UBS has posted its seventh consecutive quarter of falling income from private banking. The antidote until now has been cost-cutting. Is it enough?
Nobody envies UBS private banking head Juerg Zeltner right now: his unit, upon which the Swiss bank has built its long-term strategy, faces an uphill battle – and one that is only accentuating.
He has said that UBS must temper its profit expectations (in German), and effectively rebuffed net new money.
Crumbling Since 2015
Wealth management posted a 634 million Swiss franc pretax profit in the third quarter. This is slightly better sequentially, but the larger picture makes it clear that the third quarter is the latest in a series of lackluster results from the unit.
The fact is that UBS has earned less and less from its core business in seven quarters running. The most recent highlight was the first quarter of last year when UBS took in 2.1 billion in income. Since then, the bank has been in a downward spiral, slowly but surely moving lower on revenue and profitability.
The picture is similar with margins, where UBS has lost 10 basis points compared to the highlight first-quarter of last year – a relentless erosion.
UBS hasn't exactly been wrong-footed by these developments, and has been struggling to keep pace by slashing costs quarter for quarter. Zeltner has cut staff in particular, a process he says will continue.
Banking = Cost-Cutting
The developments illustrate a truism in banking today, and in particular private banking: cost-cutting has been a key factor to succeed.
UBS wants to lower its total spending by 2.1 billion francs, and has already reached 1.5 billion of that.
Client Behavior
The problem at UBS and other private banks is that regulatory costs are piling up more quickly than expected and clients are still reticent about putting big money bets on the table.
Regulatory spending is expected to eventually peak, but there is no improvement in sight for the lack of client activity.
Cost cuts only go so far towards improving profitability. UBS will inevitably have to face the question of how its flagship business should be organized in order to be sustainably profitable in the future.
