Swiss banking giant UBS AG is expected to announce today plans to exit the municipal bond business and put its muni group up for sale as it seeks to recover from losses the bank has said could total $12 billion, sources said yesterday.
The firm’s leadership told employees of UBS Securities LLC in a phone call late yesterday that UBS would close down the muni bond department, officially putting the group on the selling block today, sources said. It is an announcement set to coincide with its parent bank’s release of its first-quarter earnings, which are expected to show losses related to the subprime mortgage market, the sources said.
“Everyone’s sworn to secrecy,” said an industry source who had heard about the plan. “They’re going to announce that they’re putting the muni business up for sale.”
Another source, outside the firm, called the departure from the municipal market of a broker-dealer of UBS’ stature “shocking.”
UBS was the third-busiest senior manager of municipal deals last year, working on 614 issues for total par of $36.3 billion, according to Thomson Reuters.
During the inter-departmental call, employees were told that the firm is actively seeking a buyer but does not yet have one. Staff was urged to continue working and pursuing deals in an effort to boost the unit’s appeal and help find a buyer.
When reached late yesterday, a UBS spokeswoman would not comment.
After a round of some 40 staff cuts in April 2007, morale in the municipal department continued to decline as some sensed UBS would further trim or cut the unit, according to sources. UBS had previously moved municipals into the investment bank in 2006 from its traditional spot in its wealth management area.
Some of the concerns were driven by a lack of profitability for municipals at the bank compared to peers, those sources said.
While the muni business has not suffered the crippling blows that afflicted the structured and mortgage banking businesses, the sector still faces a series of investigations and lawsuits over compliance, one source noted. The paired announcement of both closing the muni department and putting it up for sale struck some as odd since many buyers would likely wait to hire top producers without taking on the unit’s liabilities.
However, one market source said it makes sense from a workforce retention standpoint. If competitors are tempted to hire only the best producers, those employees may stick around expecting a severance payment if the department is disbanded. In this way, potential buyers would be more inclined to purchase the entire department rather than cherry-pick the best producers, the source said.
The sale is part of austerity measures that include up to 8,000 layoffs in the coming months.
UBS was scheduled to release first-quarter earnings this morning at 7 a.m. in Zurich, Switzerland.
