Why UBS Wants to Be the №6 Investment Bank in the U.S. (Yes, №6) [From The Wall Street Journal]
~ Tuesday, December 19, 2023 Blog Post ~
By David Benoit and Cara Lombardo, December 19, 2023
After swallowing Credit Suisse, UBS looks to make inroads in world’s biggest market
More than a decade after throwing in the towel on its hopes of being a major player in the lucrative U.S. investment-banking market, UBS is making another push, but this time the Swiss financial giant’s ambitions are a bit more measured.
The takeover of local rival Credit Suisse and turmoil at other global peers has opened a door of opportunity to build back up a business that has been lagging behind rivals, UBS executives say. They have been on a hiring spree for senior deal makers, expanded research coverage and are ramping up pitches to potential clients.
But they are trying to stay realistic about how far they can climb, constrained by Chief Executive Officer Sergio Ermotti’s plan to remain primarily a wealth-management firm.
The Swiss bank’s unusual goal is for its investment bank to be №6 in the U.S., Rob Karofsky, president of the investment bank, told The Wall Street Journal. The relatively modest goal stands out in an industry known for its grand ambitions.
Wall Street is littered with thrown-away plans for investment-banking expansions in the U.S., the largest market. The likes of Goldman Sachs, JPMorgan Chase and Bank of America have significant leads that have proven hard to crack. European banks, including UBS, have had an especially hard time trying to challenge them.
Not since 2014 has a European bank cracked the top five in global investment-banking revenue (Deutsche Bank).
Deutsche Bank and HSBC have both launched ultimately-failed attempts to break the U.S. firms’ hegemony. The current European leader is Barclays, which is reviewing a similar strategy that two former American CEOs had pushed.
UBS’s goal now isn’t to beat the hometown leaders, Karofsky says. Instead, it wants to be the best of the rest and a major player worldwide.
“The world needs a European global champion and we just became the European global champion,” he says.
Even the modest goal may be hard to achieve. UBS’s corporate strategy allows it to allocate only 25% of the bank’s assets to investment banking, which could limit the firm’s ability to lend for deals. Also, investors, Swiss politicians and regulators aren’t eager to see the firm become a freewheeling investment bank again. The plan is being launched as deal activity is muted and rivals are cutting staff.
In 2022, UBS came in 25th in investment banking for the Americas, according to Dealogic’s revenue-based ranking, which doesn’t have numbers for a stand-alone UBS in just the U.S. anymore.
It has traditionally done better in Europe and in Asia than in the U.S.
UBS has tried to crack the U.S. before. In 2000, it hired star banker Ken Moelis to lead a bid to be top-5 in the U.S. In 2008, it climbed to №7 in the Americas, and №4 globally.
The financial crisis caused steep losses and led to a government rescue. Ermotti, named CEO in 2011, shrank the investment bank after rejecting the long-held strategy of having it and wealth management as two pillars of roughly equal size.
The changes stabilized UBS, whose wealth-management unit banks half the world’s billionaires, and ultimately put the firm in a position to swallow its longtime rival. But its U.S. investment bank fell far behind.
“We were perilously close to becoming irrelevant,” says Karofsky, who spent over a decade at Morgan Stanley and joined UBS in 2014.
This January, he pitched the bank’s group executive board on expanding again in the U.S., while staying true to the strategy of using the bulk of the bank’s capital for wealth management. It is a combination that has worked well for Karofsky’s former employer and which several big banks are trying to emulate. He got approval to go ahead with the plan.
In March came a rare gift: Credit Suisse floundered and UBS agreed to acquire its rival with government aid. The rescue deal supercharged the plan, giving UBS a once-mighty mergers-and-acquisitions franchise and, according to Karofsky, a decade of growth in one swoop. Ermotti, who had left in 2020, was reinstalled as CEO in March to help integrate the Credit Suisse acquisition.
A key hire was Marco Valla, a Barclays banker it had begun recruiting before the deal transpired who as co-head of the global banking division is helping execute the expansion. Valla, whose clients have included CVS, once worked at Credit Suisse.
Valla said he had some skepticism about joining another European bank aiming to increase its U.S. position. But, Karofsky sold Valla in a breakfast on why UBS’s would be different from other failed expansions: It isn’t going to overreach.
More than 10 senior bankers from Barclays, primarily technology specialists, followed Valla to UBS. The leadership team began culling bankers in less-productive areas, part of a strategy of focusing on the biggest revenue sectors, including tech, healthcare, consumer and industrials.
Today, the investment bank has more than 100 industry-specific managing directors, up from 60, including roughly 30 from Credit Suisse. That compares with around 130 so-called coverage bankers at the average U.S. bulge-bracket firm, Karofsky says.
UBS is aiming for private-equity firms, serial deal makers that promise higher margins, to represent about 30%-40% of the investment bank’s business. Winning assignments with large corporate clients is still a priority, given the possibility for multimillion-dollar merger-deal payoffs and the ancillary business that can come with them.
The executives say they are seeing early results, but little has filtered through to the league tables investment bankers obsess over. The combined UBS-Credit Suisse stands at 12 in the U.S. so far this year.
SHARE YOUR THOUGHTS
Will UBS succeed at becoming a major player in the U.S. investment-banking market? Join the conversation below.
Source:
