With Russia’s economy expected to become the world’s tenth largest in the near future, and real GDP growth forecast at 7.5% for 2007, the strategic imperative for UBS’s June launch of a domestic onshore wealth management business in Moscow is clear. Harnessing the long-term potential with a domestic business will help UBS take advantage of the opportunities to grow significantly in Russia and Eastern Europe – while helping it maintain its position as the leading global wealth manager.
Currently, large state-owned banks hold most of the country’s private assets, with foreign banks accounting for less than 10% of the market. And, as most wealthy Russian potential clients are relatively young entrepreneurs well versed in the nuances of modern business and investing, UBS
sees an obvious and growing demand for increasingly sophisticated domestic banking products and services. The Moscow onshore office will be able to meet those needs effectively and promptly for the whole country as Russia, unlike other European markets, does not require a typical geographical domestic spread of ten or 20 branches to cover 60–70% of the market.
Expansion into Russia is part of a considered long-term strategy. Over the past decade, UBS has shaped the leading equity brokerage and investment banking business in Russia, and built up a strong international wealth management client base. It first opened a representative office in 1996
and, with the creation of the Brunswick joint venture in 1997, was one of the first foreign banks in the Russian market. Unlike many foreign investors, UBS remained in Russia throughout the 1998 financial crisis. In 2004, it strengthened its commitment to the country by purchasing its joint venture partner Brunswick to form UBS Securities, a wholly-owned subsidiary.
From the start, UBS envisaged a wholly integrated Moscow wealth management, asset management and investment banking operation. To that effect, it created a single, flexible and expandable operating platform for all three, allowing UBS to raise the number of employees working in Moscow fairly rapidly with little disruption, resulting in lower unit operating costs, and increased efficiency. Beyond that, it also aids the different businesses to service the needs of a joint customer base far more effectively.
Having a closely integrated approach in Russia is crucial from a strategic point of view, as many international financial institutions now have domestic banking licenses. The main competitive advantage UBS believes it has and will keep, however, is that it offers all its key services and products from a single source, and not a selection, as most competitors do.
Most experts believe the Russian economic environment has become more stable since the beginning of the 1990s as, unlike many other developing markets and countries, it has become a net creditor country. Indeed, according to the Capgemini World Wealth Report, the number of wealthy private individuals in Russia rose 15.5% in 2006 alone. The supportive environment, and UBS’s onshore expansion, should make the firm’s plans to become the foremost Russian wealth manager, alongside its leading equity brokerage, fixed income, and investment banking businesses, entirely realistic.
