By Brett Philbin
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- UBS AG's (UBS) U.S. Wealth Management unit had a second straight quarter of client-money outflows, as clients took out $9.6 billion in the third quarter. More financial advisers left the company, which has been plagued by a dispute with U.S. tax authorities, and recruiting levels plunged.
Total operating income at UBS Wealth Management Americas, however, rose 5% to $1.34 billion from $1.28 billion in the second quarter; expenses fell by about one-fifth. UBS had operating income of $1.5 billion in the third quarter of 2008.
The wealth manager also swung to a pre-tax profit of $106.9 million, from a loss of $208 million in the previous quarter. That figure included a restructuring charge of $143 million. The division's profit was down from $182.7 million a year ago.
UBS lost 653 advisers in the third quarter, 274 of which were part of branch sales to Stifel Financial Corp. (SF). Some of the remaining advisers joined competitors, while UBS laid off roughly 150 low producers in the quarter.
Overall, UBS's brokerage force headcount dropped by 8% to 7,286 during the quarter. The firm had 7,939 advisers as of the end of the second quarter.
During a third-quarter conference call with analysts Tuesday, UBS Chief Financial Officer John Cryan said, "we basically didn't...hire anybody in the quarter and we had some turnover."
Recent data from research firm Discovery Database showed that so far this year, UBS gained a net 175 brokers, as of the end up September, though that figure stems from heavy recruiting early in the year. At that time, UBS offered an unusually high signing bonus to lure experienced brokers from its peers.
Cryan said when advisers leave the firm, "they generally take lot of their client assets with them." Typically, 60% to 80% of clients follow their broker to a new firm.
UBS's advisory force trails its major rivals as Bank of America Corp.'s (BAC) Merrill Lynch has more than 14,900 brokers, Morgan Stanley Smith Barney has over 18,100, and Wells Fargo & Co. (WFC) boasts over 15,100.
The UBS unit has suffered damage to its brand due to the tax case. UBS is in the process of handing over data of clients who allegedly evaded taxes or committed tax fraud by using Swiss accounts.
On the call, Cryan said, "I do think the reputation issue still weighs on us a bit, and that particularly weighs on the morale of our client advisers and their ranks."
Last week, UBS hired former Merrill brokerage head Robert McCann to lead the U.S. wealth-management business, following months of speculation that he would take a position there.
Alois Pirker, a research director at Aite Group, said the nearly $10 billion in outflows at UBS's U.S. unit "clearly indicate that the firm is not in the position to gain market share from its wirehouse rivals," adding that all of those major brokerages are "currently occupied with large-scale integration efforts."
He said McCann "clearly has his work cut out" for him.
-By Brett Philbin, Dow Jones Newswires; 212-416-2173; brett.philbin@dowjones.com