CEO Sergio Ermotti expects Iqbal Khan, the new co-head of UBS Group AG's flagship wealth management arm, to bring expertise and different ideas for growth in the business, he said Oct. 22.
Khan's appointment is not expected to lead to significant structural changes in the division, Ermotti said during a presentation of third-quarter earnings. However, as with every newcomer in the organization, Emotti said Khan will bring "something different, a new approach" to wealth management, which accounted for roughly 68% of group pretax profit in the quarter. Khan, who joined Oct. 1 from competitor Credit Suisse Group AG, will co-head the UBS global wealth management business with Thomas Naratil, formerly head of the UBS Americas business.
Ermotti said he had asked Khan to take the first 60 days in the new job to make his own assessment of the business and the UBS franchise. Then, in early December, Khan should present new ideas and opportunities for global wealth management, Ermotti said.
Based on Khan's work at Credit Suisse, where he achieved a near doubling of pretax income in wealth management through expansion of the loan book, Khan may take a more growth-oriented approach at UBS, Berenberg analysts said in an Oct. 21 note.
Although Khan was asked to think about alternative business opportunities, his first priority is to help with the execution of the wealth management division's existing plans, Ermotti said. UBS needs to keep the momentum in the business and complete existing initiatives, he said.
There will be no regional division of responsibilities between Khan and Naratil regardless of the latter's previous focus on wealth management in the Americas. Khan and Naratil will run the unit jointly, Ermotti said.
Low rates bite
The Swiss group's third-quarter net profit attributable to shareholders and total operating income both dropped year over year, as the low rate environment continues to hurt net interest income and geopolitical tensions mar investor sentiment. "The low and persistent negative interest rates and expectations of further monetary easing will adversely affect net interest income compared with last year," UBS said.
A further 25 basis-point rate cut by the Federal Reserve will result in a $60 million reduction in annual net interest income, excluding any volume changes for pricing action, CFO Kirt Gardner said Oct. 22.
The group's net attributable profit fell to $1.05 billion from the prior year's $1.25 billion but beat analyst expectations of $971 million. Total operating income was in line with expectations dropping to $7.09 billion from $7.43 billion a year ago. Net interest income came in at $1.09 billion, down from $1.18 billion a year ago.
Wealth management along with the personal and corporate banking division are particularly sensitive to rate movements. Both units booked lower net interest income for the third quarter. In wealth management, however, a surge in transaction-based income offset the decline, leading to a 1% rise in total operating income. Growth in investment assets should also mitigate the decline in net interest income, UBS said.
Reacting to the lower-for-longer rate environment, the Swiss National Bank raised the threshold for sight deposits exempt from negative interest rates from Nov. 1. Interest on sight deposits at the SNB currently stand at negative 0.75%. UBS, which holds "significant" sight deposits at the central bank, expects the move to benefit its net interest income.
Gardner and Ermotti said UBS will not charge negative rates on retail deposits. The group already charges its high net worth clients. While he did not give the exact rate of the charges, Gardner said it is in line with the key central bank rate.
Earlier this month, Credit Suisse said it will charge deposits above CHF2 million at negative 0.75%.