UBS not reliant on ‘blue sky’ scenarios as it expects to double growth in Middle East, CEO says

UBS, one of the world’s largest wealth managers, is invested in the economic fundamentals of the Middle East and does not rely on “blue sky” or best-case scenarios to grow its business in the region, its group chief executive has said.

Switzerland’s largest bank, which completed its merger with former rival Credit Suisse in May, is “working on optimising and integrating what we have on the table” to continue its expansion, regardless of spending policy changes in Saudi Arabia or elsewhere in the region, Sergio Ermotti told The National in an interview.

“We are not counting on blue sky scenarios for our growth in this region. We think that there are strong fundamentals supporting growth,” Mr Ermotti said on the sidelines of the Abu Dhabi Finance Week.

UBS is convinced of the region’s ability to continue growth momentum rather than expecting a “spectacular shaping up” driven by steep investments.

Saudi Arabia, Opec’s top oil producer, as well as its peers in the Gulf region are overhauling their economies to cut dependence on hydrocarbon revenues and their economic transformation programmes have opened new avenues of business for global banks such as UBS.

A sharp increase in spending across the Gulf region to fund giga projects such as the $500 billion futurist city of Neom and the Red Sea Global project spanning 28,000 square kilometres in Saudi Arabia, has also boosted the deals and advisory market for banks.

While Saudi Arabia is already halfway through its Vision 2030 programme, the kingdom’s Finance Minister Mohammed Al Jadaan in April said it would “downscale” or “accelerate” some of the projects being carried out under the diversification plan to adapt to current economic and geopolitical challenges.

Mr Ermotti said UBS remains focused on optimising “what we have inherited through the UBS and Credit Suisse integration” in the kingdom.

Growth trajectory

The Swiss bank, which has operated in the Middle East for more than six decades, has maintained about mid to single digit growth regionally in the past few years.

Mr Ermotti sees the potential of boosting the pace of growth significantly. “We do expect we can grow … pretty much double than that,” he said.

“Within the next five years, we can, and we should grow at the upper end of the single digit, if not in low double digits,” driven by accelerated wealth creation in the region as well as the trend of migration of affluent population to the region, he added.

In the past few years, international financial institutions, and global asset managers have either expanded their operations or have set up new offices in the Gulf region to grab more business from sovereign wealth funds, family offices, ultra-high-net-worth individuals and large institutional clients.

The sustained momentum in regional initial public offerings and a robust rise in debt capital market activity have also necessitated expansion in investment banking operations.

Globally, UBS manages $4.2 trillion of private client assets, including $2 trillion in the US, in addition to $1.7 trillion in institutional assets. Asia, Europe and Switzerland are about the same size – combined – as the US, and “by definition, this [the Middle East] subset of the European region is definitely not at that kind of level, but the trajectory [of growth] is the one that counts”, Mr Ermotti said.

“If you look at in terms of wealth management assets in this region, there is around $5 trillion [and] that are growing faster than the asset base of the European counterparts,” he said. “It's a very important market for us.”

The Middle East is also important for UBS in terms of Asia, which is the new growth corridor and includes fast-expanding markets such as India. The Swiss bank can help clients diversify their investments in those markets, he added.

Middle East wealth creation

While the underlying factors for wealth creation have changed in the region over the years, the traditional energy sector will “continue to play a very big role” in the foreseeable future. The region is also investing in innovation as well as the renewables sector, which is a “very promising fundamental strength” for markets here, Mr Ermotti said.

From a geopolitical standpoint, parts of the region, including the Gulf remain stable and are important for UBS clients that are looking to diversify their investment portfolios.

“Around 6,700 people, very wealthy people, coming to the UAE [between] 2020 and 2024 is huge. It is the fifth-largest inbound population [movement] … so you can see how this plays well into the geopolitical dimension,” Mr Ermotti said.

Affluent people are moving to the region because “they feel safe, they feel they have predictable regulation, stable political regimes, they see innovation, they see interconnectedness and they see the infrastructure”, he said. “In this complex world, I think that the Middle East, or part of the Middle East, can play a pretty good role.”

Earlier this month, UBS said the Mena region has attracted the most billionaire wealth globally since Covid-19 as the uber-rich move to countries that offer premium health care, education, safety and ease of doing business.

The aggregate wealth of UAE billionaires’ alone rose by 39.5 per cent annually to $138.7 billion this year, with the number of billionaires growing by one to 18, UBS’s Billionaire Ambitions report found.

Since 2020, billionaires globally have been relocating more frequently, with 176 having moved to countries out of a total population of 2,682. Billionaires accounting for more than $400 billion in wealth have emigrated in four years, the report showed.

Regional expansion

UBS has about 600 people in the region, including 200 based in Dubai, the bank’s biggest Mena market.

Abu Dhabi is also playing a “very complementary role to Dubai”, with the continued influx of wealthy people and increasing flow of capital to the emirate, home to ADGM, one of the fastest-growing financial hubs in the region.

For UBS, “we need to think about ways to leverage more of our franchise locally here and maybe even leveraging on the ADGM framework and see what else can be done” he said. “The rest of the businesses, I mean, we are already active here with our asset management and investment banking, so we don't need to do much more.”

UBS strengthened its wealth management team with 10 new hires in June, including former HSBC executive Rana Al Emam, who is tasked with growing the bank’s business in Abu Dhabi.

It has also hired Bassel Al Zaouk, who joined from Deutsche Bank to build out the domestic wealth business in Saudi Arabia, while Ali Khunji joined the Swiss bank from HSBC to focus on growing the wealth business in Bahrain and the Eastern Province of Saudi Arabia.

“We see across the board – being in Saudi, but also in UAE, in Qatar and Bahrain – room for growth,” he said.

Credit Suisse integration

UBS, which is a full-service commercial bank in Switzerland, is a wealth and asset management specialist in the rest of the global markets and also offers its clients investment banking services.

It is well on its way to integrate Credit Suisse in its folds and has begun moving clients to its own platforms, which Mr Ermotti said is a huge exercise involving more than a million clients and UBS wants to avoid all “unwarranted risks” in the process.

“I'm very pleased with the fact that we had a good migration in clients – in Luxembourg, in Singapore and in Hong Kong. We're going to do it before year end in Japan and then next year is the big migration,” he said. “We should be completed by the beginning of 2026.”

By coming together, the two Swiss banks have achieved critical mass and created a more diversified business, although UBS was quite large as a bank before the merger.

“In essence, it is an acceleration of organic growth so if I look in terms of assets and capabilities, is like seven years of organic growth in one go.”

In October, UBS Group posted its third-quarter profit that beat forecasts, as revenue rose and cost fell amid the continued client migrations.

Net profit attributable to shareholders for the three months to the end of the September rose to $1.4 billion, nearly double the $740 million estimated by analysts. Revenue for the period rose to $12.3 billion, beating the $11.5 billion estimate.

The merger has not only added size and scale and boosted growth, but it has also given UBS a competitive advantage in many geographies, including the Middle East.

“When I come to this part of the world, you look at our operation in almost every country of the region, the two together are much stronger,” he said.

The bank is currently going through resource optimisation and integration of Credit Suisse business and clients into the UBS fold in the region, which helps in bringing “a more complementary offering to our clients” and adds more value to what UBS brings to the table, he added.