UBS To Sell Paine Webber? After Only Eight Years?

Retuers reported Friday that UBS might sell Paine Webber after a review that investment bank Lazard, whose chief Bruce Wasserstein also advised it on its acquisition of Paine Webber in 2000, is conducting between now and October. Back then, UBS had just finished integrating money management operations into one single Global Asset Management division by combining US money manager Brinson Partners, British money manager Phillips & Drew and Zurich-based UBS Investment Funds. The first two were highly respected institutional managers and Investment Funds was a massive European manager of high level consumer funds.

The Paine Webber play was to create the Wealth Management division and make UBS the same consumer wealth management force it was in Europe. The strategy was to create consumer-friendly versions of the U.S. institutional money management products and use the Paine Webber broker network to sell them. Problem is that it became unwieldy. The custom asset allocation funds that worked so well for institutional clients of Brinson Partners didn’t translate as well when mass produced for consumers, as fees subtly ate up alpha over the years.

It wasn’t quite so simple to force Paine Webber brokers to sell the house brand — as opposed to doing the right thing for their clients whether or not it was an in-house product. The Global Asset Management division, long run by investment executives, became run by non-investment executives. Over the past five years, most of the key investment professionals managing the funds in every asset class have left and performance has suffered. Now the Wealth Management division (aka Paine Webber) doesn’t have the most competitive investment products in-house.

And all of this is to say nothing of the Investment Banking division which is the third of three UBS divisions, and a primary culprit in the $37 billion in write-offs this year alone.

Perhaps that’s just fine and Paine Webber is better off on their own in a traditional wealth management brokerage capacity — free to place clients in the best investment products from any source. Unloading some extra weight seems likely to please the European private banking operation that’s the backbone of the UBS brand and was doing fine before all of this. But it would leave UBS without a strategy to reach wealthy U.S. consumers. Seems dramatic to go back to square one but $37 billion in losses seems dramatic after paying $10 billion for Paine Webber just eight years ago.

All that said, maybe they should sell off the Investment Management division instead of the Wealth Management division.