn in pretax profit across our businesses in the U.S. is available to distribute to shareholders, as we continue to utilize deferred tax assets. So it’s not hard to see why this strong business, with its strategic and financial importance, looks attractive to our competitors, but it’s worth even more to UBS and its shareholders and that’s why it’s not for sale.”

Strategically, however, things are not that simple, Pirker insists.

“UBS is a private bank internationally, not a brokerage,” the analyst said. “This is what UBS has had to come to terms with … over the past 15-16 years. With a lot of blood, sweat and tears, they’ve learned to see how different the business is.”

While leaders such as UBS Americas Chairman Bob McCann “have worked hard to make it a top-notch franchise and clearly succeeded, that does not make it a private bank,” Pirker says. “It’s a different model that they cannot talk away. The difference is quite big.”

Of course, maintaining a retail presence in the U.S. benefits UBS’ global brand. This aim, though, could be addressed by buying a private bank, like Northern Trust, should UBS chose to sell the advisor-focused business, he adds.  

“I’m not saying they will sell it [for sure], but there are reasons they could,” Pirker says, adding “there are [still] reasons to hold it. Unfortunately, the New York Post story was very one sided.”

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