The mega-merger of UBS’ flagship wealth business was meant to enliven the Swiss bank’s shares. Instead, 18 months on, the move raises more questions than answers it provides.

Exactly 18 months after a wealth management and former Paine Webber brokerage merger, some investors are disappointed that UBS hasn't made more of its $2.3 trillion asset powerhouse. The unit delivered just shy of half the bank’s total pre-tax profit last year when stripping out spending that the four divisions share.

The Swiss bank’s stock has languished against all-time highs in the wider Swiss market. Analysts are stepping up their questions over UBS’ wealth strategy as a result.

Optimize Returns

The unit is now co-led by UBS «lifer» Tom Naratil, most recently the bank's finance chief, and by Martin Blessing, the former boss of troubled Commerzbank.

«Is this the right business model to optimize returns, and could the profitability potential of the group decline further from here?,» a team of Barclays analysts led by Amit Goel asked in May. To be sure, the private bank is a reliable contributor to profits ($863 million in the first quarter– a highly efficient Swiss wealth unit helps).

«No Plan»

However, its 80.5 percent cost-income ratio in 2018 highlights its unwieldiness (Naratil and Blessing’s goal is under 75 percent). Meanwhile, several managing directors – including chief lawyer Maria Leistner; Swiss wealth planning head Andreas Raquet; and Oliver Banz, the right-hand to super-rich head Joe Stadler for less than two years – have left or said they are leaving. All three didn’t comment to finews.asia.

Inside the unit, bankers are venting their frustration over what they perceive as a lack of strategy. «There is no plan except cost-cutting,» one recently-departed senior executive said. «There is a real sense of drift,» according to another. A UBS banker acknowledged the importance of spending cuts, but highlighted investments to better win ultra-rich clients, and expand in Asia and Latin America, for example. UBS didn't comment.

U.S. Wealthy Efforts

UBS said in April it wants to add another $300 million in spending cuts, to a $600 million goal disclosed last year. It also said it wants to push more initiatives with the wealthy, like families, ultra-rich (those with at least $50 million), and American expats. Since the merger in January last year, new initiatives have slowly been introduced.

For example, the Swiss bank will launch a U.S. capital markets team for the super-rich push under investment banker Reinhardt Olsen in the third quarter. UBS is getting more specific with America's ultra-wealthy: instead of lumping everyone with $10 million and more into one group, UBS launched a family office solutions team of roughly two dozen people, aiming for $100 million-and-up clients.

Sergio Who?

However, fusing a gung-ho U.S. culture brokerage culture with the more genteel old-world approach honed in Switzerland has proven one of UBS’ biggest challenges. The U.S., a far leaner operation which is very transaction-focused, has emerged as the heavyweight from the merger – by assets, by people, and by leadership.

The U.S. brokerage has always marched with little interference from Zurich: When a close adviser to UBS CEO Sergio Ermotti was walked through the Swiss bank’s Manhattan offices, one senior wealth executive responded to their introduction by asking simply, «Sergio who?». The two-year-old episode conveys the minor role the Swiss headquarter plays in the New York-based brokerage's goings-on. 

Heavyweight vs Novice

Naratil dominates the co-head structure leading the wealth unit: a 36-year veteran of UBS and Paine Webber, he knows the Swiss bank inside and out. Blessing, with a background largely in corporate banking and in Germany who joined less than three years ago, is a wealth management novice in comparison.

A key pillar of the duo’s strategy is to better target the ultra-rich. Stadler, the former investment banker who emerged as a major winner from the merger, had to fight bitterly to carve out the ultra-high net worth unit, as finews.asia reported last year.

Huge Potential

Eighteen months on, he hasn’t yet been able to tap into the U.S. market’s huge potential, one person familiar with the matter said. North America is home to 750 billionaires who control $3.1 trillion – and growing, according to a study last month by data firm Wealth-X.

In the U.S., the Swiss bank hasn’t yet built up the more sophisticated products and services needed to attract America’s ultra-rich.

U.S. Banker-Driven

The Americas has also taken a weighty role in unit management: high-profile American banker Paula Polito nabbed the global role for UBS’ client strategy. Several people question whether Polito, who spent the entirety of her career in the U.S., is the right person to parse strategy for, say, ultra-wealthy Asians or Middle East clans.

A person familiar with Polito's team says she has drawn expertise from Asia, Europe, and elsewhere in order to reflect markets outside the U.S.

Growing up in Wealth Management

Ironically, the wealth unit had very few private bankers on its top management until it added Amy Lo and August Hatecke this year. The duo advanced when they took over the unit’s management in Asia in January.

One level higher, Naratil is the only C-suite executive who grew up in wealth management. Asian head Edmund Koh is a more recent convert, and Blessing dabbled in German private client business early in his career at Dresdner, then later at Commerzbank.

Questions of Culture, Leadership

At board level, macroeconomists like former Bundesbanker Axel Weber and Beatrice Weder di Mauro outrank bankers. The arrival of former DBS banker Jeannette Wong last month helps even the score.

Even detractors concede the bank has «great people,» an excellent brand, and a smart strategy. It is legitimate to ask how much weight UBS truly wants to through behind wealth management and whether its investment bank is the right size and set-up to serve it. It also inevitably leads to uncomfortable questions over UBS’ strategy, culture, and leadership for Weber and Ermotti.

Sergio Ermotti Begged

UBS is obviously frustrated too: Chairman Weber devoted considerable airtime to appeasing shareholders at last month’s annual meeting. Weber highlighted that investors were being paid out 76 percent of the wealth manager’s annual profit, while Ermotti begged for patience on the «bumpy» ride, like a high-stakes French criminal trial. It hasn’t been enough: the stock price recently tumbled to a seven-year low of 11.60 Swiss francs.