Almost alone among banks – and particularly banks with a large exposure to the investment banking business – UBS had a good first quarter. Net profits of CHF 1,214 million might be 11 per cent on the same period a year ago, but most of the shrinkage was due to the slide in the value of the dollar against the Swiss Franc. Compared to the fourth quarter of last year, net profit was actually up 35 per cent. “UBS has again delivered robust results in a tough environment,” says Peter Wuffli, President of the Group Executive Board.
How did they do it? “We focused on protecting and enhancing returns for our shareholders,” explains Wuffli. “We pushed down our cost/income ratio to its lowest level since the middle of 2001, and delivered a higher return on equity than this time last year.” Costs are certainly under tight control. Operating expenses fell 20 per cent from the same quarter a year earlier, to their lowest level since the merger with PaineWebber. The decrease reflects sharp cuts in personnel and in general and administrative expenses, which were down 21 and 18 per cent respectively. Headcount declined by a further 666 people to 68,395 in the three months since the end of last year. Performance-related compensation also fell.
But even UBS cannot cut its way to prosperity. The real secret of success seems to lie in a traditional area: private banking at UBS is booming. Net new money in UBS’s wealth management businesses (Private Banking and UBS PaineWebber) for the quarter was CHF 11.1 billion. In the European wealth management business, net inflows reached a record of CHF 3.0 billion. Inflows were positive across all private banking markets. Even in the US, UBS PaineWebber reported net new money of CHF 3.7 billion.
But even in private banking costs are being reigned in. On 18 February 2003, UBS announced the creation of a holding company for its five fully owned independent private banking subsidiaries and GAM, its specialist asset manager .The three Swiss-German private banking subsidiaries (Berne-based Armand von Ernst, Basel’s Bank Ehinger and Zurich’s Cantrade) are now merging under the name Ehinger & Armand von Ernst. The merger is legally retroactive to 1 January 2003 and full operational integration of the three banks is expected to be complete by 1 January 2004. The new bank, headquartered in Zurich, with branches in Basel and Berne, will be one of the largest providers of private banking services in the Swiss-German speaking regions of Switzerland.GAM, Ferrier Lullin in Geneva and Banco di Lugano are not affected by the merger and will continue to service their clients under their present brands.
Predictably, results from equity trading and private equity were bad, while fixed income trading revenues were very strong – as they are bound to be amid low interest rates and a steep yield curve. But even here, Wuffli detects strong signs of hope that the bear market is coming to an end. “While some further degree of volatility cannot be excluded, we do feel that the downward pressure on our industry from the business and market environment could be beginning to ease and that the worst earnings declines may be behind us,” he says. “Our businesses are proving highly competitive and we remain convinced that our strategy is the right one.”