Growth slowed at UBS' Americas wealth management unit this quarter, even while the overall company reported soaring net income.

The firm reported that pretax profits slipped 1%, dropping to $268 million for the first quarter from $272 million for the year-ago period.

Though expenses grew modestly, top line growth was sluggish. The firm said that revenue rose 2% year over year, rising to $1.901 billion from $1.865 billion. UBS reported an 8% drop in transaction-based income, falling to $432 million for the quarter from $472 million.

Meanwhile, expenses increased at the same rate as revenue, climbing to $1.633 billion from $1.594 billion.

The slip in profits mirrored similar declines at other firms. Bank of America recently reported that profits at its wealth management unit, which includes Merrill Lynch, fell nearly 11% to $651 million from $729 million.  Raymond James Financial said that profits at its Private Client Group fell 2% year over year, declining to $75 million for the quarter from $77 million a year ago.

'HORSE RACE'

At UBS, the advisor ranks shrank, continuing a trend from previous quarters. Advisor headcount dropped to 6,982 from 6,997 for the previous quarter. It was also down from 7,113 for the year-ago period.

Compensation commitments to recruited advisors rose to $186 million from $180 million, 3% increase.

"When it comes to profitability, that is a stone around your neck because you're trying to keep up with the horse race in the industry. To have the best advisors in the industry, it costs money," Alois Pirker, research director at Aite Group.

He adds, "In good times when revenue is plenty, it's not such a heavy weight. But when the going gets tough … you need to make sure that you're still recruiting the best advisors."

In addition to a drop in headcount, advisor productivity also fell slightly. The firm reported revenue per advisor of $1.088 million for the quarter, down from $1.091 million for the previous quarter. There were fewer trading days this quarter, UBS noted. However, productivity was up 5% year over year.

Total client assets rose 6%, reaching $1.104 trillion.

STRONG COMPANYWIDE PROFITS

Overall, UBS reported that adjusted net profit rose 88% to 1.977 billion Swiss francs from 1.054 billion francs. This beat analyst estimates of 4.495 billion francs, according to data from Bloomberg.

The boost in profits was due in part to higher trading income, which rose 57% year-over-year.

"I'm pleased with the strong quarter. ... The results again demonstrate the benefits of a strategy defined early and executed with a focus on long-term value creation," CEO Sergio Ermotti said in a statement.

The Zurich-based company said revenue increased 22% year-over-year to 8.841 billion francs from 7.258 billion francs.

Operating expenses, meanwhile, rose at a slower rate, increasing by 5% to 6.134 billion francs from 5.865 billion francs.

Earnings per share increased to 0.54 francs from 0.28 francs.

Of 35 analysts surveyed by Bloomberg, 17 rated the firm's stock a buy, versus 14 who rated it a hold. Only four recommended a sell.

 

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