Published on 3 May 2024 on Zacks via Yahoo Finance
UBS Group (UBS) Plans to Reduce Cost in Asset Management Unit
UBS Group AG UBS plans to reduce hundreds of millions of dollars in expenditure in its asset management division, per Reuters. The bank is looking into cost-cutting opportunities for the particular segment as its profits are under pressure.The asset management business of the bank needs to reduce its costs to be able to compete in the market and remain profitable. The operating profit before tax (underlying) for the asset management business declined 5.1% in 2023 from the prior year’s figure while operational expenses jumped 35.3% to $2.1 billion.Also, in 2023, UBS' asset management business accounted for less than 7% of the bank's total revenues, whereas the wealth management division bought in more than half of UBS Group’s revenues.On the fourth-quarter 2023 earnings call, UBS stated that the bank is "not immune to structural issues facing the asset management industry." Hence, it plans to reduce its underlying cost/income ratio to less than 70% by the end of 2026 from 80.2% in 2023.The bank stated that achieving cost savings was a "critical component" of its strategy and it intends to expand the business while building on its strong partnership with global wealth management.UBS also mentioned that wealth and asset management segments should collaborate closely, particularly for separately managed accounts, which are huge single accounts customized specifically for clients.In other attempts to cut costs, according to the Reuters that cited SonntagsZeitung newspaper, UBS Group is planning to cut jobs in five separate waves, starting this June. Approximately 25% to 30% of former Credit Suisse staff could be laid off in the first wave of job cuts in June. The later waves are set to take place in the months of August, September, October and November. In total, 50-60% of former Credit Suisse employees are likely to be made redundant. This will help reduce costs by more than $13 billion by 2026.Alternatively, to strengthen its revenues, UBS focuses on inorganic growth efforts. These efforts include its wealth management joint venture (JV) with Japan’s Sumitomo Mitsui Trust Holdings (UBS SuMi TRUST Wealth Management Co.), which was launched in August 2021. It established another investment banking JV with Banco do Brasil SA on Oct 1, 2020. These efforts are likely to keep supporting its financials going forward. Moving ahead, a solid balance sheet position gives UBS Group an opportunity to undertake beneficial strategic acquisitions.Shares of UBS have jumped 41.5% on NYSE over the past year compared with the industry’s growth of 20.6%.
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