Will UBS Sell Or Spin Off Its Asset Management Division?

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UBS is considering a partial sale or merger of its asset management (AM) business, according to Bloomberg. One of the options UBS is considering is acquiring Deutsche Bank’s asset manager DWS Group, potentially to combine it with its own business and spin off the two as a separate entity. We have created an interactive dashboard wherein you can edit the drivers to arrive at your own conclusions, Is A UBS AM Merger Worthwhile? In addition, you can see more Trefis financial industry data here.

How is UBS’s Asset Management Division Faring?

  • Asset management is UBS’s smallest division – constituting 6% of total revenues.
  • The division’s organic revenue has consistently declined since 2016, with revenues shrinking by more than 10% to $1.9 billion in 2018.
  • Operating margin for the division has also taken a hit in recent years, reaching a low of 6.1% in 2018.
  • In 2018, the unit experienced net outflows of $15 billion on the back of market declines, primarily driven by declines in the valuation of Equity securities.
  • Net new money inflows for the division were $32 billion in 2018, growing at a rate of 3.5% which was towards the lower end of the company’s own expectations.

How is the division faring compared to its U.S. rivals?

Although asset management is a small part of UBS’s overall business compared to major U.S. banks, a comparison with those banks is still worthwhile.

  • UBS’s asset management division’s top line declined by 11% in 2018, while U.S. rivals Goldman Sachs and JPMorgan were able to grow their respective AM top lines by 13% and 9%.
  • The division’s operating margin in 2018 stood at 24.3%, which was higher than that of Goldman Sachs (22%) but was less than JPMorgan’s (26%).

Why a merger might not be a great idea

  • Asset management has been a steady contributor to UBS’s profit with a steady growing asset base. While a merger would increase the division’s assets, it could potentially further shrink its margins.
  • We do not expect this merger to offer many potential revenue synergies, while the expenses would likely remain elevated (though there could be some potential cost synergies).

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