(Bloomberg) -- UBS Group AG plans to focus on growing its merger and IPO advisory business over the next few years to offset industry-wide headwinds in trading, people with knowledge of the matter said.
Across the investment bank, revenue may grow by several hundred million Swiss francs annually over the next three to four years, while costs will be kept in check, according to one of the people, who asked not to be identified because the discussions are private. The securities unit had 7.7 billion Swiss francs ($7.7 billion) last year, similar to the year earlier but less than the 8.8 billion francs achieved in 2015.
UBS needs to keep a lid on costs to make growth count, Daniel Regli, an analyst at MainFirst in Zurich, said by phone. "A couple hundred million of additional revenue in a low-multiple business is not a big game changer unless you’re able to earn them at or close to zero marginal cost."
In equities trading, the bank is targeting gains in market share as some European rivals retreat, while low volatility and increased regulatory demands weigh on margins across the industry, the people said.
The investment bank’s plan is being assessed by the supervisory board as part of its regular review, the people said. The broader strategic focus of Switzerland’s biggest bank is expected to remain the same and the allocation of risk-weighted assets to the securities unit -- the funds it can deploy -- is unlikely to change, the people said.
“We review all our businesses with the board of directors on an annual basis," a spokesman for the bank said by email. “We’ve always been focused on profit as opposed to topline and CCS has always been targeted as an area of growth, but with strict discipline. We don’t comment on revenue growth potential beyond our public targets."
The corporate client solutions unit, or CCS, which advises on dealmaking, is viewed as critical to service wealthy clients from the private bank, the people said. Still, the introduction of new capital requirements in December, as with other regulatory developments, could lead to adjustments in trading activities which the company reassesses on an ongoing basis, the people said.
“Trading has been under pressure for various reasons for a number of years and now there’s also MiFID II regulation,” said Andreas Venditti, a bank analyst at Vontobel in Zurich. “This year, UBS had a decent first quarter so it was a good starting point. Also, there is the assumption that compared to last year there will be an environment of higher volatility, which helps trading.”
In the first quarter, the investment bank beat estimates, with better than expected revenues from equities trading as well as in CCS. Andrea Orcel, the Swiss lender’s investment bank chief, has been ramping up demands on staff, setting ambitious targets for client meetings in an effort to bolster dealmaking. The increased pressure has led to frustration among some senior and junior bankers as the firm keeps a lid on its financing firepower and expenses, according to people with knowledge of the firm.
Orcel has pledged to pursue a “a very aggressive plan” to grow in the U.S. by recruiting marquee bankers to handle M&A -- a region where the firm has sought to hire in recent years while struggling to win more market share. UBS’ overall tilt towards wealth management is leaving the investment bank with an increasingly smaller share of revenues and a so-called ‘capital-light’ business model.
In Europe, the bank has recently seen some high-profile exits. Severin Brizay, the head of mergers and acquisitions for the region, is leaving to join Bank of America Corp., people familiar said, while private equity adviser Laurent Dhome is also quitting, they said.
Jonathan Alpert, who oversaw the European insurance advisory business, left for Bank of America in March and took a few colleagues with him, people said. Barclays Plc last month hired three UBS bankers for its global consumer and retail group.
Still, UBS this year has hired about a dozen managing directors in the U.S. and Europe, including Credit Suisse Group AG’s Marco Illy to lead its Swiss investment bank, and Eric Moskal to oversee global industrials in the U.S.
“Attrition is low and static when compared to past years - absolutely in line with market standards - and we’re attracting top industry talent," the bank said. "Yes, some people may be too comfortable for the focused, high-performance environment we’ve created. We wish them well elsewhere."
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