UBS Revamps Wealth Structure to Free Up Billions for Loans

(Bloomberg) -- UBS Group AG is overhauling the legal structure at its key wealth management unit in a move that will cut costs and free up billions of dollars for lending in higher-growth markets.

The project -- known as Rigi after a famous Swiss peak -- will see the bank transfer large customer deposits out of its Swiss entity into the bank’s main UBS AG legal unit, people familiar with the matter said, asking not to be identified as the plans are private. The change will allow the bank to boost loans outside Switzerland, the people said.

Rigi partially rolls back measures from the 2008 financial crisis, when Switzerland told UBS to create separate legal entities that would be insulated in the event of a surprise bankruptcy. Moving the deposits would help the bank toward its target of lending between $20 billion and $30 billion a year to wealthy clients outside its home market, the people said.

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“We are making changes to our legal entity structure in order to improve the overall efficiency of the Group,” a UBS spokesperson said in an emailed statement.

The legal changes add to a broader overhaul at the wealth management business by co-heads Iqbal Khan and Tom Naratil. They are cutting 500 jobs and removing management layers as they seek to speed up decision-making and drive down expenses. As part of the restructuring they’ve broken up the unit serving the bank’s richest clients and the EMEA wealth business, splitting it into three regions.

In the aftermath of the financial crisis, UBS wealth-management clients who held their money in Switzerland, even if they lived elsewhere, had their funds placed at the bank’s ringfenced local entity. Most international clients with deposits in Switzerland will now be under UBS AG. That will spread deposits more evenly throughout the group and is said to satisfy regulators, one of the people said.

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Project Rigi, which is expected to run through 2022, also includes the transfer of other parts of the global wealth business from the Swiss unit. It comes just before the arrival of incoming Chief Executive Officer Ralph Hamers, known for digitization and cost-reduction programs. He’s set to join the Swiss wealth manager next month and take over from CEO Sergio Ermotti in November, following a near three-decade career at Dutch lender ING Groep NV.

UBS and its global peers have been battling negative interest rates, which increase the cost of holding client deposits, for the last half decade. A recession induced by the coronavirus pandemic is further increasing the likelihood that rates will stay low or negative for the foreseeable future.

While the Swiss National Bank in March reduced the burden from negative rates on lenders, UBS has also worked on cost-saving initiatives and boosting lending to improve profitability. It has also started to pass on the cost of negative interest rates to more clients with large cash deposits.

That has begun to pay off. The wealth unit, UBS’s largest contributor of revenue, showed resilience during the worst of the pandemic, with net new money positive across the regions in the three months through June. The cost-income ratio, a key metric watched by investors and analysts, has also notched lower from a year earlier, in a sign that profitability is improving.

UBS is also preparing a review of its Swiss business, according to a report by Swiss blog Inside Paradeplatz last month. The review, dubbed “Project Letzi”, is expected to be announced to employees in Switzerland in the third quarter and could lead to job cuts in Swiss retail and private banking, according to the report.

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