Wachovia-UBS Hookup Rumored but Unlikely

Here’s a possible new twist in the changing financial services landscape: A report in the New York Post raises the possibility of a “joint venture” between the wealth management divisions of Wachovia Securities and UBS. A lot of questions need answering before this one pans out.

Here’s a possible new twist in the changing financial services landscape: A report in the New York Post raises the possibility of a “joint venture” between the wealth management divisions of Wachovia Securities and UBS.

But a lot of questions would need answering before this one were to pan out.

The Post report says that UBS “has held preliminary talks with Wachovia Securities about forging a joint venture of the pair's North American wealth-management units.” It goes on to say it’s “unclear at what stage the discussions are in, or exactly what form a joint venture might take” and that “one source warned a deal might never materialize.”

So are senior executives just doing what they do, namely gauging market
opportunities? Or are these two firms truly looking to tie the knot?

Danny Sarch, a recruiter with Leitner Sarch Consultants in White Plains, NY, is skeptical that another mega merger is in the works, especially between UBS’ US Wealth Management unit and Wachovia Securities, Wachovia Corp’s retail brokerage arm. “It would be a very complex union, I don’t get it,” says Sarch. He points to the structural complexity of Wachovia Securities and the multiple platforms it offers brokers and investment advisors, either by direct employment or some level of affiliation. How would these independent and quasi-independent advisors fit into the new entity?

“Then there’s the AG Edwards brokers who are set to move on to the Wachovia platform imminently,” he says. That merger hasn’t exactly gone smoothly, according to advisors on both sides, and with closure just around the corner, are Wachovia executives really going to want to hazard another cultural mash-up?

There’s a significant disparity in the size of the average producer at the two firms as well, according to recruiters. If the UBS parent company is serious about a deal, says one disgruntled advisor—he is so disgruntled, in fact, that he has hoped for a sale for more than a year and even considered joining Merrill Lynch before it was bought—it would have to hold onto its eight Private Wealth Offices in the U.S.. With teams of advisors serving accounts with $10 million or more in assets, these private wealth offices are closer to the Swiss model at work in UBS’ international private banking units. “Otherwise, there’s way too large of a gap between the producers. There’s enough of one already that it would be awkward,” he says.

Of course, speculation about the sale of both firms has been ongoing for some time. UBS’ US Wealth Management has been the subject of sale rumors for more than a year as its international siblings have consistently outshined it. Consecutive quarterly losses and mortgage related writedowns (also suffered by all of its peers), the auction rate securities settlement and most recently its battle with the U.S. government over alleged tax evading American clients have all helped fuel the idea that the US unit was more trouble that it was worth. On the other hand, the U.S. wealth management division’s recent aggressive recruiting spree, which netted 200 advisors in the fourth quarter (with reported recruiting deals of 200-plus percent common) would suggest the division isn’t going anywhere.

Meanwhile, it’s unclear how such a deal would fit in with the earlier Wells Fargo-Wachovia merger, which closed on Jan. 1. Analysts say the strength of that deal was the fact that the combined banks would have a colossal footprint—Wachovia Securities, the wealth management arm of Wachovia, was a footnote, a bonus. But since the deal closed, observers have noted Wachovia Securities still hasn’t been renamed, nor has a retention package for Wachovia advisors been floated, a possible indication that it was on the block.

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