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==Competition== ==Competition==
-[[Image:Global_m&a_rankings_first_half_2010.jpg|thumb|right|400px|Global M&A market share for the first 7 months of 2010<ref name = M&A2010>[ The Wall Street Journal "Barclays Makes a Splash in Financing" 7/29/10]</ref>]] 
As a leading wealth and asset manager, UBS competes with other firms that offer wealth management services, such as [[Credit Suisse Group (CS)]], [[HSBC Holdings (HBC)]], [[Citigroup (C)]], [[Deutsche Bank AG (DB)]], and others. Additionally, UBS shares the wealth management market with numerous local and regional firms that don't compete globally. As a leading wealth and asset manager, UBS competes with other firms that offer wealth management services, such as [[Credit Suisse Group (CS)]], [[HSBC Holdings (HBC)]], [[Citigroup (C)]], [[Deutsche Bank AG (DB)]], and others. Additionally, UBS shares the wealth management market with numerous local and regional firms that don't compete globally.

Revision as of 13:01, April 28, 2011

UBS AG (NYSE:UBS) is a leading global financial services firm and the second largest wealth manager in the world behind Bank of America (BAC) in terms of assets under management with $1,393 billion.[1] It offers wealthy individuals investment management and financial planning services, as well as advises large corporations on mergers and acquisitions and helps them to raise capital through debt and equity offerings.

UBS has written-off more than $65b since the mortgage-backed securities market collapsed in 2007.[2][3] Before the crisis, more than 90% of UBS' profit was generated from wealth management and investment banking. Today, both divisions still require 90% of their resources, but investment banking contributed 2/3 of its profit losses and wealth management contributed only 25% of profits. The economic crisis has prompted UBS to restructure its wealth management divisions to focus on increasing its presence in emerging markets and exit its riskiest ventures in investment banking.

Swiss banking and privacy laws create a tax haven for many tax evaders, but these same privacy laws are a competitive advantage for UBS against its foreign competitors. UBS is currently under investigation regarding its role in tax evasion and money laundering. As a result, it has had to pay out millions in settlement fees, close doors to many of its affluent foreign customers, as well as disclose its clients' names, which has damaged its privacy reputation. Despite this, UBS has established offices throughout Asia and other high-growth regions to capture the business of the rapidly increasing number of wealthy people, positioning itself to benefit from these regions’ explosive growth.[4]

Business Overview

Business Segments

Wealth Management & Swiss Bank (54.7% of 2010 Pre-Tax Income)

This division serves wealthy individuals with private banking and asset management services. Starting 2010, external reporting of Wealth Management & Swiss Bank was revised to better reflect management structure and responsibilities, and was split into two business units: Wealth Management and Retail & Corporate. The Investment Products and Services (IPS) unit was created to provide comprehensive service to Wealth Management clients with complex needs using the capabilities and expertise of the entire firm.

In 2010, the division reported a pre-tax income of CHF 4,080 million, a 4.3% increase over CHF 3,910 million in 2009.

Wealth Management - In 2010, pre-tax profit increased 1% to CHF 2,308 million from CHF 2,280 million in 2009, mainly due to a 3% decrease in operating expenses. During 2010, net new money outflows declined to CHF 12.1 billion from CHF 87.1 billion in 2009. International wealth management net new money outflows declined significantly to CHF 12.9 billion from CHF 79.9 billion. While Europe saw ongoing net outflows, net inflows were recorded in the Asia Pacific region as well as globally from ultra high net worth clients. Swiss wealth management reported net inflows of CHF 0.8 billion in 2010 compared with CHF 7.2 billion net outflows the year before.

Retail & Corporate – In 2010, pre-tax profit increased 9% to CHF 1,772 million compared with CHF 1,629 million in 2009, mainly due to a decrease in operating expenses. Total operating income in 2010 was CHF 3,870 million, down 1% from CHF 3,918 million a year earlier. Operating expenses declined 8% to CHF 2,098 million from CHF 2,289 million as a result of cost cutting measures initiated in 2009.

Wealth Management Americas (Loss of CHF 130 Million)

This segment serves high net worth individuals and families through its U.S., Canadian, and Brazilian offices. On April 29, 2010, the bank agreed to purchase Brazilian brokerage Link Investimentos for $112 million in a move to expand its wealth and asset management business in the Brazilian region.[5] UBS plans to re-establish its presence in Brazil through the purchase with the creation of UBS Brasil Banco de Investimentos.

In 2010, the division reported a pre-tax loss of CHF 130 million in 2010 compared with a pre-tax profit of CHF 32 million in 2009, due to higher litigation provisions. Operating income of CHF 5,564 million was essentially flat compared with CHF 5,550 million in 2009, but increased 4% in US dollar terms.

Global Asset Management (6.9% of 2010 Pre-Tax Income)

This segment manages investments for individual, institutional, and corporate clients across the world. The types of investments covered by this division include equities, fixed income, alternative assets, like hedge funds, and real estate investments.

In 2010, the division reported a pre-tax profit of CHF 516 million compared with CHF 438 million in 2009. Excluding a net goodwill impairment charge of CHF 191 million related to the sale of UBS Pactual in 2009, the pre-tax profit for 2010 would have decreased by CHF 113 million compared with 2009. Net new money inflows were CHF 1.8 billion in 2010 compared with net outflows of CHF 45.8 billion in 2009. Net inflows from third parties were CHF 18.2 billion in 2010 compared with net outflows of CHF 5.1 billion in 2009. Net outflows from clients of our wealth management businesses were CHF 16.4 billion in 2010 compared with net outflows of CHF 40.7 billion in 2009.

Investment Banking (29.5% of 2010 Pre-Tax Income)

This segment provides securities research, debt and equity underwriting, and mergers and acquisitions (M&A) advisory services, to corporate, institutional, and alternative asset management clients.

In 2010, the division reported a pre-tax profit of CHF 2,197 million compared with a pre-tax loss of CHF 6,081 million in 2009, primarily as a result of increased revenues in fixed income, currency and commodities, a significant reduction in net credit loss expenses and lower own credit losses. Investment banking revenues were CHF 2,414 million in 2010, marginally down from CHF 2,466 million in the previous year. Revenues in equities were CHF 4,469 million, down 9% from CHF 4,937 million in 2009. Revenues in the fixed income, currencies and commodities business were positive CHF 5,675 million in 2010 compared with negative CHF 547 million in 2009, when the business was materially affected by losses on residual risk positions.

Treasury Activities and other Corporate Items (10.6% of 2010 Pre-tax Profit)

The Corporate Center allocates operating expenses to the business divisions according to service consumption. In 2010, the Corporate Center had a cost base excluding variable compensation of just below CHF 7.5 billion. The Corporate Center has improved Group-wide cost management, and has implemented simple service delivery models with clear responsibilities. At the end of 2010, across all shared services functions, the Corporate Center had approximately 19,400 employees.

Trends and Forces

Impact of Basel III Rules on Big Banks

The Basel Committee on Banking Supervision announced new regulations which ultimately will force banks to have 10.5% of total capital on hand against liabilities. The new rules are likely to affect the credit industry by imposing stricter discipline on credit cards, mortgages and other loans. Requiring banks to hold more capital on hand will limit the amount of money they can lend out, but also reduce the risk of insolvency given many loan defaults.

Under the new regulations, the mandatory Tier 1 capital reserve would rise from 4 percent to 4.5 percent by 2013 and reach 6 percent in 2019. Banks would also be required to keep an emergency reserve, or "conservation buffer," of 2.5 percent. Ultimately, the amount of rock-solid reserves each bank is expected to have will amount to 8.5 percent of assets. Also, the rules eliminate the ability to count deferred tax assets, some mortgage servicing rights and trust preferred securities as assets.

The potential impact of the regulations on US banks is rather limited because as of September 2010, 61 of 62 US banks with assets of more than $10 billion meet the requirements, therefore, banks such as Morgan Stanley, Goldman Sachs Group (GS), J P Morgan Chase (JPM), and Citigroup (C) will not see their businesses change with the passing of these rules.

Some major European banks, specifically Switzerland's two largest UBS and Credit Suisse, may face additional requirements because of the their immense to the Swiss economy and the possible harm a collapse would pose to the country.

The rules must still be presented to the leaders of the Group of 20 rich and developing nations at a meeting in November 2010 before they can be ratified by national governments, but the general consensus is that these rules will pass.[6]

Passing European Stress Test Test Creates Positive Sentiment for Banks

On July 7, 2010, the Committee of European Bank Supervisors (CEBS) outlined a stress test that simulated the impact of a severe economic shock on 91 banks in the euro zone, Great Britain, Sweden and Denmark. European banks were given stress templates on July 6 and delivered their answers on July 15. The stress tests outlined scenarios which simulated the banks undergoing a recession and a decline in the value of the government bond holdings.

On July 22, 2010, the results of the stress test were released in which 84 of the 91 banks passed the test, including UBS. No systematically important bank failed. Positive and sentiment and optimism should stem from the positive results of the stress tests, creating greater consumer and investor confidence in these banks. Such optimism would lower risk premiums on european government and corporate bonds as well as increase european bank stock prices.[7]

Refocus on core businesses

Since 2000, UBS' business plan has focused primarily on investment banking and wealth management. Investment banking contributed 40% of profits and wealth management contributed more than 50% of profits.[8] This profit contribution was more than 8x more than the standard investment division's profits. UBS' aggressive investments has backfired since the asset backed securities market crashed and the 2007 Credit Crunch. It is believed that they invested up to $100 billion into those securities.[8] In 2008, UBS restructured its divisions in the hopes of focusing on its most profitable businesses and reducing its presence in risky areas.[9] It separated its wealth management divisions to focus on driving growth for its Swiss Bank and increasing its presence in emergins markets, such as Brazil and China. These divisions contributed 26% of pre-tax profit. UBS has gained a strong investment banking reputation through acquisitions of boutique investment banks, but its strategy might have been too aggressive so it has been actively been trying to reduce its risk positions. Business activities for the investment banking division have been abnormally low due to the global recession, and in the first half of 2009, investment banking accounted for 64% of UBS' pre-tax profit losses. On April 20, 2010, UBS agreed to sell its Brazilian business back to its original owners for about $2.5 billion, boosting its capital despite a small loss, and potentially reducing the need for a capital hike. The sale is one of the biggest indication of foreign banks moving out of the Brazilian economy due to financial problems in their home countries. UBS struggles to return to profitability and rebuild its brand after substantial investments made in U.S. risky assets forced it to write down billions and accept government support.[10]

U.S. tax evasion lawsuits and pressure on Swiss bank secrecy laws

Pressure from the United States and the European Union to crack down on tax evasion and money laundering could damage Switzerland’s famous reputation for banking privacy. As a Swiss bank, UBS offers clients from around the world the privacy and discretion for which the country is renowned. For UBS, this represents a threat to the competitive edge that the allure of these privacy laws gives it over non-Swiss competitors. UBS has taken measures to maintain its reputation for confidentiality, establishing operations in Singapore following the passage of laws there providing account holders with greater privacy.[11] In July 2009, UBS and the United States IRS agreed to settle a would-be long running tax evasion lawsuit.[12] UBS is expected to disclose between 3,000 to 10,000 American account-holders suspected of using offshore accounts to avoid taxes.[13] In total, the US believes that close to $18b is being hidden in UBS by wealthy US clients.[14] This settlement could be bittersweet for UBS. It is avoiding a long and costly lawsuit for the US Government, but will most likely face a lawsuit with the Swiss government for breaching Swiss banking privacy laws for disclosing account holders' names. This lawsuit comes on the heels of the $780 million February 2009 settlement with the US Government in a similar dispute[13]

Emerging economies provide strong growth

With a well-established presence in the highly developed European and North American markets, UBS has made moves to expand into higher-growth regions such as Asia, the Middle East, and Brazil. Many of these economies have been growing very rapidly, leading to an increased number of wealthy people who need financial advisory and wealth management services. UBS has recognized this growing demand and established offices in these regions to capture the business of the rising number of affluent individuals. On July 9, 2008, UBS announced that it had received a permit to establish operations in Saudi Arabia, giving it access to the billions of "petrodollars" flowing into the country each year.[15] In this way, UBS hopes to expand its existing customer base and position itself for strong growth in the future.

Low interest rates benefit UBS

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U.S. interest rate trends over time

Interest rates can be thought of as the cost of borrowing money. As interest rates increase, businesses are less likely to issue debt or equity given that the price of borrowing has increased. UBS benefited from low interest rates because of its high level of mergers and acquisitions, underwriting, and IPO activity since 2004. However, the 2007 Credit Crunch and recent economic downturn has significantly hindered those activities. In response to worsening conditions in global credit markets, central banks across the globe have been slashing interest rates to entice banks to lend money and to stimulate those business activities that UBS benefited from. The U.S. Federal Reserve cut its target federal funds rate from 2% in July 2008 to 0.25% in July 2009, and the Bank of England cut its rates from 5% in July 2008 to 0.5% in July 2009.[16][17]

Changes in Corporate Tax Law Helps Investment Banking Fees

Rising corporate income tax rates directly increase costs for taxes paid to the government, which decreases the amount of profits left for banks to fund investments and reinvest in operations. However, changes in tax law can also benefit banks. Newly proposed fiscal legislative reform for 2011, which will effectively increase the capital gains tax paid by private equity firms and other money managers from 15% to between 20% and 30%. This tax increase creates incentives for such firms to exit their profitable positions and move to launch initial public offerings (IPO) before the change in tax law takes effect in 2011. This is increase in IPO activity directly translates into an increase in fee for investment banks handling the private equity IPO deals.[18]

Fed Proposes New Legislation to Prevent Money Laundering

The U.S. Treasury has proposed a rule requiring U.S. banks to report all electronic transfers of funds in and out of the country. Previously, banks were required to report only fund transfers in excess of $3,000 and cash transfers over $10,000. The new rule would not apply to credit card and ATM transactions. The rule is an attempt by U.S. government officials to crack down on money laundering. Several global banks have lately had issues with money laundering probes. Barclays and Wachovia, now part of Wells Fargo (WFC) have agreed to large settlements in 2010. UBS has suffered a substantial $780 million fine due to such issues.[19]


As a leading wealth and asset manager, UBS competes with other firms that offer wealth management services, such as Credit Suisse Group (CS), HSBC Holdings (HBC), Citigroup (C), Deutsche Bank AG (DB), and others. Additionally, UBS shares the wealth management market with numerous local and regional firms that don't compete globally.

As an investment bank, UBS competes with other leading firms in the industry, including Goldman Sachs Group (GS), Merrill Lynch (MER), Morgan Stanley (MS), and Deutsche Bank AG (DB), and Citigroup (C). Investment banking is a relatively new area for UBS, which started out as an asset manager. Nonetheless, the firm has risen to prominence in the industry, holding a 7% market share of the mergers and acquisitions (M&A) advisory market.

Of UBS's competitors, Credit Suisse Group (CS) is the most comparable. As a fellow Swiss firm, Credit Suisse enjoys the same benefits that Swiss banking privacy laws afford UBS and is also a leading wealth manager across the globe. Credit Suisse participates in the investment banking industry as well. [20]


  1. Bank of America Topples UBS as World Wealth Manager, CNBC July 6, 2009
  2. Business Week, "Subprimes force UBS to write down $10b"
  3. Bloomberg, "UBS Has SF20.9 Billion Loss, ‘Cautious’ on Outlook," Elena Logutenkova, 03/11/2009
  4. Janus opens Singapore office to tap Southeast Asia | Funds | News | Reuters
  5. Reuters "UBS Agrees to buy Brazilian Brokerage" 4/29/10
  6. The Huffington Post "Basel III Rules: Banks Given Until 2019 To Fully Comply With New Global Regulations" 9/13/10
  7. The New York Times "European Bank Stress Tests Worked: Sort Of" 7/30/10
  8. 8.0 8.1 The Globe and Mail, "Too big to fail, a Swiss icon swings back to life," Eric Reguly, 08/21/2009
  9. Reuters, "Key details of UBS restructuring plans," 08/12/2008
  10. Reuters "UBS to sell Brazil unit Pactual for $2.5 billion" 4/20/10
  11. Global Economy - Speaking Freely: A Tale of Two Cities – Asia Times Online
  12. Reuters, "UBS, U.S. settle tax evasion case," Jonathan Stempel, 08/12/2009
  13. 13.0 13.1 Forbes, "UBS/TAX (UPDATE 4):UBS, U.S. settle tax evasion case," Pascal Fletcher and Jim Loney, 08/12/2009
  14. Times Online, "US claims UBS 'colluded' behind secrecy laws," Miles Costello and Agencies, 07/17/2009
  15. UBS Announces Middle East Expansion - Seeking Alpha
  16., US Rates and Funds
  17., UK Rates and Bonds
  18. Huliq "US tax law changes in 2011 increase private equity deals" 18 Jan 2010
  19. The Street "Feds Push Banks on Money Laundering" 9/27/10
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