UBS: Wealth Management
BACHELOR THESIS (CASE STUDY)
UBS: THE WAY TO BECOMING A GLOBAL PLAYER IN WEALTH MANAGEMENT
"On which critical foundational factors are UBS and its leadership in Wealth Management built and with which major event is the current UBS crisis to be explained?"
AUTHOR: ALAIN NTJAM
OLTEN, AUGUST 9, 2013
SUPERVISOR: DR. KONDOVA GALIA
INTERNATIONAL MANAGEMENT
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Abstract
Purpose: The objective of this bachelor thesis is to analyze in a case study manner, how the big Swiss bank UBS evolved and became a global player in wealth management. The guiding research question is: ‘On which critical foundational factors is UBS and its leadership in wealth management built, and with through which major event can the current UBS crisis be explained?
Methodology and approach: The first analytical tool of this paper is the PEST analysis that aims to find out which environmental condition in the 1990s facilitated the UBS merger and how it came to the merger. The motives for its direction of growth will be analyzed to understand the bank's strategic intent in regards to wealth management and the bank's growth path. The next chapter seeks to understand the corporate ‘one firm strategy’ of UBS, how it relates to its organizational chart and which role the North American wealth management market plays within the organization. Further a comparison to Credit Suisse is made. The last chapter within the main part of the thesis attempts to sort out the significant activities of the value chain which creates or adds wealth management value for clients. Part of this chapter is as well a look into the subsidiaries' wealth management strategies, their global presence and the global market position UBS has at the publication of this paper
Findings: UBS merger happened due to one big bank not being able to adapt early to its seemingly friendly business environment. The organizational structure that UBS inherited from SBC brought many advantages for its wealth management business. The differentiation strategy called the one firm strategy, the value chain and the overall organization of the group were some of the critical factors for UBS to become a major wealth management business.
Research limitations and implications: Formerly, a chapter devoted to the investigation of the financial crisis was planned. The supervisor of the paper and later on the author came to the conclusion that, the paper would be too long and loose its quality. An extended research into this topic was therefore not pursued. However, a more complete picture would be achieved by research work that reaches beyond the scope of this bachelor degree thesis.
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I. Introductory Part
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Acknowledgement
This writing of this paper is not only the accomplishment of the author, but as well of those who have supported him to reach this stage of life: A special thanks goes to: parents, siblings, the extended family, lecturers friends, comrades and the exchange students.
Further the author wants to express his utmost gratitude to Dr. Galia Kondova and Matthias Härri who have supervised the development of this bachelor thesis.
The authors would also like to express his special thanks to the member of the FHNW internal institute of finance. Without their lessons and the theoretical input over the years, the realization of this bachelor thesis would have been much more difficult
Last but not least, the author owes a sincere thanks to the International Management program and the University of Applied Sciences Northwestern Switzerland. It is on their leadership that this paper came into existence.
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Declaration of Authenticity
I the undersigned declare that all material presented in this paper is my own work or fully and specifically acknowledged wherever adapted from other sources.
I understand that if at any time it is shown that I have significantly misrepresented material presented here, any degree or credits awarded to me on the basis of that material may be revoked.
I declare that all statements and information contained herein are true, correct and accurate to the best of my knowledge and belief.
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Table of Contents
UBS: ...... 1 THE WAY TO BECOMING A GLOBAL PLAYER IN WEALTH MANAGEMENT ...... 1 Abstract ...... 2 I. Introductory Part ...... 4 Table of Contents ...... 7 1. Introduction ...... 10 1.1. My motivations for the topic ...... 10 1.2. Background of the paper ...... 10 1.3. What is Wealth Management? ...... 11 1.4. Summary of the main part ...... 11 II. MAIN PART ...... 12 2:The environment and objectives: Thefoundaments of a financial powerhouse ...... 13 2.1. The Swiss famous banking: The market situation before the merger ...... 13 2.1.1. Short Excursus: Additional information on the business environment ...... 17 2.2. Microeconomic Scale: Merger between SBC and Union Bank of Switzerland ...... 18 2.2.1. What was the combined power of SBC and the Union Bank of Switzerland? ...... 18 2.3. An unequal bipartisan scenario to the merger ...... 19 2.3.1 SBC’s path to the merger ...... 19 2.3.2. The old UBS and its path to the merger ...... 21 2.3.3.. Situation of Both Banks ...... 23 2.3.4. The Merger ...... 23 2.4. Global Expansion of New UBS - The choice of a major presence in the US ...... 24 2.4.2. Becoming a top wealth manager ...... 25 2.5. Conclusion to Chapter 2 ...... 25 3. UB and the 'One Firm' Strategy; Organizational structure & the role of wealth management in North America ...... 28 3.1. The One firm Corporate Strategy ...... 28 3.1.1 An attempt to grasp the strategy ...... 29 3.2. Corporate Structur: SBC's heritage ...... 31 3.3. From multiple to one brand: PaineWebber's role within the One Firm strategy ...... 35 3.3.1 Long lasting impact of the rebranding: A comparison of UBS 2003 and UBS 2012 ...... 36 3.4. Why there is a need for a second Wealth Management division ...... 38 3.4.1. The importance of the Wealth Management Americas or Wealth Management USA ...... 38 3.5. Wealth Management - Comparison with Credit Suisse and other banks ...... 41 3.4. Conclusion to Chapter 3 ...... 44 4. All WM Business at large and the Global Market ...... 46 4.1. A quick notice on Wealth Management at UBS and the central role of Switzerland ...... 46 4.2. UBS's Value Creation in Wealth Management ...... 46 4.2.1. Value Chain Analysis ...... 47 4.2 Divisional Strategies and Organizations ...... 55 4.2.1. UBS Wealth Management in Switzerland ...... 55 4.2.2. UBS Wealth Management ...... 56 4.3 Geographical Presence and Facts and Figures ...... 59 4.3.1. UBS Wealth Management including UBS Wealth Management Switzerland ...... 59 4.3.2. UBS Wealth Management Americas ...... 60
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4.4 Comparison with globally competing Banks - Top 20 Ranking ...... 61 4.5. Conclusio nto Chapter 4 ...... 62 III FINAL PART ...... 63 5. Conclusion: The critical foundational factors that made UBS a leader in Wealth Management and to a financial power house ...... 64 5.1. Lay out of the critical foundational factors ...... 64 8. Bibliography ...... 67
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Abbreviations
AUM Assets Under Management CRM Customer Relationship Management DRCM Dillon Read Capital Management FINMA Swiss Financial Markets Authority; successor of SFBC HNWI High Net Worth Individual with CHF 2 million to CHF 50 million investable assets HRM Human Resource Management IRS Internal Revenue Service IT Information Technology QI Qualified-Intermediary OECD Organisation for Economic Co-operation and Development SBA Swiss Bankers Association SBC Swiss Bank Cooperation SBG Schweizerische Bankgesellschaft (German for: Union Bank Switzerland) SFBC Swiss Federal Banking Commission Precursor of FINMA SIC Swiss Interbank Clearing System SNB Swiss National Bank (Central Bank of Switzerland) UBS Union Bank of Switzerland UHNWI Ultra High Net Worth Individual with more than CHF 50 million investable assets UN United Nation WM UBS Wealth Management WMA UBS Wealth Management Americas WMR Wealth Management Research
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1. Introduction
1.1. My motivations for the topic
From the author's point of view, the financial crisis was a point in time when media around the world mostly published bad publicity about the financial sector and their participants. Switzerland, the country in which the author lived was not impacted that badly by the financial market crisis. Nonetheless, the government had to intervene due to the financial crisis. UBS was seriously hit by this financial crisis that it had to be rescued. It seemed as if UBS accounted for a large amount of the negative press coverage about the financial sector in Switzerland. Yet, UBS remains the biggest international Wealth Manager. To understand this side of UBS and why it was that stable was the author's motive to undertake an investigation with this case study.
1.2. Background of the paper
This case study is one of the many topics that a student of the major Banking & Finance can choose. The company analyzed in this investigative case study is UBS AG. The international financial institution is headquartered in Basel and Zürich. The given topic of the case study is:
UBS: the Way to Becoming a Global Player (Case Study)
The subtopics which are based on the case description to be investigated are:
• Building a financial powerhouse • The 'One Firm' Strategy • The Global Financial Crisis
As each subtopic had the potential to be a thesis on its own, the author and the supervising lecturer agreed to focus on wealth management. It is a topic that interests the author and given the involvement of UBS, it is also a great source of learning. In order to investigate, with an even more focused approach, the author has come up with the following research question:
On which critical foundational factors are UBS and its leadership in Wealth
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Management built and with which major event is the current UBS crisis to be explained?
During the writing of the paper, it was soon realized that, researching the role of UBS during the global financial crisis would take on to much resources. Moreover the focus of the paper was on the wealth management and the investment banking subsidiary of UBS, which was more affected by this crisis than the wealth management business of UBS.
1.3. What is Wealth Management?
The term wealth management can be used differently, and is inconsistently used by different companies for the same expression. Often it is interchangeable with Private banking. On the contrary, wealth management and asset management are used in different internet pages, for the same German word Vermögensverwaltung. So what is the meaning of wealth management? According to a definition of Investopedia (Wealth Management, 2013) wealth management is:
A professional service which is the combination of financial/investment advice, accounting/tax services, and legal/estate planning for one fee.
UBS tends to use wealth management within a context that as well can include private banking. For the purpose of alignment, this standard for using wealth management will be part of this paper
1.4. Summary of the main part
The main section is the intelligence generating section of the paper. It is organized similar to the subtopics that the paper has to cover. Its first chapter, which is chapter two of this thesis, starts with an environmental analyzes of the Swiss financial market place and ends with a merger of two banks into the present day UBS. The Third Chapter investigates the ‘One Firm’ strategy that is part of the given topics. Further the role of the organizational chart and the importance of certain divisions will be looked at. The chapter ends with a comparative analysis with Credit Suisse. The fourth and last chapter of the Main part attempts to find what creates customer value, what the state of the wealth management businesses is and how it is competing globally as a whole.
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II. MAIN PART
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2:The environment and objectives: Thefoundaments of a financial powerhouse
In December 1997, it has been announced that two of Switzerland's three biggest Banks were about to merge. This message led many economists to believe that, the resulting ‘super bank’ will undermine the competitiveness of other banks and destabilize the Swiss financial industry as a whole (Egli and Rime, 1999:2). Despite all the heated debates, as of July 1 1998, Union Bank of Switzerland (UBS) and the Swiss Bank Corporation (SBC) merged into a new UBS that was only known under this brand name. This chapter aims to examine the environmental forces, which led to this development and attempts to rationalize the motives behind this magnificent step. A critical aspect to analyze as well within this chapter is the expansion path which the new financial institute would take.
2.1. The Swiss famous banking: The market situation before the merger
The business activities of banks are critical to a country's economy. For the bank to perform its societal role, there is need for a stable financial sector. Understandably, this explains why countries compete to have the most attractive banking industry. Reputed for its decades’ long experience and excellence in banking and wealth management, Switzerland was as of 1997, an important international finance center. The following PEST analysis, done by the author of this paper, illustrates Switzerland's attractiveness for banking and which impact it may have on Wealth Management (WM).
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Table 1: PEST analysis for Swiss Banking sector and Wealth Management, 1990s Factors Impacting elements Possible impact on Wealth Management
Political - Banking law of 1934 is un - Enhanced discretion - Neutrality & Stability - enhanced nonpartisan rule - Switzerland not member of the UN - Strengthened by Legal - Self-regulatory body of Swiss Bankers Association Foundation - Regulation by Experts Economic - Mortgage Crisis early nineties Before 1996 - 42 billion write offs for banks - Weak Banks - No Real Growth during the 1st half of the 1990's - Clients may fear losing money - Swiss Franc backed by 40% precious metal until 1997 - Stable economy in the late 1990s After 1996 - increased trust - assured by stable currency Social - Jewish World War II wealth scandal - Damaged Reputation Technological - Swiss Interbank Clearing System (SIC) - Smooth transactions and superior supportive IT technology
Political Factors With the enactment in 1934 of the Banking law also known as the Swiss Federal Law on Banks and Savings Banks, Switzerland codified its bank secrecy into law (Bankengesetz, BankG). The most significant article of this law is described as follows on the SBA's (2013) webpage:
"The Swiss banker's professional duty of client confidentiality is codified in Article 47 of the Federal Act on Banks and Savings Banks (available in German, French and Italian only), which came into force on 8 November 1934. The article stipulates that anyone acting in his/her capacity as member of a banking body, as a bank employee, agent or liquidator, or as a member of a body or an employee belonging to an accredited auditing institution, is not permitted to divulge information entrusted to him/her or of which he/she has been apprised because of his/her position."
This has given Switzerland a competitive advantage over other financial centers. What further raised the desirability of Switzerland’s financial sector is the country’s political independence from international blocs and bodies. As a neutral and secure country during the Second World War, it became a safe place for high-net worth individuals willing to secure their financial assets (Löpfe, 2010). Later in the 90s, it still was neutral and was one of the few countries still not belonging to the UN. Combined with a stable macro economy and the bank secrecy laws in force, Switzerland along with its bank secrecy became a critical success factor for international banking.
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The SBA's political role as a self-regulatory entity of the banks broadened the sphere of political influence enjoyed by Banks in Switzerland and has hence fostered the uniqueness of Swiss Banking. Despite the fact that this self-regulatory undertakings are under the watch of the FINMA or its forerunner in the SFBC in the nineties, it can be said that not all banks can dispose of such political power in their countries (SwissBanking website, 2013).
Economic Factors The Swiss economy after 1996 could have been generally described as growing and prosperous. Nonetheless, from 1991 to 1996 the Swiss banking industry had to totally write off a total of CHF 42 billion. This mortgage crisis was due to widespread incautious loan outs during the eighties that resulted in several defaults. 70% of these write offs were on the account of the three big banks (Leitz, 2012:31).
Apart from a considerable low inflation rate, the monetary policies of the SNB contributed to a having the Swiss franc or CHF as fairly stable currency. The SNB that was and is mandated to manage the currency was up to 1997 legally mandated to back all bank notes with 40% of their value in precious metal. From 1997 on, when the merger occurred, the requirements were reduced to 25% (Maurer and Halbeisen, 2007:18). In May 2000, a new law on currency and legal tender was introduced to offset the high reserve standards (Widmer and Abegg, 2000).
Social Factors In the mid-nineties, the Swiss financial center had to undergo some international and domestics criticism which partially discredited its good reputation. International pressure came more specifically from the United States, from the Jewish community and the state of Israel. During the Second World War, Swiss banks had supposedly amassed multibillion dollar worth assets. Those were stolen from Jewish holocaust victims by the Nazi’s and hidden in Swiss banks (Löpfe, 2010:112). The disputes in regards to banks heated up in 1997. A young guard named Christoph Meili, discovered Second World War documents of the old Union Bank of Switzerland designated to be destroyed. The guard saved the documents from the fire and made their existence public. He was consequently fired and legally prosecuted in accordance with the previously mentioned banking law . Nonetheless, the US Government and American lawyers helped him to escape to the US where he was welcomed as a hero. Although domestic critics in regards of the Swiss banks' moral values were present, a large portion of the Swiss population equated Christoph Meili to a traitor. Pierre-Yves Frei (2009:72) also confirms in his book “La chute du secret bancaire” that the preceding
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UBS: Wealth Management chain of events and ‘whistle blowing’ discredited the Swiss banks. The topic will be treated further later on in this chapter.
Technological Factors In terms of technology, the country’s accomplishments had enabled Switzerland to set up a modern electronic inter-banking payment system. This breakthrough was established in 1987. Given the fact that the internet as we know it today didn't exist, this demonstrates that Switzerland applied advance IT knowhow in setting up an electronic network for payments. Named Swiss Interbank Clearing System or SIC, it permits millions of payments to be electronically processed. Today, the SIC is maintained to facilitate payments on a daily basis. For the proper functioning of this system, all participants such as banks and the Post Office, which is also a financial institution must be connected to one another. By law, the SNB has the responsibility over this key banking infrastructure. The SNB proudly describes the SIC on its official webpage (2013) as one of the most efficient payment systems in the world. However, Swiss Interbank Clearing Ltd. operates the system on behalf of the central bank, while the participating banks and users make payment transactions. Each of them therefore holds deposits at the SNB (SNB website, 2013).
Interpretation and the findings of the PEST analysis In the nineties the environmental forces tended to make the banking industry and the wealth management business in Switzerland generally attractive. It seems that except for the holocaust crisis and the mortgage crisis, there seems to be no major incidents that might have given the old UBS and SBC the urge to merge. Despite Switzerland being a small country, it had the know-how and technological development as well as political and socioeconomic framework capable of sustaining a banking industry which was enough for all banks including UBS and SBC to flourish.
Within the frame work of the WM findings, it appears as if the political sphere brought about benefits such as better discretion for WM clients in Switzerland. The SBA as an expert group along with the banking law of 1934 was at the basis for such ideal legal constellations. Further, the author of this paper assumes that without its independence from international building blocks, Switzerland had more freedom along with the SBA to shape its financial center. It should also be mentioned that, the longer a crisis lasts the more many clients fear that their assets are no longer safe or that the investments advice they received previously might not have been accurate or below average. Yet after the crisis and when the economy is much more stable, it can be said that the stable currency was as always an element that assured WM clients to gain trust to the system. The only
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UBS: Wealth Management challenging aspect for Swiss banks and their WM business might have been the reputation damage suffered following the Christoph Meili issue. Even with the creation of the SIC and an advanced national interbank network a good reputation that will attracts clients is still required
2.1.1. Short Excursus: Additional information on the business environment The Mortgages crisis that still impacted many banks after 1996 compounded with the, Christoph Meili affair may still leave some doubts about the lucrativeness of the Swiss financial center in the 1990s. This subsection of the environmental analysis attempts to distinguish this figure from another point of view.
The numbers of banks operating in the cantons prior to the merger also give a hint about the market situation at that time. The graph below shows the distribution of banks by 1997. The canton of Geneva, known in French as Genève, and the canton of Zürich seemed to be cantons that are very important for banking. Even today, they are still reputed for their banking sector.
Table 2: Number of Banks active in each canton, 1997
Source: Egli and Rime (1999)
By 1997, CHF 3000 billion of foreign money was placed in Swiss accounts. This figure represented more than one third of the money that citizens globally placed in foreign accounts (Schütz, 1998:20) and confirms the results of the PEST analysis. The number of banks in Switzerland at this time leads to the conclusion that theoretically there should be enough business opportunity for even more banks. The question why such a big merger between SBC and the Union Bank of Switzerland had to be settled therefore remains open. To find answers, the research may have to be further conducted on a microeconomic level of both firms.
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2.2. Microeconomic Scale: Merger between SBC and Union Bank of Switzerland
The results of the PEST analysis have shown that the Swiss financial center, despite some issues, appeared to have been a very lucrative place for banks to operate in. The managed foreign money of CHF 3000 billion in 1997 and the numerous banks distributed in the cantons have confirmed these good conditions. Yet why two of the biggest bank at this time merged is not understandable. At this point, the paper investigates this question more in the hope to make the strategic intent of the later new UBS and its lead in WM more self- explanatory. To understand the motives for the merger, a look at the strategic and economic position of both banks prior the merger may highlight the motives as well as the reasoning of the merger.
2.2.1. What was the combined power of SBC and the Union Bank of Switzerland? Given the fact that the Union Bank of Switzerland as well as the SBC, belonged to the three biggest Swiss banks in 1997, it is of no big surprise that their combined market dominance was prior the merger already significant. A specialist then would have a legitimate concern about higher concentration of market share in one financial institute. There is a paper that raises this concern. However in the most relevant analysis on this concern, the authors make reference to the loan market. In this paper named "The competitive impact of the UBS-SBC Merger", Damien Neven and Thomas Von Ungern-Sternberg (1998:16) claim that the merger would increase the concentration of the market on the two firms and would most especially affect the retail banking sector. To illustrate this concentration, below is an example of how this general dominance can be seen in other markets than WM.
Table 3: Combined market shares (%) of - Loan market (above CHF 100 000 CHF) Canton Market Share in % Canton Market Share in %
Aargau 36 Nidwalden 44 Appenzell - Ausserrhoden 90 Obwalden 20 Appenzell – Innerrhoden 25 Schaffhausen 36 Basel-Landschaft 38 Schwyz 22 Basel-Stadt 54 Solothurn 59 Bern 42 St. Gallen 50 Fribourg 22 Tessin 36 Geneva 38 Thurgau 42 Glarus 28 Uri 39 Graubünden 35 Vaud 22 Jura 22 Valais 49 Lucerne 30 Zug 25 Neuchatel 22 Zurich 38 Source: Neven and Von Ungern-Sternberg (1998:13)
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The data clearly demonstrate a large combined market share of Union Bank of Switzerland and SBC for nearly most cantons. The outlier is with a 90% share Appenzell-Ausserrhoden. With 54% in Basel-Stadt, 42% in Bern, and 38% each in Canton Geneva and Zürich, the two banks controlled the cantons with the most important markets. In the face of these numbers the negative sentiment towards the merger are understandable. So why and how did they merge. For the sake of understanding
2.3. An unequal bipartisan scenario to the merger
2.3.1 SBC’s path to the merger During the eighties, a variety of Swiss banks had easily granted many credits which resulted in big losses during the nineties. SBC for instance lost hundreds of millions due to the default of companies such as the New Yorker super market Macys, the German trading company Co op and the media business of Robert Maxwell. Marcel Ospel became the new Chief for SBC's foreign strategy and had ambitions to structure his field of responsibility to be more internationally focused like in American banks. Until his return to SBC 1987, he had worked for two years in Merrill Lynch and experienced how it was transformed into one of the most important capital market businesses. This gained expertise helped Ospel in reducing the credit business at SBC and entered the Investment Banking and Asset management business. This market was growing faster through new technologies. Thus, growth had to be attained through acquisition. In 1991, the world leading and Chicago based derivate business O’Connor was taken over and brought SBC technological advancement that was unmatched by the competition. Further, O'Connor employed first class university graduates that SBC could use. In 1994, Brinson being at that time one of the top US WM company was as well bought. Six month later in March 1995 S.G. Warburg an English investment banking firm was also acquired (Schütz, 1998:23-25) After Ospel had successfully changed the culture and foreign business of SBC, he became in May 1996, the new CEO of SBC. Having assumed responsibility over the whole of SBC, the new leader started to restructure the corporation according to what he learned in the US. From regional subsidiaries that assumed more or less all functions, SBC's structure became a functional strategy with four separate business units acting globally. The Organization resulted in the following structure:
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Figure 1: Organisational chart of SBC under Ospel - Created by author
Source: Schütz (1998:27-28)
Table 4: Explanatory organisational chart of SBC under Ospel - Created by author Function Notice about former Location Further remarks to functions subsidiary in charge of the function
Head Quarter SBC Switzerland Switzerland Headquarter in Basel Investment Banking S.G. Warburg became London Includes Swiss capital market subsidiary SBC Warburg business Asset Management Brinson USA The Private Banking part was fractionized from Brinson and became an own independent Unit Private Banking Brinson USA Former part of Brinson Retail Banking SBC Switzerland Switzerland Was Subsidiary with multiple function for Switzerland, but then became functional headquarter for all retail banking activities and business customers Source: Schütz (1998:27-28)
At large, more than three billion Swiss Francs had been spent for these global expansionary aspirations. Yet supplementary to these reorganization and acquisitions expenses, SBC had accrued bad credits loaned from during the eighties. The precautionary measures taken were to set aside billions of Swiss Francs. Consequently, the equity capital was reduced from CHF 15.8 billion in 1994 to 13.2 billion in 1996. The growth had transformed SBC into one of the big Swiss bank. By reason of a fast changing financial market at this time, being satisfied with the new position was not an option for the top management. Seen from a global perspective, SBC still could have been taken over by bigger foreign banks and consequently lose their independence. It seemed that their weakest business and for Ospel still the most promising, was the
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UBS: Wealth Management investment banking unit. SBC's investment banking was SBC Warburg the leading bank in Europe, yet it only met 60% Revenue of the competitor Credit Suisse First Boston. In private banking, it was number three worldwide. However, it appears as if this segment was not the prime focus of SBC. For Ospel the only possible next step for the Banks to progress appeared only to be an acquisition of an investment bank on the Wall Street. However, the indebted SBC needed more money for this step. As an intermediary between step, it targeted the old and much larger Swiss bank UBS. It was just a strategic move that fund SBC’s investment banking goal (Schütz, 1998:28-32).
2.3.2. The old UBS and its path to the merger Contrary to Ospel's indebted expansionary SBC, the Union Bank of Switzerland being also the biggest Swiss bank appeared to be financially more stable. This was also a result of the company's development that did not feature acquisition in the years before the merger. Because of this exemplary performance, it had in April 1996 received a merger proposal that it declined. From an external perspective the SBG, which was its German acronym, was in best shape.
Its asset management and private banking businesses were voluminous, yet its investment banking was far from comparable to that of Ospel’s Swiss Banking Cooperation. Dirk Schütz further describes in his book, that a merger among the big Swiss Banks appeared to be inevitable as the market was becoming more complex and internationally oriented. Mathis Cabiallavetta the CEO of SBG, respectively the Union Bank of Switzerland, at this time had previously approached Marcel Ospel in regards to a possible merger. A merger between Credit Suisse and UBS seemed due to complication with the Second World War holocaust Assets and other issues not desirable. At a later point in time, it was Ospel who suddenly initiated discussions that had the sole purpose of bringing about an amalgamation. The possible reason for Ospel’s sudden change of mind has been elaborated at the end of the previous paragraph.
Despite being in pre-negotiations with Ospel, Cabiallavetta presented in February 1997 his new vision for the Union Bank of Switzerland. The new strategy and positioning were aimed to enhance the bank’s competitive edge on a global scale. The German name SBG standing for "Schweizerische Bankgesellschaft" was eliminated from the logo while the English name UBS meaning "Union Bank of Switzerland" was standardized as the only name to be used. The new logo included a UBS writing in red. For the bank this, new way to present itself shall as well demonstrate its international leadership in banking. An upcoming acquisition was also publicly announced. The targeted company was the asset manager Scudder Stevens & Clark with US$ 115 billion AUM. This targeted organization was in search of a partner, hence maintained
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UBS: Wealth Management close contact with Markus Rohrbasser who worked for the old UBS in New York. Rohrbasser, who shared a deep animosity with the bank’s CEO Cabiallavetta eventually, was replaced by a friend of Cabiallavetta. In turn, Rohrbasser changed to the insurance company called Zürich as new CFO. He closed with Zürich the deal with Scudder Stevens & Clark and revenged his dismissal that Cabiallavetta set in motion. For the CEO of the old UBS it was a bad position to be in. For years UBS had not expanded. Then when he had reformulated a new strategy and had announced an acquisition, the targeted entity was taken away. He would be seen as a CEO with big words and no actions. It is this situation that may have led to break up with the new strategy and continue negotiations with Ospel. However, in a late stage of the merger negotiation, he again stopped the talks with the smaller bank SBC again.
Nonetheless the image and integrity of the bank continued to decline. UBS's reaction to the issue of the UBS security guard Meili and the historical documents designated to be destroyed had further generated bad publicity. The president of the board of directors at UBS attempted to clarify this problematic on the famous Swiss television program called Arena. But his public appearance and comments in respect of the whistle-blowing guard only gave reason for more international pressure and critics. As if not troubled enough, the biggest shareholder and most outspoken investor against the old UBS leadership facilitated the takeover of an important company by competitor Credit Suisse. Next he obtained a proposal to receive a seat on the board of directors of rival Credit Suisse. Since the previous offer from the part of Credit Suisse to merge with the Union Bank of Switzerland was declined, the leadership of the old UBS feared revenge in the form of a hostile take-over. Ebners action led to the assumption that he could play a crucial role in this scenario which as well led the leadership to be more attentive.
The old UBS also faced another issue that posed a threat to its future existence. From an organizational perspective, the corporation needed to be reorganized. Despite the recent attempts to reposition, the company’s structure did not match modern day necessities. There was no real blueprint on globally organized businesses. In the face of all these problems, the leadership realised that a continuation of UBS as it was arranged was no more possible. Especially the infrastructure and the bad image it had obtained from the Christoph Meili affair posed threats. Credit Suisse’s possible hostile takeover was a threatening reality and fortified concerns about the financial institution. After having analyzed many foreign and domestic banks with which it could merge, the leadership saw the internationally active German banks as the most potential partners. Though, Marcel Ospel had been one of the most successful bankers in Switzerland and had successfully restructured SBC. He just had recently managed to acquire Dillon Read, a New Yorker investment bank. The old UBS urged to be more involved in Investment Banking, and
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UBS: Wealth Management modernized its structure started to see SBC with other eyes. And the probably most determining factor to choose SBC was that Cabiallavetta already has been more than a year a friend of Ospel and maintained regular contact with him. Last but not least, despite Cabiallavetta sudden repositioning, SBC still maintained an interest into the deal (Schütz, 1998:31-60).
2.3.3.. Situation of Both Banks
Table 5: Comparison of the two merging banks in terms of important issues SBC ISSUES Union Bank Of Switzerland Positive Negative Positive Negative
437 Million Swiss Mortgage Crisis 348 Million Swiss Francs Francs Modern Infrastructure Outdated Damaged Damage from Severe damage of reputation Holocaust Assets Reputation Had expanded Other Mergers Threat of possible thanks to hostile take over acquisitions European Leader Position in Underdeveloped Investment Banking Source: (Schütz, 1998:18-60)
2.3.4. The Merger With the new structure probably inherited from SBC, the newly formed UBS had the objective to lead internationally in its four core business leading the Swiss consumer and corporate banking sector as well. UBS accredits the pursuits of these goals to the overwhelming support of the shareholders from both companies as they were the one who gave the final vote for the merger. After the Bank of England as well as US and Swiss regulators permitted the deal, the UBS AG finally was on the June 29, 1998 founded. SBC’s experience in integrating companies eased the merger. Ending September 1998 when the new company was still reorganizing itself, the new bank had to declare a CHF 793 million pre-tax loss coming from a Union Bank of Switzerland hedge fund investment. UBS had to inject US$ 300 million into the funds and still needed to be bailout by the US central bank. The shared responsibility of numerous senior managers implied the consequence of several of them resigning. Because of this unlucky start, the financial institution suffered from a bad image, decreased confidence into the company and a further continuation of bad performance resulting from the loss (Leitz, 2012).
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2.3.3.1 Impact on Wealth Management – Remarks by the author After the merger in 1998, UBS became the biggest wealth manager in Switzerland. At the same time the threat of a hostile takeover by competitor Credit Suisse was impeded. The structure that UBS supposedly had inherited from the SBC permitted the bank to follow a globally- focused strategy in WM and other businesses. According to O’Sullivan (2007), cost reduction was also one of the structure’s merits. Having Switzerland as financial center and being able to make use of the bank secrecy, the new organization was definitely equipped with superior competitive advantage. Wealth management relies on reputation and know-how. For UBS at this time it was important to attain a global presence.
2.4. Global Expansion of New UBS - The choice of a major presence in the US
The question of why and how the company had to merge despite the wealth of opportunities in the Swiss financial center is answered. From now on the development of the freshly emerged company will be look at. More precisely its expansionary course to become a global financial power house and its emergence as a WM leader will be treated. For this, the strategic path it took will be first looked at.
2.4.1. The direction towards which UBS AG aims to grow Part of the merger's objective was to create a modern bank that can better compete globally and outperform the domestic and international competition. As global encompasses no clear indication where to start, prioritizing market became a crucial asset aspect of the strategy. Previous findings in regards of the merging company indicated a tendency of both merged firms into seeking more presence in the US markets. In regards of WM business, the US Clients have long been attractive to wealth managers. Donzé from the SBA stated in the January 2007 issue of the study on wealth management in Switzerland, that the North American wealth management market was the most important market with many HNWIs and UHNWIs. It should be taken into account that, at the time of the merger, the People’s Republic of China, India, Korea, and other economically powerful nations today, had not yet acquired such a big role, which logically makes the US at this time the most important market economy. Still in 2012 when the abovementioned countries played a much more imposing role, North America remained with US$ 12.7 trillion within an HNWI and UHNWI the most interesting customer base. However, with US$ 12 trillion, the Asia-Pacific area has grown significantly and plays nowadays accordingly, a more momentous role than
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Europe with US$ 10.9 trillion (Capgemini Consulting website, 2013). However, in the merger year 1998, the market with brighter outlook for a WM business appeared to be the North American. The earlier expansion course under SBC had allowed the new UBS to have, right from the beginning of its existence, an important US presence.
2.4.2. Becoming a top wealth manager In order to establish itself as an influential and big player in the biggest financial market, Ospel, the CEO of the new UBS envisioned purchasing his former employer Merrill Lynch. Stopping Ospel to go for the deal necessitated confronting the investment banking chef. He had been working with Ospel for years, had as well affiliates and the trust of the chairman and other members of the board of directors that he could convince on the risks (Schütz, 2007:129-133). Ospel did not give up his conquest for the North American market. Then finally UBS acquired on November 3, 2000 one of US largest private banking and stock brokerage firm. The multibillion deal transformed UBS indisputably into of the biggest wealth manager on a global scale. The acquired entity Paine Webber Group represented with its more than 100 years long experience in the US market, an important brand asset in UBS’s firm structure. Paine Webber was founded in 1880 and was specialized in people with an elevated earning that it failed to offer global products. There were many other concerns in regards to the true utility of Paine Webber and if it would not rather bring problems to solve than a true benefit to the company. Notwithstanding, Ospel absolutely wanted the deal. At the times of the deal, PaineWebber had US$ 500 billion AUM. It further disposed of several facilities throughout the US and making it a second home market for UBS. No other European bank was in the biggest WM market that well set (Schütz, 2007:1137- 142).
2.5. Conclusion to Chapter 2
In order to not get lost, this summarizing sub-chapter will reconcile with the overall research question. Part of the question demands the search for the critical foundational factors that have allowed UBS to prosper. The data of the environmental analysis, or respectively the PEST analysis suggest that Switzerland was in general well receptive to financial institutions. Environmental aspects such as the Swiss political landscape stabilized and enhanced the financial sector especially through the legally codified bank secrecy of the WM business. Along with a stable economy comes often a good high level of technological capabilities. Latest is a further critical criterion for a sound financial sector and WM business. Switzerland’s excellence in it is confirmed by the number of banks operating in the country by 1997.
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It turned out that this composition of environmental forces was, despite some major issues and incidents, a framework in which the original unmerged companies operated. It is also within this friendly environment that this pair of banks became two of Switzerland’s three big banks, which is again highlighted by their combined market share in businesses such as the loan market.
The SBC, one of the preceding banks that became UBS, adopted under its CEO Marcel Ospel, a corporate structure apparently inspired by the modern structure of US firms, which hOspel learned to appreciate when he worked for the Merrill Lynch in the US. However, the SBC was like all other two big banks largely affected by the earlier mortgage crisis from the first half of the nineties. This did not hinder Marcel Ospel to continue with the acquisition of several financial institutions. His goals at this time were to grow for the sake of not being taken over, to enlarge SBC’s presence in the North American market and to foster the investment banking business. For this it needed further acquisitions or merger.
The other preceding bank of the new UBS was the Union Bank of Switzerland or in its German acronym SBG. It was the biggest big bank beside Credit Suisse and SBC. The institution also seemed performance wise to be a stable bank. However, it had severe challenges to face which are too numerous to name all of them. One of them is the bad image it received from trying to destroy some historical documents that would have proved that it bunkered holocaust wealth stolen from Jews during the Third Reich. Other challenges that the Union Bank of Switzerland encountered under its CEO Cabiallavetta comprised an underdeveloped investment banking business in which SBC had positioned itself as leader in Europe. Further, the Union Bank of Switzerland did not dispose of a modern organizational structure to address the globalizing banking activities like Ospel had set up at SBC. Another threat was seemingly a hostile takeover by Credit Suisse. In addition, a big merger seemed to observers of the Swiss financial sector to be an inevitable upcoming event among the biggest banks.
So looking at the situation it seemed as if, both companies wanted to secure their future and had some common criteria that made the merger possible. Out of this resulted the super bank UBS in 1998 that continued to use the competitive advantage of the bank secrecy to compete globally. It appeared as well to have inherited the structure of SBC to compete on a global scale. Its strategic choice of expanding with a focus into the North American market was due to the large amount of HNWIs and UHNWIs self- explanatory. This was very promising for the WM business of the new UBS. A concrete tactical maneuver within this strategic intent was done when UBS tookover the American giant Paine Webber in 2000. Despite
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UBS: Wealth Management some concern about the company’s real value and utility, the company satisfied UBS’ will to acquire this entity and to become a much more powerful financial power house.
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3. UB and the 'One Firm' Strategy; Organizational structure & the role of wealth management in North America
Until now, this paper has illustrated with the previous PEST analysis, which foundational and environmental factors helped banks to evolve in Switzerland. These factors are therefore essential to the upcoming of UBS in WM along with its expansionary course to North America. The author of this paper assumes that SBC's organizational structure is a critical success factor that leveraged the WM business. An attempt to prove this train of thought will be made.
The so-called ‘One Firm’ is an aspect of this case study and will therefore be an element of investigation. It appears to be a strategic element closely linked to the organizational structure of UBS around which it strategized and organized itself. Several of the Annual reports and communications of the company mentioned this.
Since the North American market is that important to UBS, its special role in connection to WM within this one firm strategy will be looked at as well. A close competitor's organizational structure and approach to the North American market. Possibly, this will highlight the ingenuity or weakness of UBS's approach to the North American Market.
3.1. The One firm Corporate Strategy
The different divisions of UBS are, strictly seen, subsidiaries and have their own divisional CEO. That is the reason why UBS is a group. These subsidiaries are mostly referred to as divisions and have principles that are important across all divisions and hence principles of the One Firm strategy. This overall corporate strategy of UBS is outlined in the handbook 2000/2001 (UBS AG, 2001:5). It encompasses four essential principles that serve as a frame work of the divisions' or subsidiaries' strategy. UBS explains these points as follows:
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Table 6: The principles for the UBS strategy in 2000 and beyond CLIENTS STAFF We will only succeed by providing our clients with innovative We are committed to succeed in the fierce competition for and high-quality service coupled with long-term personal talent. The expertise and integrity of our staff create value for relationships. Client focus is the main driver of all our activities. our clients and for the Group as a whole. We seek to be a highly attractive firm for our employees. SHAREHOLDERS REPUTATION We seek to create value for our shareholders through UBS’s reputation is one of our most valuable assets. We aim to sustainable growth of our business within appropriate risk adhere to the highest ethical standards, and to manage our risks parameters. Being dedicated to total value management means with the greatest care. We are committed to complying fully creating value for all stakeholders. with the letter and spirit of the laws, rules and practices that govern UBS and its staff. Source: UBS AG (2001:5), handbook 2000/2001
3.1.1 An attempt to grasp the strategy In this hand book, the strategy of UBS is described. Based on the content, it can be said that UBS follows a differentiation strategy. The group's targets high class clients which are precisely HNWIs and UHNWIs around the world and provides them with premium cross-divisional integrated services.
Its strategy, of keeping current clients happy with the best products the group can offer, consists also of simultaneously obtaining new clients by means of acquisitions and strategic partnerships. UBS classifies its client pool into the customer segments; individual, institutional and corporate. High- quality offerings from third party groups are supposed to enlarge customer's choice. Clients should not be lost because of a missing product and hence maintain leadership. The program with the pre-screened products is named Open Product Choice (UBS AG, 2001:5).
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Figure 2: Open Product Choice
Source: UBS AG (2001:5)
The previously mentioned globally oriented strategy is more precisely detailed. The Handbook so confirms previous findings by stating that UBS expects its customers to demand more products that have a global character. That’s the reason why all UBS businesses are positioned to compete on a global scale. A strong presence of UBS around the world would enhance the integrated or cross-divisional strategy and foster the one firm strategy.
Further, it seems as if UBS has several specific markets that it wants to focus on. It talks about reaching scale and scope in all its key businesses. From what is known in the previous chapter of this case study, the investment banking activities have been favored by Ospel. However, since UBS does not mainly compete on price it wants to compete on its full spectrum of services and at maximum efficiency.
For the sake of sustaining customer relationships, UBS prioritized an advice-led service. Nonetheless, UBS offers many solutions that can be easily accessed via online channels. It can be said in general that technology plays a special role under the UBS strategy. It is integral to the strategy of reaching all customers and markets. Further, technology served as a great tool to shape clients’ experiences and it is a contributing factor to optimizing price efficiency and to yielding a higher sale of services). To serve clients with the broadest range of products, the divisions must be able to offer other divisions’ products as well. Technology is as well a useful tool to foster integrated group offerings. Such
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UBS: Wealth Management cross divisional services requires and fosters synergy trough the interaction of the different divisions (UBS AG, 2001:5).
3.2. Corporate Structur: SBC's heritage
As previously stated, UBS may have adopted SBC's organizational structure which was based on functional business divisions and which enabled it to conduct their business globally. However, it should be noted that, from the foundation of UBS AG up to the time this paper is been written, several changes in the group's organizational structure have taken place. Some are as well due to the crisis starting in 2007. More in-depth inquiry in regards of this turbulent time follows in a coming chapter. Nevertheless, the multiple attempts of restructuring have led the company to deviate slightly from its precursor SBC. After having acquired PaineWebber in 2000, which this paper has identified as a critical turning point for UBS's sizable influence in WM, the Swiss financial institution experienced several restructuring efforts as a result of this purchase. In this regard, the UBS Financial Report of 2001 presents three different business divisions and the corporate center. UBS Warburg was the entity mainly charged with global investment banking business and global WM operations.
Paine Webber that was involved in this business was therefore subordinated to Warburg, a division already existing during the SBC era. Late 2001, a decision to split it from UBS Warburg was taken (UBS AG, 2002:4). Out of many possible motives, the author assumes that, it was strategically more important to use the name Paine Webber. As branding is very important in the financial sector, this would have facilitated access to US customers, who were unfamiliar with UBS Warburg, but react better to the appeal of the Paine Webber brand. However this had the consequence that UBS Paine Webber could not be a global division on its own. UBS Warburg already had the global Wealth Management and Investment banking under its scope. That is the reason why Paine Webber became after the acquisition part of UBS Warburg's WM business. The Group therefore was organized as fallowing:
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Figure 3: Organizational chart based on divisional business units, end 2000 until end 2001
Source: UBS AG (2002:4), Financial Report 2001
Further Explanations to the organizational chart 2000 - 2001 It was precisely until the end of 2001, that all divisional subsidiaries were focus on doing business globally. As UBS Warburg had the Investment Banking and WM under its scope, there existed a global division for Asset Management. UBS Switzerland was a universal bank for the Swiss market. Its global activities were merely the cooperative operations of the other entities. For instance other divisions may allow international clients to open bank accounts in Switzerland. These, banking operation is a further piece of evidence for the one firm strategy and its integrated approach. The quest for the North American market that resulted into Paine Webber belonging to UBS Warburg, made it bigger. After one year, new restructurings of UBS aimed to achieve the following structure:
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Figure 4: Organizational chart based on the divisional business units for 2002
Source: UBS AG (2003:4), Financial Report 2002
Table 7: Description of the divisions in 2002 Function Businesses / Function Market Clients
Corporate Center Aligns division to corporate goal Switzerland Financial & Capital Management Risk Management Controlling Branding Communication Legal advice Human Resources Management UBS Warburg Investment Banking Global Corporate clients Securities Institutional clients UBS Global Asset Asset Management Global Institutional clients Management Financial intermediaries UBS Wealth Management USA US Wealth management PaineWebber Separated on January 1, 2002 from UBS Warburg UBS Wealth Global Wealth Management Switzerland Wealthy individuals Management & Corporate and retail banking for & Globlal Swiss corporate clients Business Banking Switzerland Financial institutions world wide Source: UBS AG (2003:4), Financial Report 2002
Further Explanations to the organizational chart 2002 After having denoted the characteristics of the divisions in the grid, it seems to be visible why SBC's organizational structure was more appropriate. It fitted more to the increasing globalization and Marcel Ospel's ambition to gain international relevance. Consequently several divisions inherited the names of the SBC divisions instead of those of the old Union Bank of Switzerland.
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A clear example for SBC's blueprint in the organizational chart above is the Warburg Division. The Global Asset Management division is also one of those proofs and confirms with its name as well that the corporation was rather organized based on its function and business than on the basis of single subsidiaries conducting each banking business in an universal banking manner. Before the splitting of PaineWebber from Warburg, the name was exactly like under SBC simply Asset Management. Like SBC, UBS had a universal bank division. This was operating only in Switzerland and cooperating globally before it became responsible for the global WM business. This became the only business it would handle on a global scale.
With the inception of UBS PaineWebber, Ospel had authorized for the first time a second WM division that would do business outside of Switzerland as the organizational chart shows. The important role of the Corporate Center as coordinator of the business divisions can in this context only be confirmed.
Moreover, not all countries accept the conduct of universal banking within their territories. Thus, the foundation of different subsidiaries that operate a particular banking business is a strategic necessity to expand worldwide. These subsidiaries, acting as divisions of the parent company, are recognized as legal entities. A corporate center then eliminates the overlapping of the different division's business field while aligning them all together to the one common corporate strategy framed previously. This is the essence of the one firm strategy. For it to function on a global scale, it is important to have the different business units acting globally as independent firms. Taking this into consideration, the question why the second WM business UBS PaineWebber has to exists arises. Before treating this matter further, a look into what UBS did to optimize a better customer experience of its one firm group strategy.
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3.3. From multiple to one brand: PaineWebber's role within the One Firm strategy
To ensure a more unifying conduct under the group wide strategy, UBS stopped the usage of other brand names. These brands were the names of other formerly acquired companies. Up to 2003 some of these names were still used as divisional names. In 2002, the Group marketed itself under the brands UBS, UBS Warburg and UBS PaineWebber. To have a less complicated branding, UBS PaineWebber became along with other US WM entities UBS Wealth Management USA. Eliminating the PaineWebber brand would, following an UBS press communication released in November 2002, cost the company a non-cash write off of CHF 1 billion. The release goes on to explain that this write off reflected the Brand's value from which UBS capitalized on the balance sheet. The Bank further highlights the importance of having a single simple brand in the financial industry and educate the reader on the momentous significance of the PaineWebber brand asset. The communication further explains that the awareness of the UBS brand in the US was prior the PaineWebber acquisition in 1999 under 10%. Two years after the deal, it amounted to 40% of affluent client and 55% of corporate and institutional clients that were asked in a survey. These latest said that they were somewhat familiar with the brand. If the write off had to be made in cash, it would have impact, as UBS explained, the bank's balance sheet for 18 years. This was how important the brand Paine Webber was. Since a non cash write off could not impact the balance sheet, the bank hoped with this write down and as well as the elimination of the brand UBS Warburg, to achieve a reduction in associated companywide marketing costs. As the business units would be marketed under one brand, this would increase efficiency, present the group as a single company under UBS and so foster the one firm experience.
Figure 5: From 3 Brands within UBS to one single
Source: Alain Ntjam (2013), Logos from Google
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In regards of the short-lived UBS PaineWebber Division, the numbers about the brand awareness that the UBS press released show that PaineWebber had fulfilled a critical and strategic role of big importance. This was, to be a temporal division that levitates the awareness of the name UBS in the US. This was achieved by always using the PaineWebber next to the UBS logo as shown above.
Warburg was still used until 2002. Then, SBC's takeover dated already some years. It is possible that the name UBS Warburg helped customers to associate the division with SBC, while UBS certainly made an association with the Union Bank of Switzerland. However, it was time to begin the next stage and make UBS known under one brand. The UBS group could so rather be associated with one company than a consortium of different enterprises.
3.3.1 Long lasting impact of the rebranding: A comparison of UBS 2003 and UBS 2012 Apart from having eliminated valuable brands, UBS did over the years not greatly deviate from its SBC inspired strategic structure based on business Units. However, the biggest impacting deviation from then on was the Branding of the whole group under UBS along with the sudden introduction of a second entity entitled do conduct WM business outside Switzerland as depicted below.
Figure 6: Organizational chart with UBS as single brand in 2003
Source: UBS AG (2004:9)
Further Explanations to the organizational chart 2003 and a comparison to 2012 The Structure of 2003 was kept for several years. From 2008 on significant reorganizations that still endure these days took on. So encompasses UBS in the annual report of 2012, the business divisions, Investment
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Bank, Global Asset Management, Retail & Corporate and like in 2003 two different business units of WM divisions. The globally operating businesses are in 2012 as well the investment banking, global asset management and wealth management.
Anyhow, UBS Wealth Management & business banking continued to exist in 2003 as a division that was as well focused on Switzerland. In 2012, the division was instead called retail & Corporate and fulfilled as well universal banking services for Switzerland. Another difference to 2003 and its successive years is that it did no more possess the responsibility for the conduct of the global WM business. In contrast to 2003, there existed a division solely responsible for this function (UBS AG, 2013:8-9). The Swiss UBS universal bank of 2012 offers naturally all the different services the other international division provides as specialists. To guarantee that customers get in touch with the one firm experience, the Swiss entity cooperates with the other divisions to interchange clients and to offer group wide services.
Referring to the UBS Global Asset Management and Investment Banking, the divisions still existed in 2012. As will be shown later in a different chapter, the Investment Banking has undergone many changes and turbulences and probably is one that changed the most.
Still in 2012, the coordinating division known as the corporate center remains for the coherent functioning of all divisions and assumes important functions and positions in the kind of legal compliance, SNB related activities, group wide operations, IT, human resources and more (UBS AG, 2013:8-9). One could think that there have not been big changes since 2003. But there have been. The element that makes the functioning of the division similar, is their business unit based structure
In 2012 the global WM business received over the years an own division and making it easier to compare it with other business units such as Global Asset Management and Investment banking. As of 2012 and these days, its name is UBS Wealth Management and coexists with the other WM division called UBS Wealth Management Americas. While UBS Wealth Management is responsible for wealthy clients around the world with an exception of North America, "Wealth Management Americas" or in 2003 "Wealth Management USA" has to deliver products and services customized to American as well as Canadian, UHNWIs or HNWIs. Wealth Management America also serves domestic business located in Canada and the US, but also international companies that have an US booking (UBS AG, 2013:8).
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3.4. Why there is a need for a second Wealth Management division
Previously it was asked why UBS PaineWebber, respectively UBS Wealth Management USA or UBS Wealth Management Americas should exist in the presence of another WM business that is as well conducting business outside of Switzerland. This sub point investigates the group's possible reasoning to introduce a separate Wealth management unit for the North American continent on its own.
3.4.1. The importance of the Wealth Management Americas or Wealth Management USA North America was prior to the merger already an important and to international banks a lucrative market. The paper’s findings of the previous chapter came to the conclusion that North America was and is the most lucrative market with the most assets and number of HNWIs and UHNWIs. That is the reason why Ospel had considered making a bad deal with Merrill Lynch for the sake of advancing in North America. Even under SBC North America was his big ambition for growth. The coming sub points are additional reasons that can legitimize a second WM division
3.4.1.1. PaineWebber's size and established position in the US made a separation necessary PaineWebber was by the time of the acquisition fully integrated into the US WM business. The share of US full time worker in the UBS group grew from 11% percent before the merger to 40% after the merger. Only Switzerland exceeded with 42% full time workers. At the same time, the share of domicile assets per US client grew from 4% to 49% after the merger (UBS AG, 2001:8-9). Given this structural situation and its size, it may have been a logical step to keep an own division for the world's biggest financial market.
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Figure 7: UBS Head counts Pre- and Post- Merger
Source: UBS AG (2001:8), Handbook 2000/2001
Figure 8: Assets by Client Domicile
Source: UBS AG (2001:9), Handbook 2000/2001
3.4.1.2. There was an urgency to amortize the takeover expenditure Myret Zaki (2008:120) from the French-speaking part of Switzerland argues in her German titled book "UBS am Rande des Abgrunds", that the UBS paid too much for PaineWebber. According to her, the UBS
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UBS: Wealth Management takeover price of US$ 12 billion was doubled the true value necessary to pay. However, Lukas Hässig (2010:43) another author, talks in his Book, "Paradies Perdue" of a PaineWebber takeover amounting to US$ 18 billion, which would be the triple of the true price. Dirk Schütz (2007:138) as well mentioned some concerns in regards of Paine Webber’s real value and describes the privileged that its leadership still would enjoy after the merger. In short, the price was too high and had somehow to be amortized. This amortization might be measured best, when WM business in North America remains a sole division.
3.4.1.3. A completely different culture In the same book, Lukas Hässig (2010:44-46) talks about a more short-term profit oriented organizational culture after the merger. Staff and manager started being rewarded more for risk seeking initiatives and produced in the process bonus oriented bankers. This culture that seemed to be normal for PaineWeber also reached the leadership of UBS and had clear effect. Dirk Schütz (2007:140-142), raise the issue that the Leadership earned in 2000 CHF 273 million, which is CHF 80 million more than the year before. The roughly 40 individuals benefiting from this excess were part of the executive board and the leaders a level below them, the board of directors, family member of the leadership and to the leadership affiliated businesses. It is assumed that the leader reduced this cultural shift, by concentrating most salary raises to their likes. Human resource management in WM is associated with headhunt for financial advisers that bring along with them many clients into the bank. The particularly fast-paced US market needed may have influenced UBS to create a WM division that has this culture and can deal with these issues. Also is to consider that American clients have a different mindset and expect other services. Considering that they make a large portion of UBS total clientele, it might be useful to have a special division for them rather than trying to confirm the global WM division to the need of North American client.
3.4.1.4. Special US laws and legislative characteristics When it comes to US law and legal questions, many non-US banks faces challenges in the form of perplexity and complexity. The fact that financial markets tend to be highly regulated probably brought the top management a further reason more to have a special division for the North American market. The law and regulations tends to be extraordinary to Europeans companies and differs in the US from state to state.
As exemplary precedence, to reduce capital flight the US tax colleting agency IRS introduced the Qualified- Intermediary agreement for banks (Hässig, 2010:46-54). Signing such an agreement would entitle foreign banks the same rights and duties as US banks. Some of these duties include the disclosure and identification of people holding assets or benefiting from certain payments. As the renouncement of such a QI was not an option for UBS, it charged the specialist US law firm Baker & McKenzie and internal specialist
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UBS: Wealth Management with the search for results that may enable the bank to conceal the identity of their clients. Part of the solution was to structure wealth into offshore assets that was protected behind trusts, foundations, and firms.
The UBS Global Wealth Management subsidiary might not be able to sustain such excellent relationship with US lawyers firms while dealing with the other jurisdictions around the globe. The state Delaware and Ohio have of course different regulations. Precisely this is the complexity and perplexity that UBS Global Wealth Management may face. It is better to have a separate entity that deals with the 50 states. Furthermore the amount of HNWIs and UHNWIs makes a special WM subsidiary for North America worthy.
3.5. Wealth Management - Comparison with Credit Suisse and other banks
It is now known why there was a need for a second WM subsidiary within the organizational structure and which role it played under the one firm strategy. This subsection compares UBS group's market position in North America with that of a composition of companies and tries to find out if the PaineWebber take over paid out. In addition Credit Suisse's organizational structure and its approach to the North American market will be evaluated in the hope of detecting possible organizational advantages or disadvantages in their structure.
3.5.1. UBS's North American Wealth Management in relation to other competitors Practically unknown in the US, UBS had prior to the Paine Webber takeover, despite earlier acquisitions a low profile in the world’s biggest financial market. An evaluation of the PaineWebber brand showed that it had significantly raised the bank’s brand awareness. Yet the costs for this massive increase in brand recognition far exceeded its benefit. Despite this, the deal was acceptable to the CEO of UBS and Paine Webber’s leadership. At this time, Paine Webber was fourth in the US market. In comparison, (Zaki, 2008: 120) the successor UBS Wealth Management USA ranked by 2008 as the fifth Wealth Manager in the US. To conclude, the bank lost despite higher brand awareness, its market shares instead of gaining some more.
3.5.1.1. Comparison with Credit Suisse
Structure Credit Suisse’s overall organizational structure seems as of 2012, to be as well based on business units that conduct their particular businesses on a global scale. Anyhow, several annual reports of the banks show major restructuring efforts over the years like in the case of UBS.
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In spite of this, the fact remains that Credit Suisse is another bank and it still has a different construct and change accordingly differently. The famous Swiss newspaper NZZ (2012) reported on November 20, 2012 of this second biggest Swiss bank’s intention to fusion the Asset Management and Private Banking division together. With this measure, the bank hoped to save overall CHF 2 billion. In comparison, to save cost and reduce its risk, UBS had chosen to reduce its investment banking activities. Credits Suisse’s Annual Report of 2012 (2013:10) comment this tactical move and call the new division Private Banking & Wealth Management.
It should be noted that, what was at UBS considered as WM, was at Credit Suisse Private Banking. The term Wealth Management was merely in connection with the Asset management business under the new division used. All in one, Credit Suisse has at this time only two divisions. One is of course the Private Banking & Wealth Management division that has been treated now and the other is the Investment Banking division. Interesting about the leadership of Private & Wealth Management is the double leadership of two divisional CEOs. One is responsible for the Asset Management while the other is chef of the private banking or WM business. Having 2 Co-CEOs at a particular level had also been used in earlier organizational structures of Credit Suisse.
In 2003, at the time UBS had just rebranded itself it had recently set up the WM subsidiary for the US. At the same time at Credit Suisse, there was no separate entity for the US market and the Group CEO position constituted of two individuals. Oswald Grübel, who would later become CEO at UBS and John Mack shared the seat of CEO. Oswald Grübel was chief of Credit Suisse Financial Services while his colleague Mack had Credit Suisse Boston under him. In contrast to the Credit Suisse of these days, the organizational structure could not sustain an integrated banking experience for the customer. Credit Suisse Financial Services and Credit Suisse First Boston were like two different companies with the same board of director. The Private Banking business, which was the equivalent of the global WM business under UBS, included WM business activities in North America as well (Credit Suisse, 2004:3).
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Figure 9: Organizational Chart of Credit Suisse 2003
Source: Credit Suisse Group AG (2004:8)
Market Position in Americas and global market position: UBS vs. Credit Suisse In the year 2012, Credit Suisse had US$ 798.5 billion AUM in wealth management. This amount is a total of the region Switzerland, EMEA, Asian Pacific and Americas. In 2012, the wealth management business of the regional branch Americas grew following its company profile sheets in 2012 by 15% to 165 billion dollar (Credit Suisse Group AG, 2013:6-8). As a comparison, UBS managed 1.8 trillion dollars globally, of whom 891 billion are part of UBS Wealth Management Americas (UBS website, 2013). This demonstrates a clear lead of UBS towards its rival. Below is based on these figures, the market shares depicted.
Figure 10: Market Position in Americas and global market position: UBS vs. Credit Suisse
Source: Credit Suisse Group AG (2013:6-8)
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3.5.1.1. Lessons from the comparison In all, Credit Suisse' WM business is up to these days behind UBS. It does not dispose of an independent division for the WM in the Americas as visible in the 2012 Annual Report. Multiple arguments have been found why UBS created such an entity for the Americas. One may suggest that Credit Suisse should as well establish such an entity to advance. However such a separate entity becomes especially necessary when the AUM have reached a certain level. Based on the smaller global market share of Credit Suisse, it appears as if its WM division is still capable of managing the small share in the Americas.
In comparison to UBS group's one firm strategy, Credit Suisse has in meantime as well adopted an integrated cross-divisional management of the different divisions. Credit Suisse mention this integrated banking experience in its 2012 annual report (Credit Suisse, 2013).
3.4. Conclusion to Chapter 3
To become a global player in WM it is important to have the right corporate strategy. This corporate strategy is an element that dictates the organizational structure a company, respectively a bank potentially has. Because it is that significant to the company's overall performance, the organizational structure becomes critical foundational structure along with the corporate strategy.
The corporate strategy of UBS consists of 4 critical principles about clients, staff, shareholders and reputation that have to be kept in all divisions. Part of the corporate strategy is as well the one firm strategy that UBS wants its clients to experience. The one firm strategy is an effort to provide a client with a set of cross-divisional integrated services. Ideally these services appear for the client to come all from one source and create synergies for the bank.
As these are high maintenance clients, UBS serves them with the best quality. The strategic intent behind this approach is to put much effort into the retention of clients while making as well efforts into enlarging the customer base by means such as acquisition.
When PaineWebber was acquired by UBS, the corporate structure that UBS had inherited from SBC was already for international business set up. Within the group's organizational chart, existed a Global WM unit to which PaineWebber shortly belonged. However the findings have shown that, it was strategically better to have a particular division responsible for WM in the Americas. The chapter has shown that after the
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UBS: Wealth Management merger, this market became a dominant share of the group's overall WM business. Because of this, legal reasons and other issues it had to be particularly managed. The fact remains that, acquisition of PaineWebber and its market share is a critical event in the history of UBS.
Such an important event is the adoption of one single brand for the whole group. The chapter has proven that using PaineWebber temporally as a brand had elevated the customer awareness of UBS. However there have been some individuals that question the price that UBS paid for PaineWebber. There is a serious and credible critic in regards of PaineWebber real value. As an example, UBS Wealth Management America ranked by 2008 only 5th in US WM, despite being the world leader.
A comparison of fears Credit Suisse's organizational structure showed that, there are some similarities to those of UBS. Nonetheless, this has been just recently the case as their organizational structure in 2003 greatly differs from the one in 2013. The change has allowed Credit Suisse to offer as well cross-divisional integrated services. However it does not has an independent division that is particular responsible for the larges WM market, thus the North American. The data of the comparison have also shown that the 2012 global WM business of UBS is far ahead the one of Credit Suisse. In case of the market Americas, the difference is even much wider. This might be the reason why credit Suisse does not have any separate division devoted to the North American market. It has a too small share.
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4. All WM Business at large and the Global Market
This chapter explores in detail what Family Offices, HNWIs and UHNWIs may find pleasing at UBS. This will be done with Porter's value chain. Since the WM business has been more extensively investigated on the level of the North American market, an overall analyse on the corporate level will take place. With this, the author attempts to detect how the WM conducting businesses relates to one another, what their exact roles are and what their market situation is. Besides, a comparison the global market situation will be compared to the completion.
4.1. A quick notice on Wealth Management at UBS and the central role of Switzerland
It is common knowledge now that there exist a global WM business and North American WM at UBS. However, WM activities done under the Swiss universal banking division have not been closely looked at. Except for the time the Swiss division was in charge of the whole global WM business, it always pursued WM activities within Switzerland and collaborated with the other divisions. Despite this limits, the universal banking subsidiary is highly important to the company. It can best most effectively make the use of its competitive edge the bank secrecy and adds in cross-divisional activities value. The divisions can interchange clients, and especially UHNWI might consider offshore banking activities with UBS Switzerland very lucrative. Yet, in most instances, a value proposition consists of several elements that result in a perceived valuable.
4.2. UBS's Value Creation in Wealth Management
Consequently, we arrive to the question of what makes WM services that highly regarded. To understand the success generated by WM, it is important to analyze how this business creates customer value. It seems as if Porter's value chain analysis is the adequate tool to map out the business activities that creates value in the eye of the customer. To have more judgmental information, the author goes beyond the traditional analysis and sort out the most important value adding supportive and primary activities. The theoretical background for this analysis comes from the book "exploring corporate strategy" by Johnson, Scholes and Whittington (2008:110-111).
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4.2.1. Value Chain Analysis For each sub activity, whether supportive or primary, a maximum of 3 points will be given. Three point for a sub activity means that the primary activity adds greatly value. For the supportive sub activities it means that it is absolutely supportive in adding value for the customer. Each supportive and primary activity has sub activities. Their average points determine how much out of the three points a primary or sub primary activity gets. The figure bellows show how the value chain is in theory depicted and shows the supportive and primary activities. The sub activities that the authors find to be the most important one will be added to the supportive or primary activities. As the value chain is not that suitable to financial institutions, some adaptations had to be made for the WM business. The most significant one concerns the primary activity services. As bank merely provides services, they are already in other primary activities such as operation taken under account. Therefore is this activity in the analysis not separately covered and is part of other activities.
Figure 11: Porters Value Chain Model
Source: Project Smart (2013)
The procedure to identify the supportive and primary activities that mostly adds value to WM customer is based on these steps:
Step 1: Determining, sourcing out and weighting sub primary activities In step one, the primary activities will be, according to the model above listed. The sub activities will be in more depth detailed. The result obtained from the sub activities will be commented.
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Step 2: Determining and weighting out supportive activities Step two is similar to step one.
Step 1: Determining Primary activities
Determining sub activities to each primary activity Instead of making a general summary on every primary activity, the author has added to each primary activity sub activity that helps in creating added value for the client.
Table 8: Raw data of primary activities Primary activity Sub activities detected
Inbound Logistic (Fund Raising) - Central Bank borrowings - Interbank borrowings - Customer Deposits - Fund & Trusts - Other banking ventures - Fees Operations - Conception of wealth management - Wealth Management Research (WMR) products and services - Custody / Administration - Consultancy services - Fees calculations and booking - Risk Management - Collateral Administration Outbound logistic - Interaction with client and third - Complaints and Claims Management parties - CRM - Loans to clients (D) - Helpdesk directorship - Complaint and Claims management - mentoring internal Asset managers - Training of external asset managers - Interacting with external Asset Managers Marketing & Sales – Positioning and after sales - PR and Reputation sustainability management - Discretion and confidentiality preservation - courtship with Swiss Bank Secrecy - Attract wit knowledge and expertise - Marketing Switzerland as financial Market Source: Alain Ntjam and other sources in description
Sourcing out and weighting sub primary activities It turned out that each primary activity has many sub activities that adds value in WM business. As these, are too numerous to handle, the author has reduced the number of sub activities to those that have more direct links to WM. Moreover few activities have been rephrased and added.
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Based on the authors perception, the sub activities have awarded as previously elaborated, a maximum of three points. The mean points are a quantitative representation of how good the primary activity adds value for the customer and not the company. The reason for this is that, one of the four principles in regards of UBS strategy fallows a customer oriented course. In addition, this chapter wants to understand why UBS appears to be that attractive.
Table 9: Primary activities with weighted points Primary activity Crucial sub activities Value added Points
Inbound Logistic (Fund - Customer Deposits (3) 2 Raising) - Fund & Trusts (1) - Charging Fees (2) Operations - Conception - Wealth Management Research (2) 2.4 of wealth management - Custody / Administration (3) products and services - Consultancy services (3) - Fees calculations and booking (1) - Risk Management (3) Outbound logistic - - Complaints and Claims Management (2) 2 Interaction with client - CRM & Communication with client (3) and third parties - Loans to clients (2) - Mentoring internal WM specialists to distribute and increase for the sales of services (3) - Training of external WM specialists (1) - Working with external Asset Managers (1) Marketing & Sales – - PR & Reputation sustainability (3) 3 Positioning and after - Discretion and confidentiality preservation (3) sales service - Courtship with Swiss Bank Secrecy (3) - Persuade Client with knowledge and expertise (3)
Source: Alain Ntjam and other sources in description
Inbound logistic The way UBS or generally a bank raises its money does not has a direct impact of how a client may perceive its WMs products and services. An exception to this are the deposits a client may have on a bank account. The more security a bank can offer to its HNWIs and UHWNIs, the more valuable will be the service to them. That’s how a bank can increase the AUM and therefore increase their lending business as well. High fees for WM service as well bring a lot of money into the bank. However, the fees must meet the quality of the service. With its differentiation strategy and one firm strategy described in the handbook 2000/2002 UBS tries to raise the profit margin while maintaining customer satisfaction with high standard services (UBS AG, 2001:5).
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Operations Naturally the way UBS design WM products and performs services tends to directly impact customer's perception of value. Underperformance however can destroys customer perceived value and account for a bad reputation. That is the reason why sustaining a good reputation is a pillar of the group's strategic four principles. At UBS Wealth Management Global, a Chief Investment officer is responsible for Wealth Management Research (UBS website, 2013). The division and other fractions of the group use these findings to stay on the situation of WM relevant market up to date. This allows the usage of superior information when wealth is administered or invested and makes the impact of consult more accuracy. Since the information can be used for Risk management, it helps to cope with it and adds value. Nevertheless, these capabilities raises WM fees charged on the customer. Depending on the operative quality, the chargeable fees and affect perceived value.
Outbound logistic The different means to interact and sustain contact with clients naturally create a bond between UBS and the customer. The more affiliate these clients are with the UBS Brand, the more perceived value can be possibly created out of the confidence their gradually accumulate. Unfortunately, such confidence may only be projected toward a particular employee and not the bank as a whole and can result in major capital outflow when CRM leave the company. This will be in the supportive activity HRM more precisely treated. Nonetheless, one of the principles of UBS corporate strategy emphasize on customer retention to reduce such issues (UBS AG, 2001:5). Regardless of these employees at UBS that interact with customer, they intimate relationship to customer represent a supreme asset to UBS and foster confidence, hence added value. Further, the CRM's can provide them with other products such as loans. Some depositors, that are taken care by externals or independent wealth manager, are potential customers, but do not directly profit from the possibilities UBS’s Wealth Management undertakings has to offers. By lacking the access and closeness to these clients, there is no effective added value created for them.
Marketing & Sales A company's brand is in the financial industry, one of the most important assets firms can use to create value. Thus the positioning of UBS is crucial for customer to trust them. The good contact to customer previously elaborated on, serves also as a marketing vehicle. Good performance and well served clients makes the company to be known among client's peers as well.
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The commitment to uphold discretion and confidentiality is an operational details client appreciates and does therefore create added value. This is as well something that clients may speak about in circle with their acquaintances and in the process market WM services of UBS as well. Moreover, it seems to be an undisputable reality that the Swiss bank secrecy mentioned in the PEST analysis adds value for WM clients. This banks secrecy shares a long lasting history with UBS (Löpfe 2010:29-37). Therefore stands UBS, in a certain way, for expertise and experience and built its one firm strategy around this expertise (Swiss Bankers Association website, 2013). Both the experience and bank secrecy impact the sense of security strongly. By focusing on a single brand, UBS succeed to simplify its brand recognition towards the customer and leveraged the effect of one of the most important assets in financial industries. This reduces marketing and PR efforts (Simonian, 2005).
Generally comment on Primary activities The distribution of the points among primary activities suggests that, with a maximum of three points, marketing outperform the other primary activities. To this dominant supportive activity belong as companion, communication and after sales service. Important as well is the conception of the services to add value. In fact the expertise used during the operation adds value and is might be compounded by the exceptional Marketing that customer can do among their peers. To restate, the marketing and PR around the brand UBS and the expertise associated with the conception of customer services are therefore the critical value adding activities that attracts the customer mostly.
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Step 2: Determining Support Activities Similar to step one, supportive activities have been first listed. Next sub activities have been added to the supportive activities and reduced to the sub activities most relevant to WM. Next, the mean resulting from each sub activities has been calculated to quantify the added value of each supportive activity.
Table 10: Supportive activities with weighted points Support activity Crucial sub activities Value added Points
UBS Infrastructure - Continuous Upgrade of Distribution Network (3) 3 - Cross functional Operating (3) - Coordination of Corporate center (3) UBS HRM Policies and - Affiliate with local educational system (3) 3 Practices - Endeavour top employer branding (3) - Retain Key talents (3) - Exert motivational program (3) IT - Decentralize processing of Client’s Information (3) 2.8 - Strategic employment of new Technologies (3) - Dedication to Security and Privacy (3) - Maintenance of technical excellence (3) - Increasing Cost efficiency through IT (2) Procurement - Reduce overall cost for equipment & material (1) 2.4 - Enlarge Negotiation competences (2) - Optimizing carrying capacity of vaults (3) - standardize main rules in engaging new HNWIs / UHNWIs (3) - Conceal client procurement methods (3)
Source: Alain Ntjam and other sources in description
UBS Infrastructure The strategic advantage of a wealth manager with an organizational structure that encompasses offices all over the world, like UBS, facilitates the raising of funds. More HNIWs and UHNWIs can be accessed in their countries. Further it enhances the understanding of clients with different cultural backgrounds as the company can engage more directly with locals. However, the continuous growth of the organization may necessitate the group to update its organizational structure. An example is the acquisition of Paine Webber. The decision to have, contrary to Credit Suisse, a special North American WM division allowed the group to adapt. Moreover it allowed the division to know the customer more in depth and to up front local challenges such as the local regulations. Another supportive element of UBS infrastructure is the possibility of having separate divisions that still promote an integrated operating across divisions while providing the best services from all divisions (UBS AG, 2001:5).
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Besides, being a Suisse Bank, UBS can employ the full potential of its infrastructure to protect the wealth of its offshore clients in Switzerland. In such cross-divisional activities, the corporate center takes on various tasks such as legal adviser, companywide administrator, general management and supports in this way the creation of value for customers.
UBS HRM Policies and Practices WM is a business that depends on good services. Accordingly, it depends upon specialist turn out premium services. On its webpage, UBS markets the Art Competence Center, which is designated to UHNWIs. On top of that, it pride it-self on same page with the fact that it was named best private bank globally for the year 2012 and 2013 in Art Advisory (UBS AG website, 2013). Precisely services at this level of quality require good personnel coming from the best colleges and universities. To maintain a steady supply of such capable top league experts, UBS in conjunction with other Banks, tend to maintain collaborative relationships to local universities and colleges. Critical to this approach is the attractiveness of UBS towards talents. To the benefit of UBS, its market position already projects a distinctive top employer branding.
Moreover, some of the group's HRM tools and practices have aim to retain staff such as key CRM's. Notwithstanding, headhunting is one of the most aggressive HRM tools commonly used in the HRM sector. WM business, that fails to retain their talents, often cannot hinder their clients from following their CRMs. Merrill Lynch and Morgan Stanley for instance, lost according to (Finews.ch website, 2013) during the first, quarter of 2003 a team of UHNWI CRM's. They managed US$ 545 million of client asset and generated an annual profit of US$ 4.2 million for Merrill Lynch. The CRM's new employer became UBS Wealth Management Americas and allocated them to the Florida office. For UBS, it is therefore important to keep its top advisers happy and for continuous progress motivated. They weight to create added value is significant. Being the biggest Swiss bank for several years, UBS possesses the means and skills to excel in these particular HRM disciplines. Further HRM skills and competence for special markets came along with the absorption of WM institutions alike Paine Webber.
IT Especially HNWIs and UHNWIs appreciate the protection of their personal data. Information about them should in banks not be centrally stored. Ideally, the access tends to be reduced to few individuals and specialist such as financial advisors, CRMs or external private wealth advisors. Not surprisingly, while
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UBS: Wealth Management looking for more precise information on the special treatment of client data at UBS, the author the author failed to obtain such information. Nonetheless, UBS assure on its Swiss webpage for online services that, the entire of UBS AG does the best to guarantee best security practices. It goes on to explain that it tries the best to match the dangers coming from the cyber space and points to many existing solutions. One of them is the online identification system for clients that functions with a card based coding solutions. It requires as additional security effort a PIN and on top of it an identification number. Other techniques in use are as well an online payment confirmation method, 128-Bit and 168 self-encrypting web pages against hackers, a digital Certificate or Fingerprints and much more tools too numerous to name (UBS AG website, 2013). It is assumed that WM clients enjoys due their importance more security and perceive therefor more added value than common clients.
The degree of effective security also depends on the client's behavior. UBS propose therefore on this webpage behavioral tips that clear the customer on internet security standards up. Recommendations on issues just as the choice of security and anti-virus software for PCs are into the online elucidation integrated.
To extend the reach of its clients, UBS use modern technology also used by the customer. As an example, UBS features as well web pages for mobile devices and offer for those appliances as well apps. These technologies have extended the group's and other bank's possibilities to engage with customers. In this age of globalization and interconnectedness via mobile devices, HNWIs and UHNW must be therefore served via these mobile channels. If these customers are not being offered the access to those channels, the banks serving them may come across as technologically underdeveloped. Thus they may lack sufficient technological expertise to protect clients from modern-day threats such as hackers and effectively lessen customer perceived value.
UBS Procurement Ideally, would procurement overall cost of material and equipment. For this to happen, the bank has to up- lift negotiating capabilities of the staff charged with procurement activities. In terms of WM, it can be argued that procurement should as well reduce the costs of fund raising. UBS groups bargaining power lies in its economies of scale that. They allow the bank to use relatively cheaper resources per new client and therefore offer premium services at lower cost. Reducing capital outflow trough CRM and customer retention helps to sustain high net inflows. An example is the succession planning service offered by UBS. It can be as well seen as an attempt to bind inheritances
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UBS: Wealth Management to the bank. Since skilled professionals perform these services, their expertise lies in issues like inheritance taxes and local laws obviously. The customer cannot alone handle these entire questions and most probably find the service to be valuable (UBS AG website, 2013). Other procurement activity that creates value, are the standardized basic principles that governs the procedures of how employees should deal with clients. This leads HNWIs and UHNWs to be specially treated. The practice of keeping such interactions or wealth procurement methods in discreetness is seen as self-evident and for the client a sign of security. It is also possible that these clients possess large quantities of precious metals that they are eager to safe in a bank's vault. As that is also an aspect of procuring funds it might be necessary to annually check for the security of the banks vaults to detect security upgrade needs. However, the bank must as well be ready to detain enough secure space which can handle large amounts of precious items.
General comment on Supportive activities The distribution of points among the supportive activities, accentuates the group's two supportive activities as being the greatest tool in creating or supporting the creation of customer value. The group's infrastructure along with the HRM activities, appear both with each three scored points to be key supportive activities. The IT is with 2.8 points not to be underestimated and is, when not obsolete, very crucial for the safety of data. What the findings have suggested is that, an outdated IT decreases lessens added value for sure.
4.2 Divisional Strategies and Organizations
At present, it should be known which aspect of the UBS value chain significantly generates the customer value that attracts its prestige WM clientele in all WM business conducting divisions. The corporate strategy, respectively the one firm strategy is the guiding force of these value creating processes. Yet the particular strategies of the WM business conducting divisions is not yet known. This subsection is devoted to those unexplored sphere of WM at UBS. As starting point serves WM conducted in Switzerland.
4.2.1. UBS Wealth Management in Switzerland A universal bank for Switzerland played already under SBC an important role. At UBS, the Swiss subsidiary played ever since an important role with its bank secrecy. Privileged with the option of a bank secrecy, it could offer outstanding wealth protection and was as well the division responsible for global WM operations. It was once known as UBS Switzerland. It was as a result of events such as the financial and the
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UBS: Wealth Management regrouping efforts renamed. Among the names it had, belongs Wealth Management & Swiss Bank as well as its current name Retail & Corporate. The inducement for its present name change is the insertion of Swiss WM in to the division UBS Wealth Management.
Strategy In the annual report of 2010, Swiss WM was still reported under the division of Wealth Management & Swiss Bank. As a universal bank, the Swiss branch of UBS had its own booking center to which clients in the category of HNWIs, UHNWIs and Family Offices from other divisions could be transfer to (UBS AG, 2011:74). Per contra, according to the UBS annual report 2012, its role in terms of WM business, seems to be reduce to an entity that routes WM clients to the re-establish global division UBS Wealth Management. The offices of UBS Switzerland or under the new name Retail & Corporate may still be largely the office of the Swiss universal bank. What is absolutely new is that WM businesses for Switzerland are by the new global WM division oversight. Through this, UBS Wealth Management global division disposes of a Swiss booking center. In the report, UBS justify this strategic move with creating more economies of scale while gaining a new opportunity to leverage Swiss product offerings more extensively. Besides, increasing regulatory and fiscal pressures should be so better deal with (UBS AG, 2013).
4.2.2. UBS Wealth Management
Strategy The 2012 annual report outlays the strategy of UBS wealth management too. According to this, UBS Wealth Management wants to lead the global market with exceptional investment consultancy and problem solving proposition. The targeted clients HNWIs, UHNWIs and other financial intermediaries were by the corporate strategy predefined. Regardless of the current global crisis, the global wealth manager expects the global WM market to grow in the long run. These prospering should grow higher than the GDP growth rate of any countries as UBS explains.
UBS Wealth Management aims to implement the One firm strategy by taking advantage of the local UBS Investment Banks and UBS Global Asset Management. Under this one firm strategy, Asset Management and Investment Banking clients should as well be able to access offerings. UBS Wealth Management plays so a driving role in an integrating offering. Simultaneously, the global wealth manager wants to be more ahead of the competition. Thus, for its overall growth, UBS Wealth Management wants to provide more
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UBS: Wealth Management customized services to its clients and wants to extend its presence around the world. The products should be tailored around a cyclical procedure that includes following points (UBS AG 2013:35-37):
• Research • Chief Investment Officer • Investment products & Services • Advisory
As the new divisional strategy is more complex, the depicted figure below may help to understand:
Figure 12: Investment management and advisory - key components
Source: UBS AG, (2013:37)
The global wealth manager aspires as well to grow geographical and build-up its presence in the Asia Pacific room, emerging markets across the globe, Europe and Switzerland. The WM business in Asia Pacific shall generally be accelerated. More specifically growth in onshore markets in which UBS WM is present and China will receive more investment of UBS Wealth Management. As for the emerging markets, there seems to be a tendency of customers wanting to book their assets in major financial centers. The US, UK and Swiss booking centers are solution that will satisfy these needs.
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UBS Wealth Management is already well positioned in the European WM market. However, the European offshore and onshore market has been merged to meet more effectively the needs of European clients. Regarding Switzerland, WM business will be conducted in collaboration with the Swiss division of UBS. The plan is to use Retail & Corporate structures such as offices and businesses as a foundation to provide better WM services in Switzerland (UBS AG, 2013:35-37).
4.2.3. UBS Wealth Management Americas UBS Wealth Management Americas covers the WM business conducted in the United States and Canada. Its targeted clients encompass HNWIs, UHNWIs, multimillion worth families, US and Canadian families, businesses from these countries as well as international enterprises that are booked in the US.
Strategy To maintain a leading position in the Americas, UBS Wealth Management Americas wants to perform a more customer oriented to. Simultaneously, it should be advisory centric execution. To achieve that, the division adapt to the North American and uses its own classification of customer that varies from other divisions. The customers are as flowingly defined:
• Core Affluent: from US$ 250’000 to US$ 1 million investable assets • HNWI: from US$ 1 million to US$ 10 million investable assets • UHNWI: more than US$ 10 million investable assets
The annual report 2012 shows that UBS is determined to excel with state-of-the art services and the best personnel in the Americas. The divisions appear to compete more on those factors than other WM conducting divisions. Its differentiation One firm strategy lays more emphasis on wealth management research than the others and includes next as well Chief Investment Office. UBS Americas expects the wealth of HNWIs and UHNWIs in the Americas to grow rapidly too. Accordingly, it targets to enhance the retention of above performing financial advisors. This may increases even more net new money growth. The division implements as well the one firm strategy in form of divisional cross- services. Other banking and lending service shall also be part of the WM offerings to clients. The hope is to increase global capabilities. A mixture of increased cost efficiency despite continuous investments in better performing platforms and technologies should make the company more competitive. The overall goal of these measures is to achieve customer delight and hence customer relationship that results in more revenue per financial advisor (UBS AG, 2013:38-40).
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4.3 Geographical Presence and Facts and Figures
To have a graphical view of WM services provide by UBS all over the world, this paper makes utility of images. As it is now known that UBS Wealth Management became part of UBS Wealth Management a single illustration for both markets will be shown. And as the Americas represent the world’s biggest WM market it certainly will be displayed at a separate illustration.
4.3.1. UBS Wealth Management including UBS Wealth Management Switzerland
Figure 13: Presence of UBS Global Wealth Management, 2012
Source: (UBS AG website, 2013), Wealth Management - International Banking
As UBS Wealth Management stipulates a strategy that includes the whole of Swiss WM business, Switzerland has with more than 100 WM offices, probably become the division’s most important booking and finance center. With major investments in emerging markets and more than 70 WM offices around the world, the WM business unit has partly fulfill its commitment to access new geographies. The more than 20
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UBS: Wealth Management representative corporate parent offices seem all to be located in countries with underdeveloped WM markets. There might however be few UHNWIs and HNWIs that can be accesses through the representative offices. In addition the market can change in may change in the future.
Table 11: Expansion plans of UBS Global Wealth Management, 2012 Asia Pacific: Continuous Emerging Markets: provide Europe & Switzerland: Merge investments in onshore customer with offshore European onshore and offshore markets to increase market services from the US, UK and business with Swiss Business to poswer Switzerland gain efficiency Hong Kong Brazil Europe Singapore Mexico Switzerland Japan Israel, Taiwan Turkey China Russia Saudi Arabia. Source: UBS AG (2013:35-37)
4.3.2. UBS Wealth Management Americas
Figure 14: Geographical presence of UBS Wealth Management Americas, 2012
Source: UBS AG (2013:38-40).
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As far for the Americas, UBS Wealth Management Americas extensively covers its presence in all US states. California, Texas, Florida, Ohio and New York are the states with the most WMA offices. To them belongs some of the economically best performing US states. Canada for its part does only have four offices.
4.4 Comparison with globally competing Banks - Top 20 Ranking
By July of this 2013, UBS was reconfirmed as the number one wealth manger around the world. The information originated from a press release of the wealth manager expert company Scorpio Partnership. In the document, Scorpio Partnership ranks the top 20 banks by AUM. With 9.7% in 2012, UBS has one of the lowest growth rates. The reason for other bank's seemingly astronomic growth rate lies in their acquisition of other WM institutions (Dovey and Tillotson, 2013). UBS AG detailed as well in the corporate strategy earlier treated in chapter 2 that it aims to grow by acquisition. It seems so as if this is normal.
Figure 15: Top 20 Global private banks by AUM
Source: Dovey, S. and Tillotson. (2013:2)
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4.5. Conclusio nto Chapter 4
Chapter 4 has accentuated that the WM business that, conducted under the Swiss division is, in spite of the little attention important. Independently of how it was at a certain time called, part of the Swiss subsidiary's relevance consistently laid in its holder of the competitive edge bank secrecy.
To find out what attracts the UBS client, the authors has conducted a value chain analysis. The analysis is divided into 2 steps. In the first step, the outcomes persuade the authors into declaring the operations phase, along with marketing and sales to be the primary activities that generate customer value for the customer. The second step has analysis the supportive activities and finds the institution's infrastructure, IT and HRM to be very supportive for customer value.A major attempt to exclusively understand the divisional strategy of the subsidiaries that make WM business has been made. The Swiss division has, as of 2012, delegated its WM business responsibilities to UBS Wealth Management Global. Through this, UBS hopes to build up economies of scales and raise effectiveness.
UBS Wealth Management Global based as all divisions, within the confines of the one firm strategy. On a tactical base, it wants to tailor its services more, while increasing the collaboration with the other divisions to offer superior products. This match with the bank's expectation that, the global WM market will grow significantly in the years to come. The division aims to expand into emerging markets. UBS Wealth Management Americas has a divisional strategy that is due to the predefined one firm strategy on corporates level, similar to that of UBS Global Wealth Management. Never mind, it differs by the efforts it lies in retaining employees and serving the clients with premium services. UBS Wealth Management Americas appears to promote and drive latest to aspect of strategy more aggressively than its global peer.
From a geographical point of view, chapter 4 has demonstrated the importance of Switzerland as WM business market. The small country has more than 100 WM offices. No other country within UBS Wealth management has that many WM offices concentrated. No industrial countries and major emerging market in which, UBS Wealth Management Global is involve, has that many offices. In the case of UBS Wealth Management Americas, the division operates there in few locations within Canada. In the US, the division is far more represented. There is no state without WM office. The states with most UBS offices are Texas, California, Florida, Ohio and New York. And to close this chapter, As of July 10 2013, it was reported that UBS is with US$ 1705 billion AUM the world's largest Wealth Manager. Credit Suisse was with US$ 854,6 billion AUM ranked as fifth.
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III FINAL PART
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5. Conclusion: The critical foundational factors that made UBS a leader in Wealth Management and to a financial power house
This chapter’s purpose is to identify and extract from the main part, the critical foundational factors on which the leadership of UBS in WM is supposedly built. In contrast to the chapter summaries that served merely as guidlines and simplified rephrasing of the paper, this section summarises findings across the chapters. One critical foundational factor that leads and sustains the leadership of UBS in WM, might be linked to other chapters' subtopics.
5.1. Lay out of the critical foundational factors
A supportive business environment The business environment of Switzerland is a foundational critical factor for the leadership of UBS in WM. They had accumulated decades’ long experience with the codified bank secrecy and, had the chance to evolve within a politically and economically stable country. Further, the reputation that a bank has in WM impacts added value that clients perceive. Applied to the country as a whole, Switzerland's business environment may attract WM clients from around the world. UBS as a Swiss bank can use this perception by being present in the clients regions. Once their asset is allocated at the Swiss subsidiary of UBS, the money is for the client in a surer business environment.
Marcel Ospel as an important Human capital Marcel Ospel who had spent time working in the US, had learnt what Merrill Lynch and other US banks did differently from Swiss Banks. He applied this new competence he possessed and became so a core competence of SBC. Other banks did not have CEO's that had his knowledge and insight in Swiss Banking and US inspired modern banking. The leadership of UBS did not have this core competence and consequently would face future challenges along with other internal issues. It can be said that the existence of today's UBS was conditioned by Marcel Ospel's core competence embodied in his drive to grow. The old UBS had earlier considered but not realised a merger with other banks. Especially German banks were on the top of the list. However the CEO of the old UBS had noticed that Ospel could offer mastered business fields such as investment banking that Ospel seemed to master. After the merger, Marcel Ospel, led the new bank for ten years and left traces that are still present in modern-day UBS. And some of those traces are the next critical foundational factors.
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Structure and Strategy The structure and corporate strategy are other foundational factors on which the leadership of UBS in WM is based. The structure and corporate strategy seem to be mutually influencing and reinforcing factors that partly already were developed under SBC. While the organizational structure is based on business Units that basically are independent companies conducting business all over the world, the one firm strategy simultaneously implies that they have to interact and cooperate to provide the customer with a one firm experience. This allows WM clients to profit from all premium services of the group. As these premium services require highly paid experts, the group tries to attract HNWIs and UHNWIs that can afford the WM fees and bring a lot of investable assets. In its One Firm Strategy, the company puts a major focus on retaining the best employees to avoid headhunts. With this, it keeps as well the CRM's client while pursuing other customer retention activities. It is this interplay of corporate strategy and the special set up of divisional business units that makes the one firm strategy and the organizational chart to a critical foundational factor for the leadership of UBS in WM.
The Focus on North America The particular focus on what Ospel already targeted at SBC that is the North American financial market. In present days, the fact still remains that it is the biggest WM market on earth. The acquisition of Paine Webber is a step that had a long-lasting effect on the group. It rapidly expanded its presence in North America and had overnight much more AUM. It was realized that, the total of American AUM at UBS and the North American market was so large and complex in legal terms that it needed to be conducted separately. Contrary to Credit Suisse, the UBS conquest of North America was very successful and had to be served by this special division. This overall approach to the North American company is the reason why it was discovered as a critical foundational factor for its leadership in WM.
The tactical step in using one Brand The bank switched from several brands to one brand. When UBS acquired Paine Webber it used this brand to uphold the association with the company while making UBS itself well known. This leveraged the brand awareness in the US significantly. Before Paine Webber, UBS had a relatively low profile in the US. Once this was reached, the company introduced a single brand strategy for the group. As the Paine Webber brand had served it purposes, the highly valued brand had to be retired in order for UBS to exist as a brand. Using one single brand reinforced the notion of the one firm strategy. Probably this helped the clients to be more
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