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UBS to Fuse European Wealth Management Wing to Curb Costs

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Amid a challenging revenue environment, restructuring continues to be the core agenda for most global banks.  In a latest move, Swiss banking giant UBS Group AG UBS plans to reduce costs and strengthen capital position by merging its European wealth-management operations into branches of a single division, according to a Bloomberg report.

Citing remarks of UBS' wealth management chief Juerg Zeltner, the report stated that the merged operations are likely to be based in Germany. This move will reduce the unit’s risk-weighted assets (RWA) by as much as CHF 2.5 billion ($2.6 billion). Further, shifting of the operations, which is expected to be completed by the end of this year, would reduce costs by using integrated information-technology systems across the European continent.

Zeltner said, “I can’t afford to run five, six full banks in Europe anymore,” adding “Ultimately, we want one infrastructure in all locations.”

Notably in June this year, UBS revealed plans to reorganize its U.S. wealth-management wing. The unit will be structured into 4 divisions, 43 markets and 208 branches.

For its Wealth Management unit, UBS targets net new money growth in the range of 3–5% and adjusted Cost/Income Ratio in the range of 55–65% this year. Net new money growth for Wealth Management Americas is expected in the range of 2–4% and adjusted Cost/Income ratio in the range of 75–85%. On a combined basis, annual adjusted pre-tax profit growth for the units is projected in the range of 10–15%.

Post the global financial crisis, UBS has been undertaking strategic restructuring measures and has gradually shifted focus on boosting wealth management business, in order to reduce reliance on capital intensive investment banking. Apart from streamlining operations, the company has been reducing headcounts in several units. UBS reportedly imposed a partial hiring freeze at its wealth-management unit to curb costs, sources familiar with the matter stated last month.

The company's second-quarter 2016 net profit, attributable to shareholders of CHF 1.03 billion ($1.06 million) declined 14% year over year. Results were mainly affected by decreased profitability in the Investment Bank and Wealth Management units of UBS.

Management warned that the persistent market volatility and underlying macroeconomic uncertainties, aggravated by Brexit vote, will result in continued client risk aversion and low transaction volumes. It further stated that the current scenario is unlikely to change in the near term. Further, several concerns linger including headwinds from negative interest rates and the strengthening of Swiss franc, particularly against euro.

Currently, UBS carries a Zack Rank #5 (Strong Sell). Some favorably placed foreign banks include KB Financial Group, Inc. (KB - Free Report) , Australia & New Zealand Banking Group Limited ANZBY and Bank Itaú Unibanco Holding S.A. ITUB. While  KB Financial sports a Zacks Rank #1 (Strong Buy), both Australia & New Zealand Banking and Bank Itaú Unibanco carry a Zacks Rank #2 (Buy) .

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