It has been a stormy week for UBS, the biggest bank in Switzerland. Last week, the bank, which has a market cap of $56 billion, released its third quarter results, showing a loss of $2.3 billion. It was not the heavy loss that made the headlines however, but rather the aggressive program of layoffs that the bank announced: UBS intends to dismiss 10,000 employees over the next three years, 16% of its workforce. The move is expected to mean a saving of $3.6 billion a year.
The layoffs will mostly fall in investment and commercial banking, which will be cut back sharply. UBS has been burnt in these activities in recent years, both because of the credit crisis and because of the affair of the trader in London whose unauthorized trading occasioned the bank a $2 billion loss. That incident shook the bank, and was the spur to the deep structural change that it is currently undergoing.
Now, when investment and commercial banking are out, the new-old trend is asset management, or Wealth Management to be more exact. UBS sees asset management for wealthy clients as a long-term growth engine. This is a much more conservative field than investment banking, but with growth potential because of the rise in personal wealth, especially in developing countries. In fact, the bank intends to channel its remaining investment banking activity mainly towards provision of services to Wealth Management customers.
"Regulation doesn't frighten us"
UBS has mapped the countries in which it sees the greatest growth potential in this area, and, surprisingly enough, Israel is among the top five. "We began activity in this market in 1997, but two years ago we decided to expand to Wealth Management. There are many opportunities in this field in Israel," says Luca Pedrotti, head of the bank's Greece, Israel and Africa (GIA) segment.
Why?
"The amount of disposable cash in Israel is estimated at about NIS 500 billion. The number of wealthy people has grown 40% in recent years."
What is your added value in comparison with your competitors?
"We offer a unique model, which combines local management with international asset management. Our global presence represents an important advantage in asset management. Local entities mainly provide local solutions, but these days investors seek more than this, and we have the ability to offer more."
You have expanded your activity in Israel just when regulation here has become tougher. Doesn't that worry you?
"Regulation has become tougher all over the world, and it doesn't frighten us. Tight regulation is good, because in the end it protects all of us, and it's good for competition."
What are your goals in the Israeli market?
"We believe that the Israeli market is going in the direction of consolidation in investment management, and we believe that there will be opportunities in this process."
Will you buy investment houses in Israel?
"As far as we are concerned, everything is open, but we seek acquisitions that will not change our DNA, but will answer a need. We have a very determined team headed by Kobi (Faigenbaum, I.A.), that is doing good work. Six months after the official opening we are happy with the results, and we are seeing the plan become reality."
You are also responsible for activity in Africa. Is it really "the next Asia"?
"Africa is reminiscent of Asia 20 years ago. The rise in commodity prices has led to wealth and liquidity, and to a greater need for global banking. At the same time, you have to make distinctions between the countries in Africa. Africa is not an emerging market, but a frontier market. We have chosen the countries on which we will focus on this continent, because we want our focus to be where there is wealth and growth countries like Ghana, Angola, Kenya, and South Africa.
"Our entry into Africa also arises from interest on the part of our customers from other places around the world in going into these countries. They are looking for a platform and for advice on how to do this, and we supply that through our activity."
"We have no monopoly on good products"
So what is the new thing that UBS offers its customers? William Kennedy, head of UBS’s Investment Products and Services unit, believes in the open architecture approach as the one that brings the best results. Under this approach, the bank sells to its customers not only its own products, but also those of rival banks and investment houses. It is estimated that UBS invests only about half of its customers assets in its own products.
Why do you use open architecture?
"First of all we look for good UBS products, and if those products aren't good enough, we go to our competitors. I'd be glad to be able to say that UBS has a monopoly on good products, but you can't be the best at everything, and so the open architecture approach is the responsible thing to do for our customers."
What has changed in customers' requirements since the crisis?
"Today, customers are looking for good advice and security. It's important for them to understand the risk level - that the products in which they invest should be transparent. They are certainly more demanding and ask more questions than in the past."
What is your recommendation for customers?
"We continue to see uncertainty in the markets, and we see no change in that situation in the near future. Investors today are very conservative, and keep large amounts in cash, but at current rates of interest that doesn't pay. There are opportunities, and over the recent period we have identified some in bonds and currencies. It's important to take a long-term view of investments. It's worth taking a demographic look at what's happening in the world, and where the wealth is going, and then to find the ways to profit from this trend."
The writer was a guest of UBS in Switzerland.
Published by Globes [online], Israel business news - www.globes-online.com - on November 8, 2012
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