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UBS earnings boosted by Asia wealth unit

UBS WM attracted strong inflows from Asia-Pacific, which helped offset investment bank losses, but results were clouded by reports of an investigation by Singapore's regulator.

The Swiss-based wealth manager added $15.7bn in new money in the three months through to the end of September, helping lift assets under management to a record $2.5trn, according to UBS Group’s third quarter results, released on Tuesday.

Asia’s out-sized contribution to the wealth management unit’s inflows maintains the momentum of the second quarter.

“Apac achieved a record high of $420bn, and attracted $10.9bn of the new money — about two-thirds of the total,” a spokesperson told FSA.

In contrast, there were no net new flows into the firm’s America’s unit, while EMEA and Switzerland attracted $3.2bn and $1.9bn respectively.

The increase in new money into UBS WM’s Hong Kong and Singapore hubs has occurred despite a summer of widely-reported protests in Hong Kong, deteriorating global macroeconomic conditions and volatile markets.

Recent surveys have indicated rising pessimism among practitioners within the region’s wealth management industry.

But wealth management has been a core focus for UBS Group’s chief executive Sergio Ermotti since the global financial crisis. Rival banks such as Credit Suisse (which releases its third quarter results on 30 October) and troubled Deutsche Bank (which left its wealth management unit alone during restructuring) have likewise placed stronger emphasis on their wealth management businesses.

Although profits before tax for the global wealth management business slipped 2% year-on-year to $919m and net interest income declined 3%, recurring net fee income rose for the second quarter in a row on higher invested assets, and transaction-based income increased at a double-digit rate.

Fee-based discretionary portfolio services tend to generate higher profit margins than commission-driven advisory services. UBS’s discretionary mandate “penetration” of 34.4% of [invested assets] and mandate volumes of $861bn reached record highs, according to the spokeswoman.

“Mandate sales were strong across all regions as we continue to connect more clients to managed solutions that help them achieve their goals,” she said.

However, transaction-based income rather than fees were largely responsible for the wealth management unit’s earnings, growing 14% year-on-year.

Meanwhile, UBS Asset Management’s profit before tax rose 6% year-on-year to $135m, and invested assets rose to $858bn mainly on strong net new money inflows.

The solid earnings in the wealth management and asset management divisions helped offset a 59% adjusted profit decline at its investment bank. Third quarter net earnings for the group fell 16% to SFR1.05bn ($1.05bn), a decrease from SFR1.25bn in the third quarter 2018.

However, increasing competition for affluent clients as economies slow and interest income declines is putting pressure on wealth managers. As a result, UBS said in August that it would expand a policy of charging rich clients for excess cash holdings from 1 November.

MAS investigates UBS

Separately, a report by Singapore’s Business Times earlier this week said the Monetary Authority of Singapore is investigating claims of “inappropriate spreads” on debt securities transactions that were billed to wealthy clients of UBS in Singapore.

However, the Swiss bank seemed to address the issue with a statement in its third quarter report.

“UBS intends to reimburse affected customers on a basis agreed with the relevant authorities. UBS expects the relevant authorities will subject UBS to reprimands and fines as a result of their investigations,” it said.

Part of the Mark Allen Group.