UBS Dethrones Bank of America As World’s Largest Wealth Manager

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In a development that goes a long way in justifying UBS’s (NYSE:UBS) decision to focus on its wealth management business, the Swiss banking giant has surpassed Bank of America (NYSE:BAC), to become the largest wealth manager in the world. [1] UBS has worked hard over the recent quarters to meet stringent capital requirement norms, and did away with its fixed-income trading business almost completely in an attempt to bring its cornerstone wealth management business back in the limelight (see Poor Performance Forces UBS To Announce Drastic Job Cuts). With $1.7 trillion in wealth management assets, UBS now manages more client assets than Bank of America, and the lead will only increase in the near future once Bank of America finalizes the sale of its non-U.S. wealth unit to the Swiss bank Julius Baer (see BofA’s Non-U.S. Wealth Unit Attracts Several Bids).

The news also helps alleviate some concerns that the Swiss banking system is falling out of favor with clients around the world due to the increased scrutiny of Switzerland’s secrecy laws by governments across the world in the wake of widespread tax-evasion investigations.

We have a price estimate of $19 for UBS’s stock, which is less than 10% ahead of the current market price.

See our complete analysis of UBS here

The importance of UBS’s global wealth management operations as a part of its revamped business model becomes evident at once from the chart above, which shows that the business contributes to nearly 40% of the Swiss bank’s total value. UBS manages its wealth management operations as three separate units based on geographical divisions – Switzerland, Americas and International.

Of the $1.7 trillion in client assets, the Americas unit holds nearly half the figure, the International unit is responsible for about 40% and the remaining 10% is managed by the Swiss unit. The international business has been pivotal to the growth in the bank’s asset base as it has a strong presence in developing nations allowing the unit to report the fastest growth among the three in the recent years. And the brisk pace of its growth is also expected to continue over the coming years.

While UBS has been steadily adding more clients, the bank’s assets also gained considerably from the rally which equity markets have demonstrated in the recent past. Over the last year, global wealth managers have grown assets by an average of 8.7%. UBS bettered this figure with a 9.7% growth, allowing it to garner a share of more than 8% of the $18.5 trillion wealth management market.

What remains to be seen is how well UBS holds its advantage even as the wealth management industry shows consolidation with other banking giants like Morgan Stanley (NYSE:MS) (which was recently cleared to fully acquire Smith Barney), Credit Suisse (NYSE:CS) and Goldman Sachs (NYSE:GS) vie for a bigger share of the industry.

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Notes:
  1. UBS overtakes BofA to lead wealth manager ranking, Financial Times, Jul 10 2013 []
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