Which European Bank Has The More Profitable Business Model: HSBC or UBS?

UBS: UBS logo

HSBC (NYSE:HSBC) is one of the largest banks in the world, and arguably the most geographically diversified bank in the world with a presence in roughly 70 countries while UBS (NYSE:UBS) is the largest Swiss bank and the world’s largest wealth manager, with approximately half of the world’s billionaires among its clients. Both these European banking giants have a different business model and focus on a different aspect of banking. However, a detailed comparison of key operating metrics for UBS vs HSBC seems to indicate that HSBC’s business model is the more profitable one. We capture historical performance trends for UBS and HSBC over recent years along with our forecast for 2019 in an interactive dashboard. Additionally, you can find more Trefis Financial Services company data here.

HSBC Has A Much More Diversified Business Model Compared To UBS

  • UBS reported $31 billion revenues in 2018 with Wealth Management division contributing more than 55% of UBS’s Revenues.
  • In comparison, HSBC’s Revenues in 2018 stood at $54 billion, with Retail Banking & Wealth Management operations contributing approximately 43% to total revenues.
  • HSBC’s larger global presence and business model focus more on retail banking, which has helped the bank’s revenue grow at a faster pace than UBS. As of 2018, HSBC’s revenue was roughly 80% more than that of UBS.
  • However, HSBC’s revenues declined considerably between 2010 and 2016 as the bank streamlined its global operations and exited non-core regions, even as UBS kept its revenues largely level

HSBC’s Operating Margin is Almost Double That For UBS

  • HSBC has enjoyed a much better operating margin than UBS over recent years. Apart from 2016 (when HSBC’s margin declined to 14%) it has maintained a healthy margin of more than 30%. In sharp contrast, UBS’s margin has hovered around 20%.
  • This difference can be attributed to HSBC’s RBWM division which has maintained a pre-tax margin of ~40%.
  • On the other hand, UBS’s largest revenue driver, wealth management, saw its pre-tax margin remain in mid-20s range.
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Also, HSBC’s Investment Bank Has Fared Better Than That Of UBS’s

  • After the 2008 recession, UBS undertook a massive restructuring program. The Swiss bank was forced to reorient itself around wealth management and to limit its investment banking operations. Its investment banking revenues, hence, have gone down since and now contributes roughly 27% of total revenues (from 38% in 2010). Moreover, the division’s EBT margin has remained relatively low around 18% since 2015.
  • On the other hand, HSBC’s Investment Banking business has more or less remained stable over the years, and its contribution to total revenues has remained around 20%. However, HSBC’s margin is roughly double than that of UBS.
  • HSBC’s healthy margin and stable business model have helped it achieve steady growth while UBS has struggled to grow its presence in the global investment banking industry.

UBS Has A Much Better Asset Turnover Ratio Compared To HSBC But Their Return on Assets (RoA) Figure Is Similar

  • UBS’s asset turnover ratio of 3.15% is 50% higher than that for HSBC, signifying that UBS is using its assets more efficiently.
  • However, due to HSBC’s higher net income, the return on assets(RoA)  figure for both banks is similar. As of 2018, UBS and HSBC both reported an RoA of 0.5%.

Other Key Operating Metrics

  • HSBC has a much wider scale than UBS. While HSBC has an operational presence in more than 65 countries and has an approximate workforce of 235K, UBS is present in 40 countries and had 68K employees at the end of 2018.
  • UBS’s revenue per employee stood at $442K in 2018 – roughly double HSBC’s $229K.
  • However, UBS’s average compensation per employee is much higher, and was $236K in 2018 as opposed to a figure of just $74K for HSBC

 Conclusion: HSBC’s More-Diversified Business Looks More Profitable

  • HSBC has a well-diversified geographical presence and a much better profitability ratio than UBS. HSBC’s focus on retail banking, particularly in Asia, has helped the bank achieve steady growth over the recent years.
  • Although UBS has strong margins for its Personal & Corporate Banking business, the Swiss bank has chosen to leverage its expertise in the Wealth Management industry to grow. While this has helped UBS churn out better return on assets, it has had to content with lower revenues as well as revenue growth.

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