As UBS works to integrate Credit Suisse and examine the book of business, a media story focused on what the Swiss bank might do to weed out unprofitable or insufficiently lucrative client relationships has emerged.

A media report last week said 3,500 UBS global wealth management relationships aren’t generating enough income to justify the cost.

As co-CEO of the GWM business, Iqbal Khan, settles into his new role – he is moving to Asia – and other senior management changes take place, industry chatter continues about how the Zurich-listed bank will operate. UBS has completed last year’s takeover of stricken Swiss rival Credit Suisse.

“According to several sources, the management team, headed by co-CEO Iqbal Khan, has compiled a list of 3,500 customer relationships that the bank believes are generating too little income in relation to costs,” an article in the Swiss Tipping Point website said. The article did not name sources.

The article said UBS is using its Credit Suisse takeover to examine all customer relationships, on both the Credit Suisse and UBS side.

UBS did not comment directly to this news service about the 3,500 figure quoted by the website. However, a spokesperson in Zurich said that CEO Sergio Ermotti, and other senior UBS figures stated earlier this year that there was a need to trim fat from the combined organisation. 

For example, Ermotti said in a media conference about first-quarter 2024 results: “We made it very clear that Credit Suisse was running an unsustainable business model: too much cost, too little revenues, too much risk. What we are doing right now, and that translated into the return on revenues on risk-weighted assets being half of what UBS had.”

“Now, what we are doing is that we are restructuring everything that can be restructured through cost, through exiting non-core businesses and releasing capital and efficiency,” Ermotti said in the same briefing. “But in some cases where we have areas which are not, broadly speaking, every clients, but we have areas where, of course, services and credit were subsidised or priced at an unacceptable level, well below where UBS prices, and well below every competitor prices.”

“So, it's true that in a selective way, we're going to have to relook at repricing things. We do that alongside with clients. We discuss with clients this matter. We don't see this issue as being something that creates any particular issue, of course not everybody may be happy to hear that, of course. Who is happy to pay more? But we are explaining to clients why it is," Ermotti said.

Speculation on how UBS moves forward will probably focus on duplication of roles, as well as the ratio of relationship managers to clients, the ability to hit revenue targets, draw in net new money, and compete with rivals. The “shotgun wedding” with Credit Suisse left Switzerland with only one universal bank – although regulator FINMA earlier in June gave that deal a clean bill of health in anti-trust terms.

In its latest financial results, UBS said its global wealth management division made an underlying pre-tax profit for the first quarter of $1.272 billion, surging from $624 million in the fourth quarter of 2023. The result was on the back of a rise in total underlying revenue to $5.9 billion from $5.4 billion in the previous quarter. Operating expenses fell to $5.044 billion in Q1 2024 from $5.282 billion.

Other comments
Ermotti, talking about fourth-quarter 2023 financial results, said Credit Suisse’s capital efficiency and profitability were “compromised in recent years by capital intensive exposures, under-priced resources and products, and hurdle rates that were not aligned to underlying risks.” 

“While in the short term, it will be difficult to produce the best-in-class returns that UBS had previously, our aim is to narrow the gap in a reasonable timeframe,” Ermotti said. “This will require re-pricing and/or exiting low returning exposures. We will also remain disciplined to ensure that pricing reflects the underlying risks and the value of the advice, products and services we provide.”

Monoliner
The Tipping Point article referred to what is called a "monoliner."

"The [client] clean-up  campaign could affect a customer who received preferential terms for a loan but did not do further business with UBS as hoped. In such a case, the bank speaks of a so-called `monoliner'. If the customer only has the loan, the bank has to provide him with too many risk-weighted assets in relation to the return, says an insider. Of course, UBS still earns money from the customer, but from the management's point of view, too little," the article said.

Todd Tuckner, group chief financial officer, speaking on 6 February 2024, said: “In wealth management, to give an example, we are inheriting a situation where there was just say a loan relationship between the bank and a client. And perhaps, you know, we weren't bringing to bear the holistic client array of services that is our expectation to sort of do. Now, it's been the blueprint for us in UBS GWM.

"And so, that's just an example where you have kind of a monoline is a simple example of that. Another example could be pricing. So, you might not be getting the pricing for the risks that you're effectively taking with respect to that financing. So, I think those are two examples where, you know, we need to do work to ensure the holistic client coverage is brought to bear in a given situation or we're looking at pricing opportunities in particular cases," Tuckner said in the briefing.

In April, there was media speculation that the Swiss federal government wanted to impose higher capital requirements on UBS as a result of the Credit Suisse takeover.