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Wealth management banks' H1 inflow rebound slowed by worries over trade, economy

The world's biggest wealth management banks have recovered from the market turmoil in late 2018, booking net new money inflows in the first half of 2019, but growth rates lagged prior-year results owing to continued investor cautiousness, rating agency DBRS said Aug. 13.

"Wealth management activity continues to be negatively affected by the uncertainty surrounding the global economy and trade agreements, which is preventing customers [from making] further investments," DBRS said in an analysis of first-half earnings at UBS Group AG, Bank of America Corp., Morgan Stanley and Credit Suisse Group AG, the top four wealth management banks globally.

Muted sentiment

Although all banks booked net new money inflows in the period, the pace of inflows was sluggish, according to DBRS. At all four banks, the level was lower than in the first half of 2017, and at UBS, Credit Suisse and Bank of America it was lower than in the first half of 2018, too.

Inflows at most banks even lagged the "very weak" results booked in the second half of 2018, as many of their clients were still reluctant to invest given the global economic and geopolitical environment, the agency noted.

"Macroeconomic and geopolitical uncertainties have affected investor confidence and led to clients trying to de-risk, change asset allocations and delay investment decisions," Elisabeth Rudman, head of the European financial institutions group at DBRS, said in an emailed comment.

First-half assets under management grew at 9% on average at the financial institutions under review, from the end of 2018, with Morgan Stanley posting the highest increase of 10.9%, followed by Bank of America with 10.6%, UBS with 9.1% and Credit Suisse with 5.6%. Nevertheless, clients continued to move assets into cash amid the ongoing uncertainty around financial markets and global economic prospects, DBRS said.

"Overall, investors lack the conviction to step into the market right now, waiting for prices to be more attractive before increasing their exposure," Sergio Ermotti, CEO of UBS, the world's largest wealth manager, said during the group's second-quarter earnings presentation July 23. Even with a general increase in asset prices, the share of cash in client portfolios has increased further over the period, Ermotti noted.

The macroeconomic environment will remain a key factor affecting investor confidence over the second half of 2019, which could weigh on the banks' net new money, or NNM, and assets under management, or AUM, growth in the second half of 2019, according to Rudman.

"Further market volatility would also likely be negative for NNM and AUM growth," she said.

Regional differences

UBS' quarterly investor survey also showed that "investor sentiment remains muted with persisting concerns over national politics, geopolitical uncertainty, and global trade," the CEO said.

The group has seen a regional divergence in sentiment with a particular decline in Asia where investors are more concerned about the impact of trade tensions on business, whereas the mood in Europe and the U.S. was improving, Ermotti said.

DBRS noted a regional divergence within the sample group of banks itself. The low-interest-rate environment affected UBS and Credit Suisse more than their U.S. peers. While the Swiss banks reported year-over-year declines in net interest income in their wealth management business, both Morgan Stanley and Bank of America booked higher net interest income in the first half of this year.

The environment of very low rates across Europe, which affects local banks' overall profitability and puts them at a disadvantage to American counterparts, is likely to persist for some time given the economic outlook, Rudman said.

Morgan Stanley and Bank of America outperformed the Swiss banks in terms of first-half wealth management revenues as well, booking respective year-over-year growth of 3.3% and 1.3%, DBRS said. Credit Suisse posted a 1.1% year-over-year rise in wealth management revenues, while UBS posted a 5.4% drop, driven by a move of invested assets out of equities as a result of macroeconomic uncertainties. Seasonal outflows for U.S. tax payments also had a negative impact, according to DBRS.