Business Context and Reporting Period
This Form 6-K filing, dated June 1, 2016, contains the transcript of remarks by Thomas Naratil, President of Wealth Management Americas (WMA) and President of UBS Americas, delivered at an industry conference on May 31, 2016. The discussion focuses on Naratil's first 150 days in his new role, strategic priorities for the U.S. region, and the integration of Wealth Management Americas with the broader UBS Group.
Key Financial Metrics
- Pre-Tax Profit (WMA): Approximately $1 billion annually.
- Pre-Tax Profit (Americas Region): CHF 1.8 billion for the full year 2015, ranking second only to Switzerland within the group.
- Assets Under Management (WMA): Over $1 trillion managed by approximately 7,000 advisors.
- Deferred Tax Assets (DTAs): Approximately $7 billion in recognized DTAs and $14 billion in unrecognized DTAs in the U.S.
- Capital Efficiency: U.S. profits are described as highly capital accretive due to financial crisis-era net operating losses, allowing profits to accrete directly to capital.
- Compliance Costs: Estimated low double-digit million dollar cost to comply with the Department of Labor (DOL) fiduciary rule.
Material Changes and Strategic Focus
The filing highlights a strategic shift from "fixing" the business (the mandate of the previous leadership) to driving "substantial, sustainable profit growth." Key strategic pillars include:
- Collaboration: Deepening integration between Wealth Management Americas, the Investment Bank, and Asset Management to leverage global capabilities and achieve economies of scale.
- Advisor Productivity: Maintaining an "advantageously small" advisor base (targeting 6,500–7,000) to ensure high productivity per advisor rather than pursuing growth through mass recruitment.
- Technology: A strategic alliance with SigFig to enhance advisor tools and client interfaces, focusing on a "build vs. buy" approach that converges U.S. and global technology platforms.
- Regulatory Landscape: Preparation for the Foreign Bank Enhanced Prudential Standards (Reg YY) and the Comprehensive Capital Analysis and Review (CCAR) process, with the first public submission expected in 2018.
Outlook, Risks, and Management Commentary
Outlook and Commentary: Management views the U.S. as a critical "second home market" with significant upside. Naratil emphasized that the U.S. is the world's largest wealth and fee-paying market where UBS is currently underweight. The firm aims to capitalize on the $14 billion in unrecognized deferred tax assets, which requires sustained profitability within a specific valuation window.
Risks and Contingencies:
- Regulatory Compliance: The CCAR process is identified as critical for upstreaming capital to the group level. Failure to pass qualitative and quantitative tests could restrict capital distribution.
- Political Uncertainty: Client surveys indicate the 2016 U.S. Presidential election is the overriding concern for investors, with 61% expressing high worry in April 2016.
- DOL Fiduciary Rule: While viewed as a net positive for institutional consulting, the rule presents operational challenges and potential friction in client relationships regarding ERISA accounts and IRAs.
Investor Verification Checklist
- Verify the timeline and status of UBS's U.S. Intermediate Holding Company (IHC) certification under Reg YY (due July 31, 2016).
- Monitor the progress of the CCAR process to ensure the ability to upstream capital from the U.S. to the group level by 2018.
- Track the utilization of the $14 billion in unrecognized deferred tax assets against the seven-year valuation window.
- Assess the impact of the SigFig partnership on advisor productivity and technology convergence costs.
- Review future earnings reports for the impact of the DOL fiduciary rule on revenue streams and client retention.