ubs (Photo credit: twicepix)
UBS is literally rewriting the time-tested formula of "If you can’t beat them, join them." The largest Swiss bank clearly believes "If you can’t beat them, employ them.” No wonder it has been on an unabashed poaching spree for the country’s top brokers. UBS has reportedly added nearly 50 reputed U.S. brokers to its payroll over this quarter – almost completely on the back of hefty signing bonuses. [1] The move looks in-line with the Swiss bank’s strategy of growing its wealth management business in the U.S. UBS is currently ranked 4th among the list of brokerages, with Morgan Stanley, Bank of America’s Merrill Lynch business and Wells Fargo taking up the top 3 spots.
We maintain a $16 price estimate for UBS, and attribute the 10% premium over the current market prices to the pessimistic outlook for European bank stocks in the wake of weak economic conditions and the European debt situation.
See our complete analysis of UBS here
UBS has been aggressively adding to its broker strength in the country by attracting top brokers employed with the bigger competitors Morgan Stanley and Merrill Lynch. Apparently, UBS is sweetening the deal for established brokers managing millions of dollars by offering them upfront bonuses up to 50% more than what competitors are willing to shell out. The bank is also hard-selling its smaller size as a positive for potential employees as it can afford them easier access to the upper management echelons.
But does this strategy make sense? After all, this move looks contradictory to the bank’s efforts to cut down on costs by shrinking its compensation pool (see UBS Slashes Compensation Pool By 40%, Stock Worth $16)
We believe there is some merit to the approach. This is because established brokers bring along many of their customers too, which is part of the contract. This brings the lucrative management fees and cross selling opportunities for other UBS products. This way, the bank ensures an increase to its customer list and assets under management as it adds these brokers. Also, the higher pay allows UBS to implement longer term contracts with the brokers – which helps reduce churn in the long run.
No doubt, the strategy does impose an additional pressure on the profitability of the business in the near term, but this strategy looks to pay off as long as the brokers keep performing.
Submit a Post at Trefis Powered by Data and Interactive Charts| Understand What Drives a Stock at Trefis
Notes:
- Analysis: UBS winning U.S. race for top brokers – at what cost?, Reuters, Mar 28 2012 [↩]
Like our charts? Embed them in your own posts using the Trefis WordPress Plugin.
