UBS - restructure in 6th innings, further cost cuts ahead

Pair Of Scissors

Where is this top firm in its cost cutting efforts ?

Fox Business anchor Maria Bartiromo interviewed UBS Chairman Axel Weber last week. 

Here are some of the interview highlights:

BARTIROMO : But let me turn to UBS for a moment. Of course, you made the decision, and your colleagues at UBS, to emphasize wealth management and deemphasize things like trading or certainly fixed income trading, uh, and deemphasize a little on the investment bank. I - I recognize that you've got a very vibrant investment bank still.

But - but let me ask you about that. Is $2.5 trillion AUM overall at UBS, that's -- that's the right number, correct?

WEBER: Right.

BARTIROMO: $2.5 trillion.

WEBER: If you look at all the asset gathering business.

BARTIROMO: With all the asset gathering, exactly.

So what has happened as a result of this change that you've made?

What are you seeing from your clients today in an environment where we have real disruption in the stock market?

WEBER: Right. So clients are, again, gaining confidence in UBS. We're seeing that in the net new money figures. Last year, we had about $58 billion net new money. That's actually more than some of our competitors, number two, three and four together.

So UBS is growing strongly, again, back to its (INAUDIBLE) position it had on wealth management.

We're the largest wealth manager, as you manage globally already, and we do get credit by many investor relations and by investors and by clients that we're actually doing a good job on it.

So UBS's core, 50 percent of our profitability, will come out of wealth management globally.

Only 30 to 40 - 30 - 20 to 30 percent is roughly retail and corporate business. And the investment bank will contribute around 20 percent to the overall profitability. That shows you that the bank has made a big change from actually allocating 60 percent of its capital to the investment bank to now, actually, only 20 to 30 percent. And we are putting at the core of what UBS is known for and is good at, namely wealth management globally.

And we're the strongest bank in Switzerland, so my understanding always has been you cannot be a good and strong international bank if you're not a dominant player and a good player in the whole market.

And so for us, the - the duality of being a global wealth management franchise and market leader in Switzerland, supported by an asset management business globally and supported by an investment bank is the right business mix that we want to pursue. And it's paying off.

All of our businesses, in each division, has been profitable in every quarter last year and the investment bank had a return on equity that was around 31 percent last year.

So we did really well in a different set of market environments over the last year, which shows the robustness of our new business model in the investment bank. And very few other banks have a -- a similar robustness to show for in the last difficult year.

BARTIROMO: You're absolutely right. And a number of banks are following suit and emphasizing wealth management and trying to become, as one analyst said to me earlier, trying to pull a UBS, uh, trying to do what you're - what you're trying to do.

How do you get margins up in wealth management?

WEBER: Well, so one thing we need to understand is that as the banking business in general will be less profitable, one way to get profitability up is to actually be pretty stringent on cost cutting. So we need to get costs under control. And while it's basically moving business out and focusing on what you're good at and competing where you can actually be among the top three players, it is getting control of the cost.

And that takes a variety of, uh, as I mentioned, it basically means back office jobs need to be aligned with front office jobs. It means avoiding mistakes and avoiding penalties. It means changing the culture in the bank to a better culture. And it also means that we need to have, in particular, technology as an enabling factor in banks rather than looking at is as a cost factor only, because technology is going to be the key driver for successful banks in the future.

You've got to be on top of technology. It's a major risk if you're not. And we're putting technology and improving on technology at the core of our cost driving programs.

BARTIROMO: Does that require big outlays, the technology?

You know, we've been talking about CAPEX a lot in terms of, uh, its impact on the economy.

Are you expecting to increase money toward CAPEX as a result of improving technology?

WEBER: It requires investment.

BARTIROMO: Yes.

WEBER: Yes, it clearly requires investment and, you know, in wealth management, since it's a people business, it also requires hiring people. We just hired 88 new advisers in the Asias. We're one of the market leaders globally, but in Asia, we're the undisputed market leader. And there, really, since it's a people business, you need technology and people. You need to focus on both.

BARTIROMO: Where are you in the cost cutting efforts?

I recognize you're - you're hiring in one area of the business, but in terms of the cost cuts, if you were in a baseball game, are we in the seventh inning, the ninth inning or the second inning?

WEBER: We're on track.

BARTIROMO: Yes.

WEBER: But I would say, you know, we're in the sixth inning. Uh, we still have further cost cuts ahead of us. We made some announcement of programs over the next two years and the transformation on the bank. So we're delivering on those, but only when we've actually moved to the end point of that.

If you look at where the costs are coming down, first of all, you need to downsize the front office jobs, so the trading jobs. It's only once you've done that, you can actually then start cutting on back office jobs. You cannot do it the other way around.

So what we're trying to do is exit from non-core and legacy portfolios, wind down some of these trading activities and then basically move to sustained, long-term cost cutting.

BARTIROMO: Understood.

WEBER: It's got to be that sequence.

BARTIROMO: Absolutely.

For the full Fox Business interview, please press here

 

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