Want your bank's stock price to jump? Try a little more wealth management and a little less investment banking. At least that's what any bank CEOs and investors watching UBS (UBS 2.28%) should be thinking.
Since the Swiss superbank announced a radical restructuring a little over two weeks ago -- one that will leave its struggling investment bank in a supporting role to its market-leading wealth-management unit -- the stock price has risen by more than 15%.
The club is open
Anyone watching the banking sector over the past few years has likely taken note of the shift from the highly profitable but highly flammable profit generators of pre-financial crash days -- like investment banking -- to the less profitable but infinitely more stable lines of business rising to the top of the heap since 2008 -- like wealth management. Stricter regulation, both domestic and international, have forced banks to find safer ways to make money.
Part of the UBS club of big banks focusing more of their attention on wealth management are:
- Morgan Stanley (MS 2.96%), which recently began the total buyout of Morgan Stanley Smith Barney from Citigroup (C 4.47%), and which it has already renamed Morgan Stanley Wealth Management.
- Goldman Sachs (GS 2.36%), which recently got into the private-wealth management game, as well -- opening a bank-within-a-bank this year to cater to its wealthiest clients.
- And Bank of America (BAC 2.55%) just published its Insights on Wealth and Worth, it's annual survey -- and barely disguised pitch -- for its own wealth management division, U.S. trust.
Step right up, folks, everyone's a winner
According to Financial Times, UBS's wealth and asset management units are achieving a 26% return on allocated equity, a number the investment bank can't come close to matching. As such, there's little mystery regarding CEO Sergio Ermotti's bold move. And as evidenced by the 15% jump, investors overwhelmingly approve.
And why shouldn't they? When a bank goes back to basics, and investors can get their heads around what's going on inside of it, it makes for a safer investment. Non-investors benefit, too. Banks focused on traditional ways of making money are less likely to blow up than they would under the strain of the investment-bank antics that dominated Wall Street since the deregulation of the 80s and 90s. Safer, more traditional banks make for better investments and a better economy.
Thanks for reading, and for thinking. Interested in learning more about what Bank of America is up to? We've just published an in-depth report on the superbank: one that thoroughly detail B of A's prospects and highlights three reasons to buy and three reasons to sell. Just click here for full access.
