) is a financial services firm that offers a strong combination of
wealth management, asset management and investment banking services
on a global and regional basis. The Wealth Management division
accounts for about 48% of the
$19.30 Trefis price estimate for UBS's stock
, which is about 8% ahead of the current market price. We estimate
that the asset management division of UBS constitutes around 7% of
its stock price. The wealth management division of UBS competes
with of other banks like
The total Assets Under Management (AUM) for the wealth
management division of UBS was $1.34 trillion in 2009, as compared
to $840 billion for Credit Suisse and $1.56 trillion for Morgan
Stanley. The Wealth Management division for UBS is divided into
three main regions, based on assets managed for clients in those
regions. These are - Swiss Clients, Americas Clients and
International Clients (i.e. clients other than Swiss and Americas).
We discussed the growth in Asia as key driver to the stock in a
UBS Wealth Management is Key Driver to Stock Price.
The asset management division provides retail investors with a
full range of mutual fund and alternative investment products, and
institutional clients with a fully integrated asset management
offering. On the other hand, wealth management serves the needs of
high net-worth individuals as well as institutional investors with
full range of financial services.
The above bar chart compares the change in wealth management assets
for UBS, Credit Suisse and Morgan Stanley between 2006 and 3Q 2010.
Though strong global economic growth fuelled an increase in the
assets managed by these firms in 2007, they saw a significant
decline in their assets managed in 2008, due to the global
financial crisis. However, with global economic environment
improving in 2009, these firms have again managed to increase their
assets largely due to an increase in risk appetite and investment
activity by clients, a consequence of returns across most major
asset classes improving. Morgan Stanley in particular has been
scaling up its wealth management operations, expanding its business
significantly and entered into a joint venture with Citi's Smith
Barney, which should help growth this business further.
We estimate Swiss Clients to be most valuable for UBS,
contributing around 23% to its stock price with International
clients and Americas clients contributing 21% and 3% respectively.
This is largely due to the fact that the fees as a % of wealth
management assets are much higher for Swiss clients.
The low contribution of Americas clients is largely due to the
much lower operating margins for this division as compared to
operating margins for Swiss and International. This is due to much
higher personnel expenses as a % of revenues generated from
Americas as compared to Swiss and International. Americas has a
much higher client advisors to clients ratio than the other
regions. This may be due to the fact that though UBS is well
established in Europe and Asia, it faces much more competition in
the US, where the industry is more fragmented with the presence of
a large number of boutique wealth management service providers.
The Wealth Management Americas Operating Margin decreased from
10% in 2006 to -13% in 2008, largely due to a fall in revenues from
the Americas region during the economic downturn. However, with the
economic environment getting slightly better in 2009, the Wealth
Management Americas Operating Margin increased to 1% in 2009.
Going forward, as the economic environment further improves, and
the revenues from this region picks up, we expect the Wealth
Management Americas Operating Margin to gradually increase to
around 7% by the end of the Trefis forecast period. However, if the
Wealth Management Americas Operating Margin improves to the levels
for Swiss and International Clients by the end of our forecast
period, there can be an upside of around 18% to our current price
estimate for UBS's stock price. This can occur if UBS is able to
acquire more market share in the region as well as increase its
operational efficiency. This would enable it to increase its
revenues as well as reduce costs of operations. However, such a
scenario remains difficult. A more plausible scenario can be an
increase in Wealth Management Americas Operating Margin to 20% by
the end of our forecast period, thereby providing an upside of
around 8% to our current price estimate for UBS's stock.