The logic of the firm – our business model

A winning model: We are a leader in wealth management. But at the same time our business model is not just about wealth management. It is clearly diversified and benefits from Personal & Corporate Banking, the Investment Bank and Asset Management, all supported by our Corporate Center. All are successful businesses in their own right. Together, they make a significant contribution to earnings, diversify revenues and generate high-quality returns.

With our business model we believe that we are well positioned to operate efficiently while absorbing upcoming changes to the regulatory environment. Our capital-accretive and capital-efficient business model helps us adapt to changes in regulatory requirements, while pursuing growth opportunities without the need for significant earnings retention. We believe that our business model can generate an adjusted return on tangible equity (excluding deferred tax expense / benefit and deferred tax assets) of around 15% in normal market conditions.

While firmly anchored in our home market of Switzerland, UBS is a global bank that generates 76% of its revenues outside Switzerland and operates in over 50 countries worldwide, employing over 60,000 people.

 

 

While we continuously adjust and improve to adapt to a changing environment, our strategic focus on global wealth management and universal banking in Switzerland enhanced by focused and competitive Investment Bank and Asset Management businesses is right for UBS.

Letter to Shareholders, UBS Annual Report 2017

The world‘s largest and only truly global wealth manager

On 1 February 2018, Wealth Management and Wealth Management Americas were combined into the unified business division Global Wealth Management. The creation of the integrated business division aims to further enhance our superior client experience and product offering in line with an increasingly global client base. Global Wealth Management provides our clients with broader access to more diversified global products and services and an integrated multi-shore offering.

The partnership between our wealth management business and our other business divisions is a key differentiating factor for UBS and a competitive advantage.    Collaboration

Global Wealth Management (GWM)

We are the global leader in wealth management for private clients, particularly in the ultra high net worth and high net worth segments. We seek to capitalize on our market-leading position in the ultra high net worth business and to increase our market share considerably in this segment. We also invest significantly in growing our high net worth and core affluent businesses.

Global Wealth Management provides comprehensive advice and tailored financial services to wealthy private clients around the world. Our clients benefit from the full spectrum of resources that a global firm can offer, including investment management, wealth planning, banking and lending, and corporate financial advice. Our model gives clients access to a wide range of products from the world’s leading third-party institutions that complement our own offerings.

How GWM wants to grow

Industry estimates suggest that global private wealth will grow by 6% per annum until 2021, with the higher wealth segments expected to grow at over 10% per annum during the same period. From a geographical perspective, the strongest growth is expected to come from Asia Pacific, with estimated annual market growth of 9.9%, according to the Boston Consulting Group Global Wealth Report 2017. Developed markets are expected to grow in line with or below the global growth rate (e.g., 5.6% per annum for North America and 3.5% per annum for Western Europe).

We expect this growth profile to be favorable for our strategy focusing on the largest and fastest-growing markets, which informed our early push to build up our capabilities in Asia and the ultra high net worth segments. We are the largest foreign wealth management firm by assets under management in key Asia Pacific markets as a result of our early entry into the region. We are also well positioned in the ultra high net worth segment, where we leverage the capabilities of our wealth management business and the Investment Bank as well as Asset Management.

We expect to more effectively capture the purchasing power of Global Wealth Management’s CHF 2.3 trillion invested asset base and generate greater synergies across technology, innovation and other areas of investment. Regional variations in the client service model will be maintained, while middle- and back-office functions will be more closely aligned and integrated.

Personal & Corporate Banking (P&C)

As the leading personal & corporate banking business in Switzerland, we provide comprehensive financial products and services to private, corporate and institutional clients in Switzerland. We are among the leading players in the private and corporate loan market in Switzerland, with a well-collateralized and conservatively managed lending portfolio.

How P&C wants to grow

Our home market, Switzerland, is an attractive market for personal and corporate banking. Switzerland is one of the wealthiest countries in the world, with average net wealth per person of approximately CHF 185,000 according to our research. However, sustained negative interest rates in Swiss francs have put pressure on banks’ net interest income. From a corporate banking perspective, Switzerland is home to a significant number of large multinational corporations and exporters that have performed well despite pressure related to the strength of the Swiss franc in recent years. UBS has built a leading position with personal as well as corporate and institutional clients in Switzerland. Our objective from here is to strengthen that position through comprehensive digitalization efforts aiming to deliver a superior client experience.

Asset Management (AM)

With approximately CHF 776 billion of invested assets and an onshore presence in 23 countries, AM offers investment capabilities and investment styles across all major traditional and alternative asset classes, as well as platform solutions and advisory support, to institutions, wholesale intermediaries and wealth management clients around the world.

How AM wants to grow

The asset management industry is forecast to grow by approximately USD 20 trillion over the next four years, primarily driven by increases in private provision for retirement and wealth accumulation in emerging middle classes. The biggest growth is expected to come from passive assets and customized solutions, with only moderate growth in actively managed strategies. Due to our diversified offering, ranging from our passive and differentiated traditional active investment strategies to our industry-leading alternative capabilities, we believe that we are well positioned to benefit from this trend. With a view toward further strengthening our position in the market, we continue to expand initiatives in line with our clients’ needs, such as our Platform Services offering, sustainable and impact investing, and our extensive offering in China.

Investment Bank (IB)

The Investment Bank provides investment advice, financial solutions and capital markets access in over 35 countries, with principal offices in all major financial centers.

We aspire to provide best-in-class services and solutions to our corporate, institutional and wealth management clients, through an integrated, solutions-led approach, driven by our intellectual capital and leveraging our award-winning electronic platforms. With our client-centric business model, we partner with our wealth management, personal and corporate banking and asset management businesses, and we believe we are well positioned to provide our clients with market insight, global coverage of markets and products, and execution services.

Our IB is capital efficient and client focused. It offers attractive risk-adjusted returns and strives for leadership in areas where we choose to compete. Our focus remains on our traditional strengths in advisory, capital markets, equities and foreign exchange businesses, complemented by a rates and credit platform.

How the IB wants to grow

The shift in global revenue pools from investment banks to other capital markets players (i.e., custodians, buy-side firms, information providers and exchanges) observed in recent years is expected to ease. Specifically, an external survey forecasts that investment banks’ market share will stabilize at about 34% of global industry revenues in 2020, corresponding to USD 249 billion, i.e., a 2% compound annual growth rate from 2016 through 2020. M&A will likely be a material revenue driver for investment banks as a consequence of the US’s Tax Cuts and Jobs Act signed in December 2017, which may cause corporations to allocate capital to deal-making. We believe UBS is well positioned to capture the value generated from this expected increase in activity due to its client-centric business model and global M&A infrastructure.

Corporate Center (CC)

Corporate Center is the engine room of UBS. The CC:

  • includes the Group’s control functions (e.g., finance, risk, including compliance, and legal) and logistics and support services such as operations, information technology, human resources, communications and branding, physical security and information security
  • provides the Group’s liquidity and funding, balance sheet and capital management services
  • manages the wind-down of the non-core businesses and legacy positions

We seek to increase value by leveraging common capabilities and creating centralized functions. In 2017, we successfully completed the transfer of substantially all shared services functions to our separate Group service companies, which, in addition to meeting regulatory requirements, allows us to further strengthen our approach to service management while remaining efficient in the way we operate.

Thought leadership through innovation and world-class research

To use the full potential of our business model, it is essential that our clients have access to reliable, high-quality and insightful research that helps them make better decisions. To this end, a wide range of experts from across our business divisions contribute to our industry-leading research capabilities, targeted at specific audiences.

Our Investment Bank Research offers clients key insights on securities in major financial markets around the globe. Together with UBS Evidence Lab, UBS research analysts refine investor questions into testable propositions and apply various primary research methods, such as quantitative market research, digital footprint analysis, geospatial analysis or data science. In 2017, UBS was named Institutional Investor magazine’s Top Global Equity Research Firm of the Year. The recognition of this award positions us well under the new Markets in Financial Instruments Directive II (MiFID II) environment, where we continue to focus on our clients’ needs with a differentiated approach to question-driven, evidence-based research.

Our global Chief Investment Office (CIO) in Global Wealth Management draws on approximately 200 analysts, strategists, and investment professionals present in 10 key financial hubs globally and leverages access to buy-side partners and client networks. Seeking to add alpha to our clients’ portfolios, the CIO provides clear, independent investment views, known as the UBS House View. The UBS House View identifies and communicates investment opportunities and market risks to help protect and grow our clients’ wealth over generations.

Our Asset Management continues to enhance its proprietary sustainability database and toolset and has built a dedicated sustainability research team to work with our investment teams across asset classes.

Incorporating sustainability in products and services

We want to be the financial provider of choice for clients wishing to drive capital toward investments that support the achievement of the SDGs and the transition to a low-carbon economy. Our cross-divisional organization UBS and Society focuses our firm on this direction. UBS and Society covers our activities and capabilities related to sustainable investing, philanthropy, environmental and human rights policies governing client and supplier relationships, our environmental footprint and community investment.    Client focus  Sustainable performance  Collaboration

In 2017, UBS continued to gain industry recognition for its commitment to improving performance under ESG (environmental, social, governance) criteria and for its efforts in offering clients world-class expertise and sustainable products. Our firm maintained its leadership position in the Diversified Financial Services and Capital Markets industry group of the DJSI, the most widely recognized sustainability rating, for the third year running. The DJSI evaluates companies’ sustainability practices and recognizes the best performers. The RobecoSAM Industry Group Leader Report notes that UBS continues to lead in its industry on sustainability efforts, which are directed through UBS and Society.

The Report also highlights the large choice of sustainable investment solutions UBS offers to its clients. This clearly recognizes our goal of systematically incorporating the economic impacts of ESG issues into the products and services we provide to clients.

Asset Management is committed to integrating sustainability into our active investment capabilities, as part of our ambition to become a leading provider of sustainable solutions for sophisticated clients. To meet investors’ financial and sustainability goals, AM offers a wide range of sustainable and impact investing strategies across asset classes, from ESG integration to impact investing including investment themes such as renewable energy, environmental stewardship, social integration, health care, resource efficiency and demographics. In Global Wealth Management we continue to develop innovative solutions to help our clients address the challenges of an increasingly complex financial world and to respond to their evolving needs. We have expanded our discretionary mandate solutions to meet specific client needs and preferences. We are also strongly committed to broadening our sustainable and impact investment offering. Our Investment Bank provides capital-raising and strategic advisory services globally to companies offering products that make a positive contribution to climate change mitigation and adaptation, including those in the solar, wind, hydro, energy efficiency, waste and biofuels, and transport sectors. P&C supports Swiss SMEs in their energy-saving efforts and transition to a low-carbon economy. SMEs benefit from initiatives such as energy check-ups or leasing bonuses (financial contributions toward enhancing environmental performance) for utility vehicles and production machines.

Sustainability and innovation

Thinking sustainably equals thinking innovatively. Having the financial expertise, networks and access to the capital required to build or support innovative financial products we remain committed to introducing and funding innovative financial solutions. An excellent example in 2017 is The Rise Fund, a private equity impact investment vehicle that aims to achieve measurable, positive social and environmental outcomes combined with competitive financial returns. Our Asset Management business launched an innovative Climate Aware rules-based fund for UK investors. The portfolio is oriented towards companies that are better prepared for a low carbon future while reducing exposure to, rather than excluding, companies with higher carbon risk, in order to pursue strategic engagement with these companies.

The UBS Optimus Foundation makes UBS unique in the financial industry. It is an award-winning grant-making foundation that helps our clients use their wealth to drive positive and sustainable social change for children. The foundation connects clients with inspiring entrepreneurs, new technologies and proven models that help improve the lives of children in a variety of ways.