The regional wealth management business is neither a US-type brokerage nor a classic Swiss private bank. finews.asia breaks down yesterday’s full-year numbers.

UBS, Switzerland’s largest and most global bank, is caught between a rock and a hard place in Asia.

Its main business, wealth management, has the costs of a typical full-service North American broker while pulling in the revenues characteristic of an established European institution for wealthy clients.

The disclosure of yesterday’s fourth-quarter figures only served to exemplify that in a relatively stark fashion.

Low Revenue, High Cost

In the regional breakdown, Asia Pacific reported revenues of $586 million, a number far closer to Switzerland’s $440 million and EMEA’s $928 million than it is to the Americas, which recorded $2.64 billion.

At the same time, the cost-income ratio in Asia Pacific was 69.7 percent. It is not as high as in the Americas, where it was 85.9 percent, but it is decidedly more than the 59.8 percent in Switzerland and 64.3 percent in EMEA.

Importantly, the Asia Pacific business has the lowest level of fee-generating assets in all regions. It has a relatively paltry $114 billion against $119 billion in Switzerland, $259 billion in EMEA, and $779 billion in the Americas.

More with Less

In essence, that would mean the Swiss business, and the one that is closest to Asia in size, has practically the same operating profit and similar revenues, but it makes those numbers with decidedly fewer advisors.

The US has more than four times the revenues, almost seven times the fee-generating assets, and nearly eight times the number of advisors. Still, it pulls more than twice the operating profit.

From the figures, it looks like the business model in Asia takes elements of both in a way that is not of clear benefit to anyone.

Different Makeup

More to the point, the UBS business in the Americas has a markedly different makeup. Financial advisors can be seen almost as quasi-agents. As indicated in the 2021 20-F report (on page 256), they receive regular production payouts, paid monthly based on their so-called «production», typically activities based on securities trading and similar on behalf of clients.

In Asia, UBS advisors are still likely to be mostly full-time bankers even though the private banking business in many jurisdictions remains heavily reliant on client orders and the whims of financial markets.

This business model cherry-picking may also influence the current volatility in performance in Asia Pacific, where the volume of net new loans in Asia Pacific fell $3.5 billion, and the figure of the gross loans was down by almost a third (off $14.1 billion at $34.5 billion). In all the other businesses, that figure was modestly lower or higher.

Future Strategy

For almost two decades, Asia has held a key place in UBS’s business model, and an integral component of its market value.

That has not changed. In yesterday’s outlook, CEO Ralph Hamers indicated that both APAC and the US remained a key part of its strategy to capture growth, adding that the bank would strengthen its so-called «one-bank» approach with core wealth, family, and institutional clients.

At the same time, the Asia Pacific business continues to comprise 12.7 percent of the wealth division in terms of revenues. It is a number that has remained largely static since the late 2010s.

More Scrutiny

For UBS to change that, as a regional market leader, it might be a good idea to scrutinize the idiosyncrasies of its regional business model far more closely. As a consequence, doing that might also help with its future overall market valuation.