Rocky 2018 seen due to MiFID

Lenders and money man­agers strug­gling to price in re­search

The Star Malaysia - StarBiz - - Foreign News -

NEW YORK: UBS Group AG sees bank prof­its un­der pres­sure as Euro­pean reg­u­la­tions force lenders to charge for re­search, break­ing apart a decades-old busi­ness model that’s prompted a race to pro­vide the cheap­est of­fer­ing.

“It will be chal­leng­ing and it will be rocky” An­drea Or­cel, head of UBS’ in­vest­ment bank, said of the im­pact of the MiFID II di­rec­tive in a Bloomberg Television in­ter­view. “Ev­ery­body has run sce­nar­ios but I don’t think any­body, ei­ther an in­vest­ment bank or a client, will tell you they have it fig­ured out.”

The re­vised Mar­kets in Fi­nan­cial In­stru­ments Di­rec­tive (MiFID) is caus­ing tu­mult as banks and money man­agers strug­gle to price re­search pre­vi­ously bun­dled with other ser­vices. The Euro­pean Union’s plan is to en­sure more in­vestors act in the best in­ter­ests of their clients and aren’t in­duced by free anal­y­sis. While banks try to fig­ure out what the mar­ket can bear, money man­agers – un­used to pay­ing – are now weigh­ing what re­search they re­ally need.

In a wide-rang­ing in­ter­view, Or­cel spoke about the pre­vi­ous five years over­haul­ing UBS’ in­vest­ment bank, the chal­lenges posed by Brexit, find­ing prof­itable growth, banker com­pen­sa­tion and how some clients don’t un­der­stand the Zurich-based bank’s pivot to wealth man­age­ment.

Or­cel likened the bank’s model for pric­ing its re­search to that of a phone com­pany that makes most of its money from the more ex­pen­sive data and other ser­vices on top of clients’ ba­sic bill. Sim­i­larly, he said, UBS plans to build its pric­ing around a ba­sic re­search pack­age which would prob­a­bly cost “thou­sands or tens of thou­sands” of dol­lars and then charge ex­tra for value-added ser­vices such as ac­cess to the bank’s an­a­lysts.

There’s wild vari­a­tions in the mar­ket so far. JP­Mor­gan Chase & Co is propos­ing to charge US$10,000 a year for read-only ac­cess to re­search on stocks, un­der­cut­ting the £30,000 (US$39,000) Bar­clays Plc has pro­posed for a sim­i­lar pack­age and UBS it­self about US$40,000, ac­cord­ing to sources. At the top end, Bar­clays has also quoted £350,000 (US$450,000) for firm-wide ac­cess to its pre­mium of­fer for equities.

Or­cel’s over­haul since 2012 has en­sured more reg­u­lar prof­itabil­ity at the bank and may al­low the world’s largest wealth man­ager to bet­ter off­set threats such as MiFID. UBS has paired back the busi­ness to fo­cus on more sta­ble wealth man­age­ment rev­enue, leav­ing Or­cel run­ning a slim­mer unit based around deal ad­vi­sory, equities and re­search.

With much of the re­struc­tur­ing at the busi­ness now out of the way, Or­cel said he and col­leagues are re­sist­ing the urge to cut prices to win mar­ket share be­cause ul­ti­mately that won’t con­trib­ute to the bank’s bot­tom line and undo cost sav­ings achieved so far.

MiFID isn’t the only ma­jor chal­lenge on Or­cel’s horizon. The bank is also weigh­ing where to lo­cate jobs on the Euro­pean con­ti­nent as the UK leaves the Euro­pean Union and is still con­sid­er­ing locations in­clud­ing Frank­furt, Am­s­ter­dam and Madrid. He re­it­er­ated that a key part of the bank’s de­ci­sion-mak­ing is de­cid­ing on a lo­ca­tion where peo­ple want to live. — Bloomberg

Price war: UBS Group AG see bank prof­its un­der pres­sure as Euro­pean reg­u­la­tions force lenders to charge for re­search, prompt­ing a race to pro­vide the cheap­est of­fer­ing. — Bloomberg

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