UBS May Sell Paine Webber as Troubles Linger

Beleaguered Swiss bank UBS is considering the sale of Paine Webber, the heart of its U.S. wealth management business, according to sources with direct knowledge of the matter.

UBS headquarters in Zurich, Switzerland.
Steffen Schmidt
UBS headquarters in Zurich, Switzerland.

UBS is under pressure from the Swiss financial watchdog and from one of its top shareholders, Olivant, to overhaul its business after more than $37 billion in writedowns during the credit turmoil.

The bank's management, led by Chief Executive Marcel Rohner, is also grappling with the U.S. trial of a former employee for helping a billionaire client hide $200 million.

The sale of Paine Webber, the broker it bought nearly eight years ago for about $10 billion as a bridgehead into North America, would be part of a review which is due to be concluded by October.

"If you are going to be a global wealth manager, then the U.S. is a market where you have to be present. But it is also the case that you have to make it more profitable. (A sale) is always an option," one of the sources told Reuters.

Another said Paine Webber was "one of the assets that would be of serious interest to other people ... If you were to merge Paine Webber with another brokerage, for example, there would be huge cost synergies."

A UBS spokesman declined to comment on whether Paine Webber was under review but said: "UBS is the largest wealth manager in the world and a significant portion of global wealth resides in the U.S. The wealth management U.S. business is instrumental in offering investment solutions to America's wealthiest individuals."

In the June edition of a staff magazine, UBS Chairman Peter Kurer pledged to take a "hard look" at the group's strategy while underlining the need for every business to generate "sufficient profits."

Since the acquisition, UBS has dropped the Paine Webber brand, which dates back to the 19th Century, and brought the business under the mantle of its UBS Wealth Management arm.

UBS's U.S. wealth management business, which employs more than 8,200 brokers, made just 183 million Swiss francs pretax profit in the first three months of this year. It suffers from higher costs and thinner margins than the lucrative Swiss business.

"We have to expect that the regulatory authorities will put new requirements and regulations in place," said Kurer in the interview. "It is imperative that we take another long, hard look at our strategy."

UBS is being helped in this review by investment bank Lazard, whose chief Bruce Wasserstein also advised it on its acquisition of Paine Webber in 2000.

'Rocky Road Ahead'

"We still have a rocky road ahead of us," said Kurer in the staff magazine. "It is going to take more hard work in the months ahead until we—hopefully by the end of the year—are back on track for success."

Nonetheless, many analysts see the U.S. wealth management business—mostly made up of Paine Webber—as a natural candidate for sale.

Senior bankers say it could make an attractive buy for Bank of America or Morgan Stanley.

The U.S. market has proven tough to crack. While UBS's Swiss business has predominantly very wealthy customers, the U.S. operation largely serves a more "downmarket" rich.

Paine Webber—which sells investment advice and stock tips on commission—has proven unsuccessful in tapping America's super-rich, say industry experts. And its commission-earning employees are more far expensive than those in Switzerland.

UBS is also embroiled in a legal battle that threatens to puncture strict Swiss banking secrecy rules.

One of its U.S. managers has been questioned by the U.S. authorities in an ongoing probe into whether UBS helped clients hide money from the tax authorities and is now required to stay at a hotel in the U.S. as the investigation continues.