Apr. 14, 2010
On Wednesday the shareholders and the board of UBS have held their yearly General Meeting in Basel, Switzerland. It has become a ritual at such UBS events that vocal shareholder groups bash management and board, often, but not always, with good reason. The battles fought were mostly over past decisions and past performance. Should the shareholders discharge the board and the executive management for what happened in the years 2007 to 2009 (which would make it more difficult to bring civil law suits against them)? Does the salary and bonus policy of 2009 withstand scrutiny? In the end, shareholders did not discharge the board and management for the year 2007, showing their disapproval for Marcel Ospel and Peter Wuffli, the former chairman of the board and CEO, respectively. These were important questions to settle – but the more important challenge for UBS is its future strategy.
There can be no doubt that UBS CEO Oswald Grübel has started to clean house thoroughly at UBS. He cut 12’000 jobs, about 20% of the workforce. The balance sheet has shrunk dramatically. Risky assets have been sold off. Potentially lethal law suits have been stopped. The net-outflow of assets under management has come almost to a halt in the last quarter. The bank has become profitable again, earning about SFR 2.5 bn in Q1 of 2010.
By assets under management UBS is today still the largest wealth manager in Europe and number two globally (after the combined BofA/Merrill). Its competitors, mainly in Switzerland but also outside, have feasted on clients fleeing UBS during the financial crisis. Especially state-run banks like the “Kantonalbanken” and smaller private banks have profited from UBS’ weakness. But the fear of a bank run is history and UBS is ready to stage a comeback, hunting for lost clients.
As our analysis of client sentiment shows, ex-UBS clients’ satisfaction levels with their new banks has not been entirely positive. Private banks and state-run banks may have offered stability and security to panicking clients who were ready to believe that Armageddon was near. However, there was often a lack of global market know-how and investment strategies were extremely risk averse, focusing solely on cash and government bonds. A survey done by MyPrivateBanking at the height of the financial panic showed that the middle-sized private banks in particular were advising clients to avoid stocks at all costs. The price many clients have paid has been extremely high as most of them could not take advantage of the upswing in the markets since spring 2009 and therefore did not recover their losses.
In this situation, UBS and other global wealth managers with long and deep experience of worldwide equity markets together with their tremendous sales power are ready to hit back and win over their former customers. Small and mid-sized banks and wealth managers that only have a local presence, in Switzerland will come under pressure as the Swiss offshore banking model is crumbling and foreign clients prefer to have their money managed in their home countries. Thus, players with large global onshore networks will have an advantage in the competition for high and ultra high networth individuals.
Banking clients should take advantage of this situation of increasing competition. Local players and global players offer different advantages. It is, for example, advisable, to split one’s wealth among a number of banks, including both global and local players. Wealth managers are also willing to re-negotiate fees and costs to win over new or gain back former clients. Overall, it is good news for clients that UBS (and other global banks) are back – it means more choice, broader product offers and more intense competition.