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Eager To Shepherd Asia's New Money


Asia has been minting new millionaires faster than any other region in the world, a fact that hasn't been lost on UBS (UBS). Although the region accounts for about 10% of the group's global wealth under management, it contributed about 22% of the growth in net new money last year. Its center of operations in the region is Singapore, where its office manages the private wealth of families from many nations, including India. But it is working hard to crack into Japan and, longer-term, China, once that country opens up to foreign investment.

Private banking is the mainstay of UBS in Asia, but it is also making a concerted push into investment banking, equities, and asset management -- as it is elsewhere around the globe. According to Thomson Financial (TOC), in the first half of 2005, UBS topped the league tables in merger-and-acquisition business in Asia Pacific -- outside Japan -- with nearly a quarter of the market. Over the past nine months, the UBS equity business has chalked up such landmark deals as a $1.2 billion listing of China shipping line China Cosco Holdings in Hong Kong on June 30 and the $435 million listing of India's Jet Airways in April. And that same month, it won a joint mandate with Japanese rival Nomura Securities (NMR) for the $7 billion privatization of Central Japan Railway, expected later this year. "We have capabilities right across the region," says Peter Burnett, the UBS Hong Kong-based co-head of investment banking for Asia.

In a sign of that regional commitment, the Swiss bank announced on June 23 that it was in talks to take a stake of as much as $500 million in Bank of China (BOC), one of China's four big state-run institutions. The two outfits are no strangers -- UBS underwrote the public offering of BOC's Hong Kong unit in 2002. Indeed, while other investment banks slashed head count after the tech bubble burst in 2000, UBS has been expanding throughout Asia. It now has about 50% more staff in the region than it did five years ago.

That's not to say the group hasn't suffered some growing pains. In Japan, for example, UBS was forced to close its wealth-management business in 2002 after failing to court rich Japanese. But two years later it returned to Asia's largest private-wealth market and hopes to succeed this time where others, like Citigroup, have failed. Another sour note: The Securities & Exchange Board of India slapped a one-year offshore derivatives-trading ban on UBS in May. That came after the country's financial authorities ruled UBS was responsible for trading irregularities that helped trigger a May 17, 2004, crash of the Bombay Stock Exchange. UBS says it is appealing the decision and declined to comment further.

While intent on bulking up in India and Japan, UBS sees the most promise in China. There it has already distinguished itself as the biggest foreign bank trading stocks reserved mostly for local investors. UBS was the first bank approved for China's Qualified Foreign Institutional Investor program in 2003 and was given an initial quota of $300 million to trade in so-called A shares, normally restricted to Chinese investors. The quota has since been raised to $800 million, giving UBS 20% of the $4 billion currently available to foreigners in local-currency traded shares. Despite the dismal performance of China's stock markets for the past eight years, demand from institutional clients is strong, and UBS is making money. "I'm turning away tens of millions of dollars of business a day," says Nicole Yuen, who heads the bank's QFII team. UBS was also the No. 1 adviser on China M&A in 2004, working with blue chips including China Telecom (CHA) and Shanghai Automotive Industry. The latter bought a 48.9% stake in ailing SsangYong Motor Co. for $552 million. The bank also made its first foray into China's nonperforming loan market last year by buying $185 million worth of bad debt from state-owned Huarong Asset Management Co.

But Chinese wealth management is the business UBS wants most, once that sector opens up to foreign banks. The bank notes that there are 200,000 Chinese households with more than $1 million in liquid assets. For competitors of UBS, the day when they can manage some of that money is not far off. Foreign banks that have been operating Chinese branches for at least three years can begin accepting local-currency deposits in December, 2006. HSBC Holdings (HBC) and Citibank (C) have been operating multiple branches in China for several years. Unfortunately for UBS, it must wait until August, 2007, because it didn't set up its flagship branch in Beijing until 2004.

Yet Hong Kong-based UBS Asia Pacific Chairman Rory Tapner is confident the bank will conquer China in the long haul. "We're [not] so far behind the game that it will cause us a problem," he says. If the Swiss bank's track record in the rest of the world is anything to go by, he's probably right.

By Frederik Balfour in Shanghai, with Assif Shameen in Singapore and Ian Rowley in Tokyo


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