UBS sets new cost target in U.S. wealth business

NEW YORK Tue May 6, 2014 10:27am EDT

NEW YORK May 6 (Reuters) - UBS AG has set tighter expense control targets for its Americas wealth management business, Switzerland's biggest bank said Tuesday as it reported a 7 percent rise in first-quarter net profit prompted by lower taxes and cost-cutting.

The U.S. brokerage business, which like other big firms has been paying lucrative signing bonuses to recruit top-tier advisers, aims to bring costs down to 75 percent to 80 percent of operating income from the former target of 80 percent to 90 percent, according to a slide presentation accompanying a talk Tuesday by UBS Wealth Management Americas Chief Executive officer Robert McCann.

The ratio of costs to revenue topped 90 percent from 2009, when McCann joined, through the end of 2012. It fell in 2013 to what analysts consider a still lofty 86 percent. The Swiss bank's global wealth business has a growth-to-income ratio target of 60-70 percent and was 66 percent in 2013.

UBS did not outline specific plans for cost-cutting. However, the presentation said it aims to grow revenue in the Americas by continuing to sell mortgages and other banking products along with fee-based financial planning services to wealthy investors while focusing on "front-office efficiency." UBS has introduced an incentive program to encourage referrals among its bank and brokerage employees.

The company said its median client asset base of $1 million or more is higher than at competitors such as Morgan Stanley , Bank of America's Merrill Wealth or Wells Fargo & Co's Wells Fargo Advisors.

The U.S.-based brokerage business, an offshoot of the PaineWebber network that UBS bought in 2000, generated record pretax profit in the first three months of 2014 of $272 million, up 30 percent from a year earlier.

Its operating income of $1.86 billion was up 1 percent from last year's fourth quarter and 10 percent from a year earlier.

Operating income grew on the back of higher managed account fees that was largely offset by higher operating expenses, the company said.

UBS Wealth Americas' brokerage force fell by 24 during the quarter to 7,113, by far the smallest of the big U.S. brokerage firms, but was up from 7,065 financial advisers a year ago. Average revenue per broker fell slightly from last year's fourth quarter $1.03 million from $1.04 million.

The firm's experienced brokers help bring in net new money of $2.1 billion from clients but the total was up less than one percent from a year earlier because of attrition of financial advisers. UBS's target for net new money growth is 2 to 4 percent of clients' invested assets.

Despite setting new cost-to-income targets, the company maintained other performance goals. It seeks adjusted pretax profit growth of 10-15 percent annually in its Americas and global wealth management businesses. Its gross profit margin target remains at 75 percent to 85 percent in the U.S. and 95-105 percent globally. It met the U.S. target last year with a margin of 79 percent.

Parent UBS said earlier on Tuesday it will revamp its corporate structure to ensure it can be broken up more easily in a crisis, cutting the amount of money it must set aside for potential losses and allowing it to pay shareholders a special dividend. (Reporting by Jed Horowitz; Editing by Chizu Nomiyama)

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