UBS is targeting China and Japan for business growth in asset and wealth management as well as investment banking, the bank’s newly appointed Asia-Pacific president Kathryn Shih told FinanceAsia.
The bank is embarking on a general build-out of its China-based operations. Chief executive Sergio Ermotti said at a conference in Shanghai on Monday that UBS planned to double its mainland headcount to 1,200 from today's 600. This includes more than doubling the number of wealth managers it has in the country.
Ermotti also highlighted a focus on asset management, predicting that China would increase its outward direct investment. “QDII overseas investment stands at just $90 billion, compared to the $9 trillion in Chinese domestic retail deposits,” he added.
More details on the bank’s asset management business plans appear in an article from AsianInvestor, a sister title to FinanceAsia.
Capital markets advantage
When it comes to its capital markets business, UBS has long possessed a sizeable advantage in China over other international banks thanks to its local securities joint venture, UBS Securities, which boasts a full array of securities licences.
This has enabled the Swiss bank to be able to act as a bookrunner for domestic IPOs and secondary offerings as well as deals done in Hong Kong or the US. Only one other bank, Goldman Sachs, has enjoyed a similar level of access and licences.
UBS ranked first for China IPOs and 10th for Hong Kong new listings in 2015, according to data provider Dealogic. It was the only international player in the top 10 for mainland IPO bookrunning in 2015, underlining its status as a serious onshore player, although 2015 was an admittedly truncated year of issuance due to Beijing’s moratorium on new deals for four months. UBS conducted the equivalent of $2.3 billion of new listings via four deals.
Shih argues that UBS's onshore ECM capabilities mean it is well-placed to benefit from a promising queue of issuers.
“There is a pipeline of 700 companies seeking to list in China, and once this period of market turmoil dies down there is a big opportunity,” she said. “And with our licences in the H- and A-share markets we have a huge advantage.”
Shih also pointed to UBS’s inclusion as an adviser on the announced merger of Cosco and China Shipping as another sign of its advisory strength in the country. “Being in China helps give us access to such deals,” she said.
As part of its efforts to grow in China, UBS is awaiting a licence to open a bank branch subsidiary in Xintiandi, in Shanghai.
Japan and beyond
Additionally, Shih says the bank sees revenue-generating opportunities in Japan.
“We are celebrating 50 years in the country and will focus on delivering more products across the board domestically in Japan,” she said.
She anticipates growth across investment banking, wealth management and asset management in the country, which is witnessing more capital market activity as a result of its sustained bout of quantitative easing.
Meanwhile, UBS is one of the few banks to be engaged in a broader push into Asia, as it seeks to take advantage of its status as the region’s leading private bank and a strong investment banking player. It intends to add more senior investment banking personnel and wealth managers.
“We have been hiring in terms of advisers for the investment bank, advisers for wealth management and we are continuing to grow asset management too,” said Shih.
She declined to offer specific numbers.
UBS has in some ways benefited from having to handle restructuring earlier than other players. Exposure to fixed income trading losses due to the global financial crisis led it to post a net loss of $17 billion that year and required a bail-out from the Swiss government. It released 1,782 global staff at the end of that year and another 240 staff in Asia-Pacific in 2009, and then 10,000 staff in 2012 as it pulled back from most fixed income trading operations.
These decisive moves, while painful, appear to have paid off. They allowed UBS to focus on core private banking clients, which has put it in a good position, while banks have suffered from falling revenues as a result of troubled fixed income trading exposures and the rising capital costs of these divisions.
The bank reported a net profit of CHF2.07 billion ($2.07 billion) for the third quarter of 2015, over two-and-a-half times higher than the same period of 2014, at a time when many investment banks saw year-on-year profits plunge.
UBS’s investment banking operations in Asia have contributed about 40% of its profit before tax to its global division, while wealth management is responsible for about 25%. Shih believes these percentages are likely to keep rising, not least because Asia continues to grow faster than other economic regions.
“For our asset gathering businesses we should see high-single-digit or even higher growth, but as is normal the investment banking business will depend on year to year,” Shih said.
