How Does UBS’s Wealth Management Operations Stack Up Against Peer Credit Suisse?

by Trefis Team
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UBS (NYSE: UBS) and Credit Suisse (NYSE: CS) are the two largest Swiss banks. After the economic downturn, the banks decided to cut back their investment banking activity and increased their focus on wealth management in view of stricter regulatory requirements. UBS was first off the block in terms of restructuring its business and has been able to reap the benefits of a more stable business model, with wealth management accounting for a bulk of the bank’s revenues. On the other hand, Credit Suisse is yet to finish making changes to the business model but wealth management remains its key revenue driver.

Trefis captures detailed trends in the wealth management business for UBS vs. Credit Suisse in an interactive dashboard and concludes that although UBS has a larger business which generates more revenues and profits, Credit Suisse is doing extremely well to generate a comparable level of profits despite its smaller size.

 

UBS has higher revenues and has been growing at a faster rate than Credit Suisse

  • UBS’s wealth management business is much bigger than that of Credit Suisse. As of 2018, UBS’s wealth management revenues stood at $16.9 billion – 2x that of Credit Suisse’s revenues of $8.5 billion.
  • Moreover, UBS’s wealth management division has grown at a faster pace than Credit Suisse, growing at an average annual rate of 1.6% over 2015-2018. On the other hand, Credit Suisse grew at an average rate of 1.2%.
  • However, for full-year 2019, we expect Credit Suisse’s wealth management revenues to grow by nearly 5% to $8.9 billion while UBS’s revenues are expected to shrink 5%.

Wealth management contributes more than 55% to UBS’s Revenues while these operations contribute less than 40% of Credit Suisse’s Revenues

  • UBS’s wealth management accounts for more than 55% of UBS’s total revenue while Credit Suisse’s wealth management business contributes 40% to total revenues.
  • However, the contribution of wealth management division to revenues of both the banks have steadily increased over the years.

 

UBS Manages 3x More Client Assets Than Credit Suisse

  •  UBS is the largest-wealth managers in the world and manages the largest amount of private wealth in the world. As of 2018, UBS’s client assets stood at $2.3 trillion – nearly 3x that of Credit Suisse’s $757 billion.
  • Additional details regarding how the asset base for UBS and Credit Suisse has grown over the years are available in our interactive dashboard.

 

However, Credit Suisse’s Wealth Management Business Has A Better Profit Margin
  • Stable wealth management fees, as well as an increase in asset base, has helped the UBS’s Wealth Management division’s pre-tax margin remain around 22% over the last four years
  • On the other hand, Credit Suisse’s pre-tax margin of 34.6% in 2018 was almost 50% more than that of UBS’s 23.6 %.
  • The primary reason for this is a notable difference in average fees. Credit Suisse’s average fees in 2018 were 1.1% of the bank’s client assets compared to a figure of 0.8% for UBS.
  • Notably, this means that Credit Suisse reported pre-tax profits of $3.45 billion for its wealth management division in 2018 – just 14% lower than UBS’s wealth management pre-tax profit figure of $3.99 billion for the year despite managing a portfolio of client assets that was 66% smaller.

 

Conclusion

  • UBS has a larger wealth management business but Credit Suisse’s business looks more efficient.
  • Moreover, UBS’s continued focus on wealth management business has helped it churn a larger share of wealth management revenues.
  • Credit Suisse has significantly reduced its trading business and is developing a business model similar to that of UBS. But given the outreach of UBS’s wealth management business, it is highly unlikely that Credit Suisse would be able to match UBS’s scale over the foreseeable future.
  • Given that a key factor behind UBS’s larger wealth management business would have been lower fees, there is little reason for Credit Suisse to adopt an identical strategy when it comes to expanding its wealth management operations geographically, as the incremental benefits to its bottom line are likely to be smaller.

 

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