By Joseph A. Giannone
NEW YORK, July 31 UBS Wealth Management
Americas, the U.S. brokerage arm of Swiss bank UBS,
reported a 28 percent increase in second-quarter earnings,
fueled by one-time investment gains and higher
UBS said the brokerage generated a record $211 million in
quarterly pretax profit as revenue rose 5 percent to $1.59
billion from a year earlier. Increases in management fees offset
lower commissions, as client trading activity slowed, and net
interest income declined.
"Operating at a smaller scale than the other wirehouses is
helping them here," said Cerulli Associates analyst Bing
Waldert, alluding to national brokerages Merrill Lynch, Morgan
Stanley Smith Barney and Wells Fargo Advisors. "They can be more
selective about whom they take or don't take. They also put
their house in order earlier than the others."
Waldert noted, though, that the investment gains are not
sustainable ongoing income.
The ranks of UBS brokers rose by just six advisers to 7,021
from the end of March, but were up 2 percent from 6,862 a year
earlier. Broker attrition rates remained low, UBS said.
The firm's broker ranks have stabilized after thousands fled
as the bank suffered some of the biggest financial crisis losses
as well as several regulatory setbacks.
Merrill Lynch, by comparison, saw its broker ranks slip by
24 to 16,151 during the quarter.
U.S. wealth management results were a bright spot for UBS,
whose investment bank in comparison posted a pretax loss of 130
million Swiss francs driven by a 349 million franc loss from
executing Facebook trades during its botched IPO on the
Nasdaq stock market in May.
A spokeswoman for the U.S. brokerage business declined to
say whether the Facebook debacle had any impact on the brokerage
results. Lead Facebook underwriter Morgan Stanley, by
comparison, offered to make clients whole by adjust thousands of
limit order sell trades from the first day of trading.
Customers added $3.8 billion of net new money during the
quarter, excluding interest and dividends on investments already
in accounts. Fund flows also reflected $1.8 billion of U.S.
income tax payments out of accounts.
The net additions mark at least the eighth straight quarter
of positive in-flows at UBS.
Overall client assets slipped 2 percent to $838 billion,
though, reflecting falling stock prices during a period of
renewed worries about the outlook for the U.S. economy and
Europe's debt crisis.
Still, UBS said annualized average broker production had
risen 1 percent to $905,000 from the first quarter, while client
assets per adviser slipped by $1 million to $114 million. Bank
of America Corp's Merrill Lynch, by comparison, reported
average production had fallen 5 percent to $915,000 in the
UBS realized $63 million of gains during the quarter from
selling U.S. Treasuries and government agency securities to
rebalance an investment portfolio associated with the firm's
Utah-based bank unit.
Operating expenses rose 3 percent to $1.38 billion, fueled
by higher broker pay and the lingering cost of recruiting.