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Lending to Wealthy Clients Gives UBS’ Wealth Business a Boost

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It’s been a challenging period for wealth management firms. Markets are down this year and so are the fees wealth managers collect on the assets they oversee. But there’s a bright spot for the industry’s biggest players: loans to wealthy clients.

Several wealth managers have reported that net interest income soared during the second quarter thanks to higher interest rates and steady demand for securities-based loans, mortgages, and other lending products.

UBS

Gianluca Colla/Bloomberg

UBS , the latest big wealth management firm to report earnings, said July 26 that net interest income for its global wealth management business jumped 24% year over year to $1.268 billion. The increase was even bigger for its Americas wealth management unit.

The jump in net interest income helped offset declines in fee-based and transactional revenue for UBS’ global wealth management business. The unit’s revenue fell 2% to $4.677 billion for the quarter.

Other wealth managers have reported similar increases. For example, Bank of America ‘s wealth management unit, which includes Merrill Lynch, notched record revenue for the second quarter, lifted by a 33% year-over-year surge in net interest income. Goldman Sachs ‘ consumer and wealth management unit reported that private banking and lending jumped 23% year.

UBS, like its competitors, has strived to serve more of their clients’ financial needs beyond investments. The company’s Americas operations reported $3.8 billion in net new loans for the quarter. 

UBS is also focusing on serving high-net-worth and ultrahigh-net-worth clients. Advisor headcount for the company’s Americas business has trended downward, falling to 6,139 for the second quarter from 6,199 for the prior period.

Assets for the Americas business fell to $1.569 trillion from $1.772 trillion for the prior quarter due to market declines, though assets were up from $1.369 trillion for the same period last year, according to the company’s earnings reports. The unit reported net outflows of fee-generating assets of $3.5 billion for the quarter.

“The second quarter was one of the most challenging periods for investors in the last 10 years,” UBS CEO Ralph Hamers said in a statement. “Inflation continues to be high, the war in Ukraine is ongoing, as are strict Covid policies in parts of Asia.”

The bank also disclosed that it is one of several firms facing a regulatory investigation by the Securities and Exchange Commission and the Commodities Futures Trading Commission into employees’ use of private messaging apps and the firm’s record-keeping requirements. “The SEC and CFTC are conducting investigations of UBS and other financial institutions regarding compliance with records preservation requirements relating to business communications sent over unapproved electronic messaging channels,” UBS said, adding that it is cooperating with the investigations. Earlier this month, Morgan Stanley said it would take a $200 million charge related to regulatory investigations regarding employees’ use of unapproved personal devices and the firm’s record-keeping requirements.

Hamers said the company continues to see opportunities, saying that separately managed accounts in the U.S. and UBS’ digital platforms continue to attract inflows.

Earlier this year, UBS said it would acquire robo-advisor Wealthfront in a bid to cater to mass affluent investors. The company also recently hired Naureen Hassan who will replace Tom Naratil as president of UBS’ Americas unit. Naratil has been serving as co-head of global wealth management at UBS and the president of the Swiss bank’s Americas business. He will step down on Oct. 3.

Write to Andrew Welsch at andrew.welsch@barrons.com