UBS missed analyst expectations Friday when it reported its second-quarter earnings for 2017, but wealth management was a welcomed bright spot.
The bank’s shares fell 4.3 percent—the most on an intraday basis since January 27—after it reported a core equity Tier 1 ratio of 13.5 percent in the second quarter, down from 14.1 percent at the end of March, according to Bloomberg.
Meanwhile, the Wealth Management Americas unit reported strong performance during what a company statement dubbed its “best second quarter ever.”
Revenue from the unit that generates roughly one-third of the bank’s global wealth management profits grew. Total operating income increased 11 percent to a record $2.1 billion and led to a 17 percent year-over-year rise in adjusted pretax profit of $330 million. UBS said higher recurring net fee income, interest income and transaction-based income contributed to the growth.
Performance improved despite a net new money outflow of $6.4 billion, including $3.3 billion in tax-related money, which is typical of the second quarter.
UBS continued to deliver on a change in strategy announced last summer—to reduce the amount of money spent recruiting top-notch advisors to the brokerage. Instead, it made changes to its pay grid in an effort to keep top talent, and invested in technology and advisor-supporting services, which appears to be working.
The network of financial advisors also had record productivity in the second quarter. Annualized revenue per advisor increased by $55,000 from last quarter to an industry-leading, record $1.23 million.
Recruitment loans to advisors decreased 7 percent from the first quarter and are down 15 percent year over year to $2.8 billion. That expense is expected to plummet, too, as loan amortization costs accelerate through 2018, according to the second-quarter presentation. However, personnel costs were up 8 percent over last quarter due to “higher compensable revenues” and the revised pay grid.
Months after UBS announced it would stop paying outsized recruitment bonuses to attract brokers, other large traditional brokerages followed suit.