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Client Activity, UHNW Fueled a Strong Quarter For UBS

Pre-tax profits were up 79 percent to $1.3 billion year-over-year, with help from the wealth unit.

Strong first quarter earnings reported by UBS were supported by wealth management’s increased client activity and a continued focus on ultra high net worth clients.

The Swiss bank said Friday that pre-tax profit was up 79 percent year-over-year to about $1.3 billion. The investment banking unit was the biggest contributor to the percentage bump, with a 51 percent year-over-year increase in net profit before tax to $564 million. Yet, the bank’s wealth management unit also contributed significant growth.

Global wealth management profits before tax were up 19 percent from the prior year quarter to approximately $1.1 billion, driven by client activity and a number of businesses within it.

UBS estimates it has the largest ultra high net worth business of any bank in the world, and that business continues to grow. Since the beginning of 2013, UHNW clients have contributed to roughly 70 percent of global wealth management's growth in pre-tax profits. The cost to income ratio for the bank’s UHNW business is also 69 percent — substantially lower than the 75 percent for the unit as a whole.

The unit’s two organizations within it, Wealth Management and Wealth Management Americas, each had their own bright spots.

Wealth Management Americas logged a record first quarter profit of $327 million, which is typically worst performing quarter of the year. That's up 32 percent from the prior year quarter. 

During the earnings call, a number of analysts inquired about the Wealth Management Americas’ 84 percent cost-income ratio. The ratio, one analyst noted, was substantially higher than other business groups at UBS, as well as at competing firms.

CFO Kirt Gardner said there were two reasons for the relatively higher ratio: Wealth Management Americas has lower penetration of its banking products, and recruitment loans from after the financial crisis were coming of age.

He added that Morgan Stanley, Wells Fargo and Bank of America have a larger penetration of their products in their wealth management businesses, partly because UBS does not tend to be the primary bank of their U.S. clients. Increasing the penetration of their banking products is something UBS intends to focus on, Gardner said.

UBS has made a concerted effort to dial back recruitment spending and incentivize its advisors to stay with the brokerage for the remainder of their careers.

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