On Thursday, Swiss Bank, UBS AG (UBS) held its Investors Day in New York. On the day, the company came up with some targets to be achieved in the long term which reflected its growth strategies. Among others, the company announced its plan to scale down several businesses and cut nearly 2,000 jobs. Moreover, the bank plans to concentrate more on its wealth management business.
The bank intends to inflate its premier wealth management franchise to boost its growth in future. UBS expects annual growth of 3-5% in net client assets, annual gross margin of 95-105 bps and cost to income ratio of 60-70% for the Wealth Management division.
Furthermore, it expects 2-4% annual growth in net client assets, annual gross margin of 75-85 bps and cost to income ratio of 80-90% for Wealth Management Americas division.
In the midst of the tough economic conditions, UBS has planned to reduce the risk profile of the bank by downsizing businesses producing repellent risk-adjusted returns while aiming at tightening cost management. Further, it intends to widen leadership positions in Switzerland, Europe, Asia Pacific and the emerging markets and continue to keep up with Wealth Management Americas’ flourishing execution track record.
Further, the bank plans to sell off risk-weighted assets worth CHF300 billion ($327 billion) by 50% over the next five years in its investment bank. Moreover, the investment bank’s existing 18,000 headcounts will be reduced to 16,500 and 16,000 by the end of 2013 and 2016, respectively, primarily through reshuffling and attrition.
Based on its strategies, UBS seeks to deliver more attractive returns to shareholders while expecting return on equity ranging from 12% to 17% for 2013, amid new capital rules and chaotic markets. Moreover, it expects Basel 3 common equity tier 1 ratio of 13%, and cost to income ratio of 65-75%, annually.
Furthermore, UBS announced to increase its market share in Retail & Corporate banking business in Switzerland. The company targets to grab banking and lending opportunities from the existing clients while improvising technology and infrastructure for expanding corporate transaction banking capabilities.
UBS anticipates annual net new business volume of 1-4%, annual net interest margin of 140-180 basis points (bps) and cost to income ratio of 50-60% for the segment, scheduled to start from 2012 through 2016.
Concurrently, UBS expects annual increase of 3-5% in net client assets, annual gross margin of 32-38 bps and cost-to-income ratio of 60-70% for Global Asset Management division.
Moreover, on the investor day, UBS announced the dividend of CHF0.10 per share for 2011. Previously, the company paid cash dividend of CHF 2.20 per share in 2006, which was embarked thereafter following huge losses of more than $50 billion in writedowns on illiquid securities in the financial crisis.
We expect UBS to successfully meet its planned developments and strategies. Moreover, despite the sluggish economic recovery, achievement of the set targets in the long term will act as positive catalyst for the company.
Earlier in November, one of UBS’s peers, Credit Suisse (CS), announced to slash 1,500 jobs and 50% of risk-weighted assets in fixed income by 2014, aligning investment and private banking.
UBS currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating.
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