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UBS Wealth Unit Sees Earnings Dip

With activity down and clients more risk-averse, UBS posts slower third quarter

UBS suffered a slight quarterly setback in its U.S. wealth management unit's profitability amid exceptionally low client activity, but the divison saw year-over-year gains in its income and advisor headcount.

Overall, the Swiss bank posted a third-quarter net income of 577 million Swiss francs ($644 million), slightly beating analysts’ estimates. Operating income for the global firm remained fairly steady year-over-year, reporting an income of 6.26 billion Swiss francs ($6.97 billion) for the third quarter, down slightly from the 6.29 billion francs ($7 billion) reported a year ago.

The bank also revealed that Swiss regulator FINMA ordered the firm to stock up on extra capital to maintain ratios. UBS CEO Sergio Ermotti says the development means that UBS now may not hit its return-equity-goal for 2015.

UBS Wealth Management Americas fared better, growing its profitability by 32 percent within the past year. The U.S. division reported $218 million in pre-tax operating profits for the third quarter, compared to $165 million a year ago, but down from the second quarter high of $245 million. Income from UBS Wealth Management Americas remained relatively flat quarter-to-quarter, but grew 12 percent from $1.57 billion last year to $1.75 billion in the third quarter.

The lower third quarter performance can, in part, be attributed to client’s “very low” risk appetite amid a challenging investment environment, Ermotti said during Tuesday’s earnings call. Clients instad focused their attention on capital preservation and increasing their taste for risk was going to take time, he added.

The Swiss bank also noted that credit loss expenses related to Puerto Rico municipal market, as well as legal and regulatory costs contributed to the unit’s lackluster third quarter. UBS reported a $20 million trading loss and a $21 million credit loss related to Puerto Rican municipal securities.

Within the U.S. wealth management unit, UBS increased its advisor force slightly from last quarter, adding 38 advisors by the end of the third quarter—bringing the total headcount to 7,137.

The unit also reported net new money decreased slightly from $2.8 in the second quarter to $2.1 billion in the third quarter of 2013. A year ago, the unit reported net new money levels at $4.8 billion. On a better note, U.S. client assets were up, with the unit reporting $969 billion this quarter, compared to the $875 billion reported last year at this time. 

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