Ultra Wealthy Clients Seek Loans to Finance Risky Investments, Says UBS
RIO DE JANEIRO, BRAZIL – The UBS says ultra-wealthy clients have increased loan applications to place bets on what they perceive as a cheap market.
“We will begin to see a greater focus on leverage from now on, it’s something we believe will increase,” said Tom Naratil, co-responsible for UBS’ asset management unit, in an interview with Bloomberg Television. Clients have placed securities portfolios as collateral to finance new loans, naming the real estate sector as the main investment area.
The UBS expects to expand after the strongest quarter in two years, with a profit of US$1.5 billion (R$7.5 billion) in the first three months of 2020. Sergio Ermotti, the UBS’ chief executive officer, said last week that clients have been deleveraging during the first quarter, but demand for loans has increased.
Naratil said wealthy individuals are increasingly allocating funds into structured products, investment grade securities, high yield debt and some emerging markets debt.
“We have told customers to stick to their plans and increase exposure to some risky assets,” Naratil said, referring to “extraordinary” fiscal incentives and global central bank stocks.
Naratil also noted that there is less demand for wealthy customers to put up more assets as collateral for loans now that stock markets have begun to rebound from the recent lows.
Last month, the company’s chief financial officer said there were “extensive” margin calls, although losses were limited on Lombard loans, those secured by deposits or other assets.
“The margin calls seen by the industry are a thing of the last month, not the current month,” Naratil said, adding that with the stock market rising, “the value of collateral has increased”.
Source: InfoMoney
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