Pre-tax operating profits at the wealth management arm of UBS rose in the first quarter of 2014. It set plans to change its legal structure at home and abroad to deal with regulatory developments.

Pre-tax operating profits at the wealth management arm of UBS rose in the first quarter of 2014, the Zurich-listed banking firm said today, while it announced plans to change its legal structure at home and abroad to deal with regulatory developments in its domestic and overseas markets.

Switzerland’s largest bank also laid out a series of adjusted performance targets. In wealth management, it set a net new money growth rate of 3 per cent to five per cent; a gross margin of 95 to 105 basis points, and an adjusted cost/income ratio of 55 to 65 per cent from 2015 (it remains 60-70 per cent for this year). In the wealth management Americas business, the net new money growth rate target is 2-4 per cent; gross margin is 75-85 per cent bps, and the adjusted cost/income ratio is 75-85 per cent from 2015 (remains 80-90 per cent for 2014). The firm said it also plans SFr2.1 billion in net cost cuts versus the 2013 financial year.

In the wealth management segment, pre-tax operating profit was SFr619 million, 31 per cent higher than the final three months of 2013; in the Americas wealth business, pre-tax operating profit rose 5 per cent to SFr242 million. Pre-tax adjusted profit was SFr659 million. Gains were driven by higher operating income and lower costs; transaction-based income rose, driven by more client activity, particularly in Asia. In Americas, the pre-tax adjusted profit was SFr284 million and the bank experienced net new money growth rate of 0.9 per cent, with improved performance of experienced financial advisors being offset by outflows from financial advisor attrition.

There was a net new money inflow at the wealth business of SFr10.9 billion, equating to a net new money growth rate of 4.9 per cent, at the upper end of the firm’s target range. The Americas wealth business logged net new money of SFr2.1 billion.

Across the entirety of UBS, pre-tax operating income rose 210 per cent to SFr1.393 billion, it said in a statement. Net profit attributable to shareholders was SFr1.054 billion, up from SFr917 million at the end of December last year and SFr988 million a year earlier. The cost/income ratio for UBS was 81.1 per cent, down from 92.7 per cent at end-December. Its total capital ratio (as applicable to Swiss systemically significant banks), on a phase-in basis, was 22.7 per cent.

Restructure, legal change
As part of steps, already announced, to deal with potential future financial crises, the bank said it intends to establish a group holding company through a share for share exchange offer, which will commence later this year, subject to regulatory approvals. UBS said it expects the measures to improve resolvability will allow the firm to qualify for a capital rebate under the Swiss "too-big-to-fail" requirements. This rebate would result in lower overall capital requirements for UBS.

Once the transaction is finished, UBS said it expects to propose a supplementary capital return of at least SFr0.25 per share to shareholders of the new group holding company.

The bank also intends to establish a banking subsidiary in Switzerland in mid-2015. The scope of this future subsidiary's business is expected to include the retail and corporate business and the Swiss-booked wealth management business. In the UK, and in consultation with the UK and Swiss regulators, UBS expects to start to implement a revised business and operating model for UBS Limited in the second quarter of this year. This will result in UBS Limited bearing and retaining a greater degree of the risk and reward of its business activities. As a result, UBS said it expects to increase the capitalization of UBS Limited accordingly.

In the US, UBS will comply with new rules for foreign banks under the Dodd-Frank Wall Street Reform and Consumer Protection Act that will require an intermediate holding company to own all of its operations other than US branches of UBS AG by 1 July 2016. As a result, UBS will designate an intermediate holding company to hold all US subsidiaries of UBS.

Plans
Among its plans, the bank said that having achieved its 2014 fully applied common equity tier 1 ratio target of 13 per cent, it is determined to also achieve its post-stress fully applied CET1 ratio target of 10 per cent this year. When it reaches these targets, the bank will pay out at least half of its net profits in capital returns to shareholders, it said.

"As we continue to efficiently utilize resources, we will dedicate the necessary capital to support and grow our businesses and fulfill regulatory requirements without compromising our capital return targets,” Sergio Ermotti, group chief executive, said in today’s statement.

UBS, which has around 60,000 employees, said it estimates it generates more than 90,000 jobs worldwide. Despite a cut in reported headcount, it has maintained employment globally via outsourcing through select external partners.

“While cost reduction programs will affect headcount, UBS will no longer provide estimates of expected future staffing levels,” it said.