(Bloomberg Opinion) -- UBS Group AG has a simple story to tell, but Chief Executive Officer Ralph Hamers uses an awful lot of words to tell it.
Business is humming and the Swiss bank is investing in technology to sell more products more efficiently. But for Hamers UBS is offering products that are both "holistic" and "bespoke"; cross-selling is recast as "curation" and "matchmaking." Obviously, everything is "connected" in some way and, of course, "thought leadership is impactful." Almost slipping into rapture, he envisioned the business as “such a beautiful ecosystem.” UBS isn't bank or a wealth manager but “the orchestrator of the value flow.”
Unlike Jamie Dimon at JPMorgan Chase & Co, the Dutchman isn't going to win plaudits for clarity from Warren Buffett. If you weren't already familiar with the bank's business, you could spend as long trying to decipher Hamers's speech to investors as you might do analyzing the various payoffs of a complex structured investment product.
This didn't matter on Tuesday when the Swiss bank reported its best annual profit for 15 years in 2021 and has produced enough spare capital to afford to buy back $5 billion of its own stock this year. That is more than was expected by analysts and equivalent to almost 7.5% of its market value.
It is the highest-valued stock among large European banks, trading at a small premium to book value after a gain of as much as 7.5% on Tuesday. It has met or exceeded its cost and return on equity targets.
What Hamers wants to do from here is sell more to existing clients and win new customers. The way he will do this is to invest in technology to improve online service, making it faster and more efficient, and trying to ensure that the bank offers its clients the products that they are most likely to actually want.
This is a strategy based on cross-selling and smarter tech, which is a common aim of banks and wealth managers everywhere. However, it was hard to keep track of this idea in the jargon-drenched presentation delivered by Hamers in a strategic update alongside its results.
Nevertheless, investors cheered the forecast-beating profits and the stock buyback, which comes on top of a $1.4 billion acquisition of a U.S.-based digital wealth manager that UBS announced last week.
UBS did much better than U.S. rivals in its small bond and currency trading operation because of its bias toward the foreign-exchange business, where volatility was high. The investment bank slightly missed expectations for fourth-quarter advisory fees after UBS missed out on some of the big deals in Europe and Asia, but it still produced full-year revenue that was up 33% better from the year before.
In both wealth management and equities trading, UBS's Asian revenue was hurt by China's common prosperity policy and crackdown on real estate markets, echoing what Credit Suisse said last week. Rich Asian clients have cut their borrowing from UBS by $4 billion in the past six months and pulled back from trading stocks and other assets. UBS is hopeful that after the Chinese New Year holidays things might settle down.
UBS's U.S. wealth business continued to make loans and gather assets at a storming pace. It added $4.5 billion in mortgages or loans against financial assets in the fourth quarter, bringing the total for the year to $20 billion, double the lending in 2020.
This feeds into its net new assets in the wealth business: $22 billion in the fourth quarter, almost as much as the total for all of the previous year.
Fast loan growth can be worrying in banking, but it is worth noting that UBS is starting from a low base in the U.S. Hamers said the bank would look at the profitability of the whole relationship with its richest individuals and some institutional clients globally, allowing it to price loans more competitively. This is definitely a strategy to keep an eye on for investors: It could lead to too much underpricing of loans, which might cause trouble down the track.
All in all, UBS is in an enviable position among European banks. The investment-banking tailwinds will probably weaken this year for UBS as well as for its U.S. and European rivals, but the bank has high levels of reliable revenue from managing wealth, strong profitability and plenty of capital. It has few real distractions and can focus on becoming more efficient and finding a bit of growth.
If the CEO could get that across in fewer, simpler words, that would be so much the better.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. He previously worked for the Wall Street Journal and the Financial Times.
©2022 Bloomberg L.P.
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