Awards for Excellence 2002
UBS Warburg
UBS Warburg was a strong contender in each of this year’s global awards for excellence in the major product areas, equity, debt, risk management, foreign exchange, and mergers and acquisitions. In each case, to its frustration, there was always another firm with slightly stronger credentials – but these were, in most cases, close decisions. UBS Warburg wins this year’s best investment bank award because of its strength across the board, its strong momentum in the key US market and a management discipline that has helped it avoid the credit losses and reputational hits that other investment banks have suffered.
Its list of keynote transactions includes, unsurprisingly, plenty from Europe, many from Asia where it has long been a force and more and more from the US, where its acquisition of PaineWebber in November 2000 has been a significant milestone. In a global investment banking market long dominated by US firms, UBS Warburg has built the capacity to break that hegemony.
In the equity capital markets, UBS Warburg scored a notable success with the $2 billion IPO of reinsurer Converium in December 2001 and it led the $1.3 billion rights issue for ICI last year that was crucial to returning the chemicals company’s balance sheet to health.
In the US last year it led the second-largest ever secondary and follow-on equity offering of $3.3 billion for Sprint. The company was sufficiently impressed to invite the firm back for a $3.7 billion concurrent equity and convertible offering in August. It led ADR and convertible issues for Korea Telecom and became the first foreign firm to lead an IPO for a Japanese company with the $500 million offering for Matsui Securities. In emerging Europe it placed key straight equity and convertible offerings for Yukos.
Across the board, its equity research continues to win plaudits at a time when many of its competitors are facing questions about their analysts’ integrity.
The firm did not bend its investment banking business to the new economy in 1999 and 2000. “Research is run by the equity department for the benefit of investors. We never got pressured. We never had the $20 million analyst who became a TV star,” says Costas. “And we consider that while institutional investors have many sources of research across the Street, our private clients often have only us.”
In the US, UBS Warburg advised Devon Energy on its $8.1 billion acquisition of Mitchell Energy&Development and Anderson Exploration and arranged the associated $6 billion term loan and bond financing. It acted as sole adviser to Allianz on its e24.5 billion ($23 billion) acquisition of Dresdner and advised Vodafone on its $2.6 billion tender offer for a controlling stake in Japan Telecom last September.
In the debt market it has led key deals for resurgent agency and sovereign issuers, such as the World Bank – for which it was top underwriter in 2001 – Italy and Freddie Mac and also led large corporate deals across a range of currencies for Ford Motor, Philip Morris, GE Capital and Réseau Ferre de France.
The firm has come a long way from the early days of the SBC/UBS merger in November 1998 when, amid bitter infighting and surprise losses relating to LTCM, its future seemed uncertain. It has even been reported that UBS chairman Marcel Ospel considered selling his investment banking business. It’s unlikely that thought has crossed his mind since the acquisition of PaineWebber.
John Costas, a rare UBS survivor and now CEO of UBS Warburg, sums up the recent history. “We learned a lot from the UBS/SBC merger. We had to compete as the underdogs. And all we first thought of was how to make a profit. But we completed the first three years of our business plan in 12 months and produced $1 billion of pre-tax bottom line. A group of us then sat down with Marcel Ospel and concluded that whoever gets global coverage of three key groups, institutional clients, private clients and corporate clients, under one umbrella in all three time zones, wins the game. We needed investment banking in the US and private client in the US. And since PaineWebber we haven’t looked back.
I honestly think we got the last seat on the bus.”
It’s that combination of private banking – PaineWebber’s private-client base was much smaller but much wealthier on average than Merrill Lynch’s – and investment banking that may hold the key to UBS Warburg’s future success. “There’s a growing convergence between what the increasingly sophisticated core affluent require and what institutional investors require,” says Costas. “Given what investment banks have to spend on technology and other resources it’s well to be able to spread that across two investor communities.”
That’s the vision: for now being a successful investment bank requires strong risk management and cost control. UBS Warburg has shown both. It was criticized for not lending to Echostar during the $25.8 billion acquisition of Hughes Electronics from General Motors. But the refusal to buy investment banking business with cheap or injudicious credit extension now looks smart as other firms pay the price through credit losses.
Peter Lee
