UBS Wealth Management is Key Driver to Stock Price

December 15th, 2010 by Trefis Team
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UBS (NYSE:UBS) is a financial services firm that offers a strong combination of wealth management, asset management and investment banking services on a global and regional basis. The Wealth Management division accounts for about 48% of the $19.30 Trefis price estimate for UBS’s stock. The Wealth Management division of UBS competes with of other banks like Credit Suisse (NYSE:CS) and Morgan Stanley (NYSE:MS).

The total Assets Under Management (AUM) for the wealth management division of UBS was $1.34 trillion in 2009, as compared to $840 billion for Credit Suisse and $1.56 trillion for Morgan Stanley. The Wealth Management division for UBS is divided into three main regions, based on assets managed for clients in those regions. These are – Swiss Clients, Americas Clients and International Clients (i.e. clients other than Swiss and Americas).

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International AUM Growth Supported by Asia

Consumption and savings patterns are changing in the developed and emerging markets. The West is more financially strapped while Eastern economies, especially in Asia, are growing faster, saving and spending more. As a result, we expect that the demand for wealth management services should grow faster in Asia than the West.

For the period 2009 to 2017, we have forecasted the AUM for each of Swiss Clients and Americas Clients to grow at an annual growth rate of 4%, reaching $424 billion and $614 billion by 2017. For International Clients, our forecast for this period is an annual growth rate of 4.5%, with the AUM reaching $816 billion by 2017.

Fees on AUM is a key driver to assess demand for Wealth Management services. The AUM in turn largely depends on the return generated on riskier asset classes (like emerging market equities/fixed income products, structured derivative products, etc.), which broadly depends on the global macro economic environment. For example, during 2005 and 2007, which was a period of robust global economic growth, the total AUM for UBS Wealth Management increased from $1.54 trillion to $ 1.88 trillion. However, the financial crisis in 2008 reduced returns across riskier asset classes, which resulted in investors pulling their money out and parking them in safe asset classes (low yield sovereign treasury bonds, fixed deposits, etc). The total AUM for UBS Wealth Management fell to $1.30 trillion in 2008. With the economic environment improving slightly towards the end of 2009, the AUM increased slightly to $1.340 trillion. The falls in AUM were witnessed across all regions- Swiss, Americas and International.

Though the wealth management sector proved to be more robust than the investment banking sector during the financial crisis, there can be a downside to our forecasts for the AUM for UBS Wealth Management. Going forward, we expect new stricter regulations, more due diligence and caution by investors and increasing competition to weigh down on the AUM for UBS wealth management.

Downside if AUM in West Grows Slowly

For the period 2009 to 2017, if we change the annual growth rate forecast for AUM to 2% for each of Swiss Clients and Americas Clients with their respective AUM reaching only $360 billion and $530 billion, and 3.5% for International Clients, with its AUM reaching $755 billion in 2017, there can be 3% downside to the Trefis price estimate for UBS’s stock.

See our full estimates for UBS stock here.

Currently, we have estimated the AUM for Swiss, Americas and International to grow at annual growth rates of 4%, 4% and 4.5%, with the AUM reaching $424 billion, $ 614 billion and $816 billion by 2017.