UBS
UBS has achieved what once seemed impossible for any European investment bank: it has broken into the front rank in the US market, source of roughly half the global investment banking fee pool. In the 12 months ending in April 2004 it doubled its share in announced US M&A deals, working on high-profile transactions such as the $16.4 billion sale of WellPoint Health Networks to Anthem Inc and the $5.8 billion merger of Regions Financial and Union Planters Corp.
Over the same period, UBS has been a lead equity underwriter on deals such as International Steel’s $531 million IPO, Newmont Mining’s $1.1 billion follow-on and a £721 million concurrent offering for Interpublic Group in the US. These transactions ranked among the largest of these types of equity deals in the past 12 months in the US market.
The firm’s stature in US debt capital markets was demonstrated when on a single day (March 18 2004), UBS was joint bookrunner on a $6.7 billion first mortgage bond deal for Pacific Gas & Electric, the largest capital markets transaction to date in the US utility industry and sole bookrunner on a $800 million bond for Ispat Inland, the largest bond to date in the North American steel industry.
Key hires
The firm has continued to hire in key areas in the past 12 months, bringing in high-profile investment bankers to build out its financial institutions group and also build up the energy group. It has also invested substantially in equity research at a time when many rivals were scaling back. This year it has also built up its prime brokerage offering to hedge funds.
These are the latest moves in a build-out in investment banking that has been gathering momentum since 1999. UBS has enjoyed stability among senior management in investment banking under John Costas, who was recently named deputy CEO for the whole UBS group.
Beneath him there has been some shuffling of ranks. “As a true global player we are the only one among the top six or seven investment banks to have a significant number of global business heads sitting in London,” says Costas. “Despite the fact that we had done a lot of hiring in the US, where the business had grown to represent a little more than half our investment banking revenues, we have worked hard to keep the US business and London connected.” In the past 12 months, the firm has promoted Ken Moelis to global co-head of investment banking alongside Robert Gillespie and also moved some American business heads to London to better balance its senior ranks.
Costas himself has been named head of the UBS group executive board’s risk committee, which takes responsibility for large underwriting and concentration exposures. Costas sees it as a recognition of the investment bank’s risk management capabilities and the challenges of a growing business. “After five years of delivering profits every month, we have the confidence of the board and this gives us a greater ability to ramp up our risk appetite in line with our market view and ramp it down again pretty quickly.” That’s not to say that UBS is about to transform itself into a proprietary risk taking firm. “This is predominantly franchise driven,” says Costas. “In the past three or four years, our market share of investment banking business in the US has risen fivefold: that’s five times more opportunities to transact. In the past we have been able to find resources to do those transactions by wringing efficiencies from our balance sheet and risk management. But we saw 18 months ago that we would eventually run out of such efficiencies and we have been working with the board to find more resources to take on transactions. This will enable us to be much more nimble in the market.”
Costas’s view is that the decline in overall annual investment banking revenues from M&A and equity capital markets, which hit $50 billion in 2000 and fell to $30 billion in the next three years, will not fully reverse for another four or five years. But he senses a growing propulsion for the investment bank from UBS’s other great franchise – its private-banking business.
“Even with normalized growth the private-client business will increase at an extraordinary clip. We’ve got $1.2 trillion of assets and given annual return of 5% to 6% and new money on top, that total could double within six to eight years. We have a huge opportunity ahead of doubling our role as a content provider for private clients.”
