The most profitable, most international, and largest bank in the world, and the one with the most universal product offering, spanning retail, private, commercial and investment banking, is Citigroup. But the reputation of last year’s winner of the best bank award has been tarnished throughout the investigations by New York state attorney-general Eliot Spitzer into the influence investment bankers – and senior management – exerted over equity analysts. It has paid hefty financial reparations, its share price has suffered and the bank has even had to reconsider its business model.
Other leading universal banks have enjoyed mixed fortunes in the past year. JPMorgan has suffered failures of internal risk control, though its most recent quarterly results show clear signs of improvement. Deutsche Bank’s global markets business has performed superbly but the bank is still going through an overhaul in which non-core businesses – private equity, passive asset management, custody – have been shed. And it has suffered from the German downturn. HSBC has stepped outside its usual businesses with the purchase of Household in the US and seems on the point of a new effort in global investment banking.
UBS, the winner of this year’s best bank award, has a sharper focus. It has striven to be a global leader in wealth and asset management and investment banking. These are businesses subject to securities market cycles. Yet, even with global equity indices falling over the previous year, UBS had done well in its chosen markets in market share and financial returns. It has won private-banking client assets, as other banks have lost them. It has risen to the top of the tree in foreign exchange, a market traditionally dominated by commercial banks, and in equities, traditionally dominated by the US securities houses.
Its managers have shown themselves to have safe hands: the bank has not been hit by credit losses or proprietary trading calamities. Its share price has held up better than those of most competitors as a result.
“Strategic consistency has been a key for us,” says UBS president Peter Wuffli. “So we didn’t go into bancassurance – even though that was a temptation in recent years, given prices – nor into retail banking outside Switzerland. We do not see a workable pan-European retail model. Instead we have maintained our focus and striven to balance cost control and risk control on the one hand and achieving organic growth on the other.”
And the bank has been ruthless on costs. It picked up an energy trading team from Enron. But when the business didn’t work out as planned, it cut it quickly, shedding some 500 jobs. It quit Japanese private banking and pared back in equities.
It has also been ruthless with its balance sheet. Wuffli says: “We’ve moved out of non-core loans. We’ll use our balance sheet to support specific client relationships,” he says. “But we’ve also exited certain relationships.” He adds: “Ten years ago the Wall Street firms got all the juicy business from corporates and the banks did all the financing below their cost of capital. Well, certain European banks have figured that one out.”
He adds that what distinguishes UBS is that is has “an integrated model, with one management group and culture which you need to manage the trade-offs between the bankers who represent the clients and the risk control people who defend the balance sheet”.
UBS has also been investing: notably in European wealth management and US investment banking. The plan in investment banking has been to build a business that is sufficiently balanced between the US, Europe and Asia – and between debt, equity, forex and classic investment banking – which has built-in hedges and a more stable and higher returns on equity.
In private banking, Wuffli says: “Our proposition is to be the employer of choice for good bankers who are frustrated with their current employers and looking to move.” This business is expanding across France, Germany, Italy, Spain and the UK. And the bank is working to improve the relationship between its private bankers and investment bankers.
“After the merger [between SBC and UBS] and post LTCM we had big debates about investment banking and whether we needed it,” recalls Wuffli. “We concluded that we couldn’t be big in private banking without content. And we concluded that to be seen as a winning team in investment banking we had to make a go of it in the US, which is 60% of the global fee pool.” The acquisition of PaineWebber brought US distribution that has helped the bank to at least put itself firmly on the map in the US. “We have momentum and have enjoyed a huge increase in penetration among Fortune 500 companies,” says Wuffli. “In the US there is a desire for some alternative to the established top banks.”
It is a sign of increasing confidence and clarity that UBS embraced a single brand last month. Wuffli recalls being urged by, among others, PaineWebber brokers in the US to do this: to establish them as part of a bigger, financially strong, global powerhouse. It is after all, the world’s sixth-largest bank by shareholders’ equity, the fourth largest by market capitalization and the world’s largest private bank.
And it’s becoming the bank that other banks use. Look no further than its rise to the top of the global forex rankings. This was the result of smart investment in technology and an early appreciation of an under-served customer base: other banks. Its bank-for-banks strategy redefines regional banks as customers rather than competitors. Attracting their forex volumes onto the UBS system gives the customer bank – and its own end clients – better pricing and execution and brings UBS higher volume. Watch for it to do the same in other businesses, such as equities.
