UBS tries to crack the American market at last

UBS dominates in Zurich, but in the lucrative US market it is still catching up. Keystone / Gaetan Bally

The Swiss group wants to be valued as a global wealth manager rather than a European bank. But it lags far behind its Wall Street rivals.

UBS wants to convince investors it is not just a European bank. First, it has to prove it can make more money in America.

A national banking licence and a return to client inflows have given the Swiss bank’s US wealth business cause for optimism after a bruising period of adviser departures, weak profitability and an internal overhaul.

But UBS remains far from matching Wall Street rivals in the world’s richest wealth market, and proposed Swiss capital rules threaten to make its US operations more expensive just as it tries to close the gap.

Investors have long seen the potential prize. When Cevian Capital disclosed a €1.2 billion (CHF1.1 billion) stake in late 2023, the activist investor’s co-founder Lars Förberg argued that the bank was being valued “like an average European bank, not as a leading global wealth manager”.

Closing the valuation gap with Morgan Stanley, he said, could eventually double UBS’s value. People familiar with Cevian’s investment thesis said improving the US wealth business was central to achieving that aim.

The opportunity is clear. The US is home to almost half the group’s invested wealth assets and the world’s largest concentration of private wealth.

But building a profitable franchise in the country has proved one of the bank’s most persistent challenges.

The Swiss lender has a troubled history in the US. In 2000, it paid $12 billion (CHF9.7 billion) to acquire US brokerage PaineWebber in what was then the largest foreign takeover of a US securities firm in history.

But the expansion was later overshadowed by a series of scandals, notably revelations that UBS had helped wealthy Americans evade taxes through undeclared offshore accounts.

The bank paid $780 million in penalties over the affair in 2009, suffered severe reputational damage and was forced to sharply scale back its cross-border private banking business.

New bid to break in

Years later the bank is once again on the offensive. UBS’s 2023 state-sponsored rescue of Credit Suisse transformed its wealth management business across Europe, the Middle East, Latin America and Asia. But its domestic rival had quit the US wealth management business years earlier, so the takeover did little for its ambitions across the Atlantic.

When chief executive Sergio Ermotti unveiled UBS’s post-Credit Suisse strategy in early 2024, fixing the US wealth business became a central priority. 

The problem was profitability. At the time, the Americas wealth business generated a pre-tax margin of less than 10% – a fraction of the numbers achieved by its biggest US competitors. Morgan Stanley’s wealth management division – which combines its adviser business with the self-directed brokerage E*Trade – reported a pre-tax margin of 29% last year.

UBS’s plan was to lift profits, attract more client money and build broader banking relationships with wealthy Americans.

Turning that ambition into reality proved difficult. After attracting new client money in 2023 and 2024, the US wealth business stumbled last year, suffering client outflows for three straight quarters.

The deterioration coincided with a sweeping overhaul led by two executives with deep investment banking backgrounds but less experience running a US financial adviser franchise.

Rob Karofsky, an equities trader who previously co-led UBS’s investment bank, was appointed head of the Americas and global co-head of wealth management in July 2024. Michael Camacho was recruited the same year as head of US wealth management, joining from JPMorgan after more than three decades in investment and private banking.

But hundreds of financial advisers have since left the business, according to people familiar with the matter, forcing managers to spend much of the past year focused on retaining advisers rather than recruiting new ones, while rivals including Morgan Stanley and JPMorgan continued hiring aggressively.

Difficult restructuring efforts

One flashpoint was a change to UBS’s adviser compensation model. The bank scrapped its longstanding “combined team grid”, a system that let advisers pool their revenues and boost their bonuses. Management believed the arrangement had produced more generous compensation packages than those offered by rivals. The move proved deeply unpopular.

“People got really pissed off,” said one person with direct knowledge of the matter.

Camacho had to adapt to the very different culture of a financial adviser business in the US. Unlike private banking, where clients’ primary relationship is with the institution, US financial advisers are paid largely through commissions and often own the client relationship themselves. 

Several people familiar with the business said that cultural shift proved more difficult than expected. UBS has since revised parts of its compensation structure, increasing payouts and benefits in an effort to stem departures.

There are signs the restructuring may be starting to bear fruit. The Americas wealth business earned $448 million in pre-tax profit in the first quarter while margins improved to 13.7%, approaching UBS’s 15% target for 2026. Management expects the business to attract more client money than it loses over the full year, despite seasonal second-quarter outflows.

Even so, the gap with Wall Street remains wide. The US wealth business remains materially less profitable than Morgan Stanley, Bank of America and JPMorgan, while continuing to operate with one of the weakest cost-to-income ratios among major wealth managers.

Adviser numbers also fell again in the first quarter, to 5,722 from 5,884 a year earlier and from 6,079 in the same period in 2024, according to UBS. However, the departures have stabilised in the last couple of quarters, the data show.

UBS said in a statement that its US wealth management business was “in the process of a multiyear strategic transformation that is ahead of schedule and is already delivering significant increases in revenues and profits”. The bank has said on earnings calls that it is not trying to match Morgan Stanley’s profitability.

However, Anke Reingen, banking analyst at RBC Capital Markets, said that while “the first quarter was encouraging . . . it’s still a case of seeing is believing for us”.

UBS believes the next phase of the strategy will come from its national US banking licence, which was approved in March and will eventually allow it to offer checking accounts, deposits, payments and lending products alongside investment advice. It should help the bank capture a greater share of wealthy clients’ financial lives while addressing one of the bank’s biggest competitive disadvantages: it earns far less from deposits and lending than its US rivals.

One person familiar with UBS’s strategy said clients were often “nudged to speak to advisers” by rival banks where they have their bank accounts. “It’s always a strong defence to have a complete set of offerings, including bank accounts.” 

The bank estimates UBS clients keep about $150 billion of deposits with rivals. It wants to increase the share of revenues generated from deposits and lending from 17% to 27%, which some executives believe could eventually lift US profit margins to about 20%. The first products are expected to be rolled out in the second half of 2027.

Catering to smaller fortunes?

UBS is also trying to broaden the types of wealthy clients it serves.

Historically, the wealth manager has focused on ultra-rich clients – “we’re the billionaire’s bank”, another person familiar with its strategy said.

While those relationships remain central to the franchise, executives believe faster growth lies in attracting people with smaller fortunes.

People with knowledge of the bank say about 55% of its US assets belong to ultra-high-net-worth clients, which UBS classifies in the US as individuals with more than $10 million in assets, compared with roughly a third at many US rivals.

The operational test is not the only threat to UBS’s American push. Switzerland’s “too big to fail” reforms, a response to the collapse of Credit Suisse unveiled in April, could make the US the most capital-intensive part of the bank’s global wealth strategy.

The government wants the bank to hold roughly $22 billion of additional capital against its foreign subsidiaries, with the US business accounting for the largest share.

That means the market UBS sees as crucial to closing the valuation gap with Wall Street rivals is also the one Switzerland wants it to devote more capital to.

The US-Switzerland connection

Some of the biggest Swiss banking upsets – from UBS’s losses during the global financial crisis to Credit Suisse’s collapse – have had a significant US dimension. A handful of Swiss politicians have even argued that UBS should eventually hive off or wind down parts of its international business, including its US operations.

However, Ermotti and chair Colm Kelleher do not view retreating from America as an option. The FT reported last year that UBS had held discussions about moving its headquarters to the US if the capital proposals were not eased.

If UBS is to justify the premium investors have long hoped for, management argues, its biggest opportunity remains across the Atlantic.

Executives privately acknowledge that the past year has required tough decisions but insist they were necessary to build a more profitable business. The benefits are now emerging, they say.

“It’s not linear growth,” said a second person familiar with the bank’s strategy. “There’ll always be some stumbles along the way, but we’re confident in what we’re doing.”

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