Weeks after announcing that UBS, the world’s largest wealth manager, was making a foray into the crowded US market late last year, CEO Ralph Hamers received an interesting offer.
Advisors from Wealthfront, a Californian start-up that uses artificial intelligence to sell investment products, have suggested that UBS buy the company.
A deal would allow Hamers, who has made a name for himself as a digital champion and who ran Dutch lender ING, to make his mark on the bank with its first major acquisition since the financial crisis.
But after UBS agreed to pay $1.4 billion in cash for Wealthfront, UBS canceled the deal this month without explanation. Days later, the bank announced it would return more money to shareholders, though senior officials said the two decisions were unrelated.
Hamers, who was selected two years ago by then UBS Chairman Axel Weber to succeed Sergio Ermotti, has made expanding UBS’s presence in the US and developing a digital wealth manager for mass affluent clients a central part of his strategy .
But the aborted takeover dashed those plans and now the 56-year-old Dutchman is under pressure to deliver alongside three influential executives at the helm of the bank.
Colm Kelleher, the bank’s internationally respected chairman, Naureen Hassan, the recently installed tech-savvy head of the bank’s US operations, and the highly ambitious Iqbal Khan, whose role as head of wealth management has just expanded and is widely believed to be the future CEO all very interested in the strategy for the American market.
“There’s a lot of internal politics going on,” said a bank executive close to the UBS hierarchy. “The market is watching closely how the momentum will unfold.”
Hamers has had a successful first two years at the top in several respects. The Swiss bank emerged from the coronavirus pandemic with a string of record-breaking results as its wealthy clients benefited as central banks pumped liquidity into the financial system.
The turmoil at his bitter rival Credit Suisse also helped, allowing Hamers to settle into the role without too much ordeal. Although things appeared to be business as usual on the outside, Hamers has spent the time reorganizing his leadership team and making internal structural changes.
“Everyone in Switzerland has focused on Credit Suisse for the last two years,” said a Zurich banker. “Nobody was too concerned about UBS because they delivered throughout the cycle.”
For example, last April, when UBS announced a trading loss of $861 million related to the collapse of family office Archegos, the news was overshadowed by a $5.5 billion loss at Credit Suisse.
Hamers began unveiling his grand strategy for the bank last October. When Kelleher was appointed chairman a few months later, his experience as Morgan Stanley’s former president was touted as good for the strategy, given the US bank’s leading position in the country’s wealth market.
According to people familiar with their relationship, Kelleher has taken Hamers under his wing. The 65-year-old Irishman has coached Hamers in communicating with international investors who are less interested in the bank’s agile working culture and more interested in three-year profit targets.
At their weekly hour-long meetings, plainspeaker Banned Hamers from using management buzzwords like “ecosystems” and “purpose,” people said.
The pair launched a US roadshow to convince more US money managers to become top shareholders in order to bring the bank’s valuation closer to that of its Wall Street counterparts. The feedback, according to people familiar with the talks, is that investors have been receptive but are waiting for Hamers to execute on its strategy.
UBS declined to comment on this article.
While UBS is one of Europe’s most valuable banks at a price-to-book ratio – which compares its market value to total assets – at 1, it is priced at a discount to Wall Street lenders JPMorgan at 1.3 and Morgan Stanley at 1. 56 traded.
“Colm is becoming increasingly important and has more influence over long-term strategy,” said a top 10 UBS shareholder. “He is very visible and has many interactions with clients, high net worth individuals and investors.”
The abandonment of the Wealthfront deal came at the same time as a reshuffle at the top of UBS, with Khan becoming sole head of the bank’s wealth management business and taking charge of America with the resignation of his former co-chief Tom Naratil.
The bank also recruited Hassan as overall president of Americas operations from the Federal Reserve Bank of New York, where she served as first vice president and chief operating officer.
Hassan, previously Chief Digital Officer in Morgan Stanley’s Wealth business, has been tasked with leading UBS’s strategic growth and digital plans in the Americas, a role that initially included the integration of Wealthfront.
“She’s very smart and would have looked at the Wealthfront deal with a forensic lens,” says a banker who knows her well.
An executive at UBS said that while the overall strategy for the US remained the same, Hassan had her own ideas about how it should be implemented.
Analysts viewed the acquisition of Wealthfront as symbolic rather than transformative given the lack of clarity on the fintech’s financials and its $27 billion in assets under management compared to UBS’s $3.9 trillion.
The bank argued to investors that Wealthfront would provide investment services for UBS’s Workplace Wealth Solutions platform and would also hire hard-to-recruit technical staff, according to people briefed on the talks.
But the falling valuations of fintech companies this year – which fell more than 50 percent on average compared to a 29 percent drop in the Nasdaq Composite – made Wealthfront’s $1.4 billion price tag look expensive .
Hamers’ record on previous tech deals has also recently come under scrutiny. This year, ING completed the winding up of a controversial payments subsidiary, Payvision. In 2018, under Hamers, ING bought a majority stake in Payvision, valuing the company at €360 million. ING also discontinued Yolt, a personal finance app that launched in 2016.
With the long bull market in stock markets over and the global economy slowing, Hamers must now execute his strategy against a far less forgiving backdrop.