UBS: U.S. Brokerage Not for Sale
UBS AG's top two executives reassured the company's U.S. brokers and advisers on Monday that the embattled Swiss banking giant has no plans to sell UBS Wealth Management Americas.
"Again: this business is not for sale," UBS Chairman Kasper Villiger and interim CEO Sergio Ermotti wrote in an internal memo. Ermotti was installed as CEO over the weekend after the sudden departure of group chief executive Oswald Gruebel, a strong backer of the U.S. business.
Villiger and Ermotti also affirmed their support for the Wealth Management Americas CEO Robert McCann, a former Merrill Lynch executive hired two years ago to lead the U.S. unit's turnaround.
"UBS is committed to further developing our franchise in this important wealth market under Bob's leadership," Villiger and Ermotti wrote. A successful U.S. wealth management business is "essential" to the bank's strategy, they said.
The rogue trading incident uncovered by the bank two weeks ago undermined two years of efforts by Gruebel, a former Credit Suisse executive, to staunch billions of dollars of trading losses that eroded confidence in the parent bank during the 2008 financial crisis.
In the U.S., the latest scandal is putting brokers once again on the defensive in fending off questions from wealthy clients. UBS employed almost 6,900 financial advisers at the end of the second quarter, less than half the total of industry leader Morgan Stanley <MS.N>.
Rick Peterson, a recruiter in Houston who seeks to hire out of UBS, said the sense of instability among the firm's advisers is growing.
"Every time you hear, 'UBS loses a pile of money' or 'UBS is in trouble with the U.S. government,' it means UBS is in trouble with their clients," he said.
SALE TALK
The trading loss and Gruebel's departure also has breathed new life into a long-standing rumor that UBS would divest or spin off its U.S. brokerage arm, which is not as profitable as the Swiss company's private banking businesses.
McCann's brokerage operation pays advisers a percentage of fees and commissions, which often results in higher payouts than the salaries and bonuses received by private bankers. A broker's clients also can be more loyal to a broker than to the parent bank, while private banking has the reverse dynamic.
UBS earlier this year was rumored to be talking about selling the U.S. brokerage to Wells Fargo & Co <WFC.N> big U.S. bank that has been expanding its brokerage arm. A few years ago, HSBC Holdings PLC <HSBA.L> was the purported suitor.
Wells, HSBC and UBS declined at the times to comment on the speculation.
Before he joined the firm, McCann himself was part of a group that approached Gruebel to buy the U.S. operation, and rumors of a management buyout has resurfaced recently. UBS said the rumor was "categorically untrue."
Research analyst Richard Bove of Rochdale Securities said UBS executives in Switzerland have good reason to hold onto the U.S. business as they struggle to build capital and restructure their investment bank.
"The U.S. brokerage is not capital intensive and it throws off cash," Bove said.
UBS executives on Monday, nevertheless, took pains to combat rumors within the bank that with Gruebel gone the emphasis should turn to private banking.
Robert Mulholland, the No. 2 executive at UBS Wealth Management Americas, reinforced Villiger and Ermotti's message in a conference call with regional and branch managers Monday morning.
"We are not for sale," he said, according to a UBS employee who listened to the call. "It was the board's decision not to sell, not just Ossie's."
The impact of Gruebel's departure, he added, is "in a word, nothing."
However, some advisers indicated that the latest scandal may be the last straw following a tax scandal in which UBS reached a $780 million settlement with the U.S. government over helping U.S. clients avoid paying almost $20 billion of taxes by setting up offshore accounts. The bank also agreed to turn over the name of 4,450 clients that U.S. officials suspect of tax evasion.
In the year before McCann arrived near the end of 2009, nearly a third of top advisers bolted and client assets plunged by about $119 billion. McCann had been reversing that trend prior to the latest trading scandal.
Now the tough conversations have returned.
"I had a client ask me, 'How can I trust you to manage my money, if you can't manage yours," said a veteran UBS broker, who asked not to be named. "There's a serious lack of confidence in the firm. There's constant surprises."
(Reporting by Joseph A. Giannone and Ashley Lau, Editing by Chelsea Emery, Jed Horowitz and Walden Siew)