UBS growth strategy in US dented after Wealthfront deal spiked

UBS Group chief executive officer Ralph Hamers is facing questions over his digitally-led growth strategy after a signature deal to boost expansion in the US collapsed last week.

Late Friday (Sep 2) UBS and US-based robo-adviser Wealthfront announced that the US$1.4 billion acquisition announced in January would not go ahead, though neither specified a reason for the decision.

The deal would have been Hamers’ biggest transaction since becoming CEO less than 2 years ago, and was the centrepiece of his focus on broadening the Swiss-lender’s wealth-management offering beyond the traditional customer base through the use of digital platforms. At the same time, valuations for tech stocks have tumbled sharply in recent months, raising the prospect of UBS overpaying for its push into the US.

“Given the fall in fintech valuations and better alternatives to use this US$1.4 billion of capital, we think it’ll be positively received by investors,” analysts including Flora Bocahut at Jefferies wrote in a note. “The lack of clarity around the reason for this cancellation is unhelpful.”

UBS shares declined as much as 2.7 per cent after the open in Zurich on Monday, in line with the broader retreat in the Stoxx 600 Banks Index.

Founded in 2008, Wealthfront was an early robo-adviser, using algorithms to help users manage money. Zurich-based UBS was looking to add more than US$27 billion in assets under management and over 470,000 clients in the US through the purchase.

After surpassing the US$3 trillion mark in assets under management, UBS had been counting on greater use of digital technology to boost cost savings and increase business with the world’s wealthy. With a broad slowdown in Asian markets under way this year, the lender had also placed greater focus on opportunities in the US to support growth.

Yet the aborted transaction is the latest in a string of failed digital projects that Hamers has led. As ING CEO, he bought the payments provider Payvision, but ING subsequently closed the unit’s adult industry portfolio and phased it out altogether after Hamers had left. ING also announced last year it’s closing its UK retail app Yolt for consumers. It was introduced in 2016 under Hamers. BLOOMBERG