UBS provided an update on progress in transforming the firm and announced the firm's medium-term Group and divisional objectives at its Investor Day Tuesday.
UBS Group Chief Executive Officer, Oswald J. Grübel, said: 'Our strategy represents an evolution in terms of our business portfolio but a revolution in terms of the way we will operate. UBS has great businesses and distinctive strengths that we will build on. We combine the world's leading wealth management firm and the number one full-service bank in Switzerland with a global investment bank and a global asset manager. We have made tremendous progress in increasing our capital and positioning the Group for renewed growth, but work remains to be done'.
UBS intends to be the leading client-focused global bank. It will strengthen its position as the number one bank for high net worth (HNW) and ultra high net worth (UHNW) private clients and remain the number one bank in Switzerland. In addition, it will be a top-tier bank in every growth region, the leading client-focused investment bank and economically profitable in every segment, market and business in which it operates.
'We are building a new UBS: one that performs to the highest standards and behaves with integrity and honesty; one that distinguishes itself not only through the clarity and reliability of the advice and services it provides but in how it manages and executes. I am convinced that changing the way we engage and serve our clients will enable us to achieve the medium-term financial targets to which we are committing ourselves'. Grübel added.
The continuing transformation of UBS and the execution of the business strategies presented to investors will enable UBS to meet specific goals over the medium term (3-5 years). UBS aims to achieve: approximately $14.9bn of annual profit before tax; a cost-to-income ratio of 65-70%; and a return-on-equity of 15-20%. The objectives will be subject to market movements and regulatory changes.
'The transformation we are undertaking is a fundamental one and it will not happen quickly. I am determined, however, that we build a firm for sustainable profit and not one to focus only on short-term expectations', Grübel said.
Wealth Management & Swiss Bank
Wealth Management: UBS remains the world's leading wealth management firm with number one market positions in Europe, Switzerland, Asia Pacific and certain other emerging markets. Wealth Management has a strong global footprint - it's represented in 44 countries and has booking centers in 18, along with a highly attractive client base, notably the largest UHNW and HNW franchises globally. It also has broad product capabilities due to its partnership with other UBS divisions.
To meet its medium-term targets, wealth management has launched initiatives to address margin decline, transform the offshore business, accelerate investment in selected onshore markets, expand the firm's already leading UHNW franchise and realize the benefits of delivering a genuinely integrated product offering.
The higher revenues and gross margins outlined in the medium-term targets of the business are to be achieved by reversing client outflows, improving investment performance and the quality of advice, maintaining its position as an industry cost leader and delivering the integrated firm to clients in a structured and consistent manner.
Outflows are affected by a number of factors including tax amnesties, deleveraging, diversification, consumption, reputation and client adviser attrition. As UBS transitions from financial stability to financial success, clients will regain confidence in the firm, leading to a reversal of the outflows.
External observers have tended to over-estimate the potentially negative impact of European tax amnesties on invested assets. In fact, of $431bn of total European invested assets, approximately one quarter represents cross-border private client assets in countries neighboring Switzerland and in the UK. UBS already has a strong onshore presence in these markets, which should enable the firm to retain repatriated funds. UBS also expects that invested asset losses in traditional European markets will be offset by inflows from emerging markets.
Swiss Bank: UBS remains the dominant financial services business in Switzerland, and business volumes have stabilized. Based on year-to-date results through 30 September 2009, business volumes are equal to 2008 in Swiss Bank's retail segment (measured as client assets and mortgages) and exceed 2007 levels in its corporate segment (measured as client assets and loans).
Despite its overall leading position, UBS can improve its penetration of the Swiss market. For example, an increase in the number of products used by each client represents a material growth opportunity for retail and corporate, making integration across all of UBS's products and businesses in Switzerland the top priority of the leadership team in charge of all activities in the bank's home market. In the retail segment, students, young professionals, families and pre-retirees will be a special focus. Swiss Bank will distribute its lifecycle products in a systematic and convenient manner.
The recovery of the Investment Bank is evident. It has taken significant steps to stabilize its business and has hired new talent to execute its strategy. The cash equities, equity capital markets and FX businesses each retain top three global franchises.
The Investment Bank's strategy is to implement an integrated, flow- and advisory-based, client-centric business model.
The rebuilding of the Fixed Income, Currencies and Commodities (FICC) business is central to the continuing recovery of the Investment Bank. The FICC business aims to generate medium-term quarterly revenues of more than $1.98bn on a normalized basis, reflecting substantially increased contributions from foreign exchange and money market, rates and emerging markets, and a modestly increased contribution from the credit business. Efforts to reach this target include enhancing the control and infrastructure framework, hiring experienced professionals to drive change, increasing inventory velocity, rebuilding distribution capabilities, returning clients to the heart of the business and improving results.
In the Equities business, the existing derivatives, exchange-traded derivatives and prime brokerage offerings will grow through an enhanced intermediaries platform, a still greater focus on balance sheet efficiency and expanded product offerings for clients. Equities is targeting medium-term normalized quarterly revenues of greater than $1.74bn.
The Investment Banking Department (IBD) aims to generate quarterly revenues of more than $0.99bn. IBD will lead UBS's corporate marketing and expand its offering of cross-product advisory solutions. The business intends to better leverage senior IBD relationships across UBS and increase cross-product awareness and education.
Global Asset Management
Monetizing improved investment performance across asset classes is a key element of the Global Asset Management strategy. At the end of Q3 2009, eight of the businesses' 13 key strategies had returned above-benchmark performance in each of the preceding one-, three- and five-year periods. This performance, combined with diversification of the business across geographies, capabilities and distribution channels in recent years, will provide the basis for future growth. Third-party institutional and wholesale distribution will be expanded; cooperation with UBS's wealth management business increased; and UBS's existing strong positions in emerging markets - in particular, China, Korea and the Middle East - leveraged, to help the division meet its medium-term objectives.
Global Asset Management expects net new money to be positive starting in 2010 and anticipates that the proportion of its business from third parties will increase in the medium term.
Wealth Management Americas
The recent appointment of Robert J. McCann, chairman and CEO Wealth Management Americas, emphasizes the importance of this division. Within the first two weeks of his appointment, McCann formed a renewal team focused on strategically re-engineering all aspects of the business. Improving the client experience and enhancing the ability of financial advisors (FAs) to address client needs in a challenging market environment are the objectives.
This business currently has a strong foundation with approximately $688bn of invested assets. Going forward Wealth Management Americas will position itself as an advice-led FA platform through improved FA productivity, a focus on the UHNW and HNW segments and disciplined management resulting in increased profitability.
UBS retains the strongest combination of investment banking and wealth management businesses in this fast-growing region. UBS also possesses the breadth and consistency of presence in the region essential for sustained success. Its heritage and excellent competitive position will help the Investment Bank meet its medium-term goals by extending its existing leadership position in equities, IBD and FX and by growing the FICC business. The Wealth Management business will expand in both established and select high-potential domestic markets. Growth rates in Global Asset Management will be maintained. UBS will continue to invest in this important region, which will assist all divisions in meeting their medium-term targets. Asia Pacific is already the firm's most integrated region, and UBS plans to deliver to clients an ever-more integrated firm in the future.
Capital and Risk
Value at Risk is forecast to progressively increase from current low levels as volumes increase in the Investment Bank's client-driven flow businesses. Risk-weighted assets are expected to increase from current levels ($209.2bn) to approximately $287.5bn as a result of both the revised Basel II framework and controlled risk taking in the Investment Bank. UBS will seek to further improve its leverage ratio to over 5% and reduce the level of FINMA adjusted assets used to calculate the ratio to about $793.2bn. Regulatory capital changes currently being considered are likely to require a restrictive dividend policy for some time to come.
'We will place our clients at the center of all our activities, focus on implementation and execution, not dilute shareholders, satisfy regulatory requirements and live the values of truth, clarity and performance that will shape our organization in the future. We are deeply and personally committed to making this new UBS happen', said Grübel.
Source - ubs.com