Bank of the year

While rivals struggle to squeeze more value out of their existing platforms, one bank has increased its share of Asian investment banking despite a radical restructuring. For proving it can do more with less, UBS is IFR Asia’s Bank of the Year.

UBS was the surprise performer in Asian investment banking in 2013, increasing its market share despite shrinking its overall platform.

UBS maintained its lead in Asian equities, increased its dominance in key markets and won a bigger share of the region’s bond market. Any bank would have been proud of those achievements, but UBS achieved success alongside an overhaul of the group’s strategy and some drastic cuts.

Competitors wrote off UBS as a serious rival at the end of 2012, when the bank announced it would scale down its fixed-income business and cut as many as 10,000 jobs. Rather than sounding the death knell for the investment bank, however, the move has seen UBS play to its strengths, focusing its efforts on growing fee revenues and deepening ties with its private bank.

While many of its rivals are struggling to justify their bloated cost bases, UBS’s approach to investment banking goes against the grain. Indeed, by showing that it is possible to drive shareholder returns without the traditional trappings of capital-intensive trading desks or giant lending books, the capital-lite Asian franchise is becoming a model for the rest of the firm.

“We are all being invited to be more thoughtful about where we allocate our resources,” said Matthew Hanning, co-head of investment banking for Asia. “It’s been a sea change internally, but, as far as our clients are concerned, the offerings have been uninterrupted.”

UBS’s Asian management remained unchanged again in 2013. An agreement to ringfence bonuses in Australia has again paid dividends, helping protect the bank’s dominant position amid a resurgence of IPOs and acquisitions, under the stewardship of Sydney-based Matthew Grounds, now head of corporate client solutions for Asia Pacific and CEO for Australasia. Its South-East Asian rainmakers, a group of well-connected individuals, such as Philippines head Lauro Baja, allowed UBS to capitalise on a bull run in emerging markets in the first half of the year, producing healthy returns on the bank’s investments.

Numerous lucrative mandates showcased UBS’s entrepreneurial spirit in 2013, including an opportunistic solution that funded the acquisition of a stake in Ping An Insurance by Dhanin Chearavanont’s CP Group. The combination of margin loans and equity derivatives in a US$5.5bn financing underlined the bank’s ability to deliver and distribute complex deals at short notice.

Punching above its weight

UBS has proven especially adept at using its wealth-management platform to drive investment-banking revenues, a trick that many of its rivals are now trying to pull off. The success of that strategy was clear from the bank’s performance in the debt-capital markets arena, where UBS punched well above its weight, despite running only a small dedicated product team and in spite of the many negative headlines surrounding its wider fixed-income platform.

UBS grew its market share by more than 25% in 2013, handling 6.3% of all Asian bond sales in US dollars, euros and yen during IFR’s review period, up from 4.9% in the previous 12 months. It climbed from 10th to seventh on the league table for the entire review period, and had even featured among the top four underwriters in the first quarter of 2013.

More importantly for UBS, which has stated its ambition to achieve a 15% return on equity from its investment bank, the DCM business posted record revenues. According to Thomson Reuters/Freeman Consulting estimates, UBS earned fees of US$71.9m during the review period, behind only two of its far bigger rivals.

UBS has long enjoyed strong corporate relationships in China, having brought a number of companies to the international equity markets. Its private bank, however, offered another dynamic, as a powerful source of demand for Asian credit.

Market dynamics suited UBS’s model in early 2013. Wealthy individuals were hungry for the income that high-yield bonds generated, and issuers – including many private bank clients – were keen to take advantage of low US dollar rates. In January alone, UBS ran the books on high-yield bonds totalling US$4.2bn for issuers that included Kaisa Group, KWG Property, Shimao Property and Hopson Development, Asia’s first Triple C rated issue. All offered juicy arranger fees.

UBS’s private bank makes its own investment decisions and is not a captive investor. Other institutions can, and do, sell bonds to UBS’s high-net-worth clients. In recent years, however, UBS has strengthened the ties between its investment-banking and wealth-management arms, resulting in far bigger orders for UBS-led deals and, ultimately, better terms for the issuer.

Group CEO Sergio Ermotti has made it clear that the investment bank must support wealth management, the group’s core focus. Deals, such as Citic Pacific’s US$800m 8.625% perpetual, launched in May and subsequently increased to US$1bn, underlined the investment bank’s ability to do just that, with UBS Wealth Management placing the biggest order and receiving the largest allocation.

“With the largest wealth-management networks globally, we work very closely with our WM colleagues to distribute our products, in addition to providing financing solutions to our WM clients’ business operations,” said Joseph Chee, head of capital market solutions for Asia.

Rivals are quick to point out that the private-bank-led strategy has its limits, asking if UBS can continue to grow its DCM business in more volatile markets, and beyond the high-yield arena. However, UBS’s Asian relationships run far deeper: it handled international bonds in 2013 for numerous high-rated companies, where distribution is more reliant on institutional investors. Sinopec, CNOOC, Korea Development Bank, Korea Finance Corp and Export-Import Bank of Korea, among others, all turned to UBS.

UBS also ramped up its presence in leveraged finance in 2013, structuring and leading high-profile event-driven financings. Its Asian loan book grew selectively, pointing to a sharper focus on more lucrative deals.

“Asia is now more important to UBS,” said David Chin, co-head of investment banking for Asia. “The return on risk-weighted assets here is higher, so we want to dedicate more resources to the region.”

Bigger balance sheet

UBS was one of seven banks on a US$6bn 12-month bridge loan, which funded CP All’s takeover of Siam Makro, the largest such domestic move in Thailand’s retail sector.

It was a top-line bookrunner on the US$1.5bn loan backing the US$3.7bn buyout of Chinese display advertising firm Focus Media Holding, the largest privatisation of a US-listed Chinese company, and also featured on a US$6bn 12-month bridge loan backing CNOOC’s acquisition of Canada’s Nexen.

UBS also underwrote a US$195m five-year LBO loan backing CVC’s purchase of Philippines business outsourcing process services provider SPi Global Holdings, while its M&A advisory mandates included China Mengniu Dairy’s US$1.5bn takeover of Yashili International and a sell-side role for family-run Chong Hing Bank in its sale of a US$1.5bn stake to China’s Yue Xiu Group.

Andrea Orcel, installed as head of the new-look investment bank in 2012, has labelled Asia UBS’s “second home market” in recognition of its strength in the region, and is determined to defend that position.

It managed to do just that in Asian equities, shuffling resources to capture opportunities across the region and completing landmark deals from Manila to Myanmar.

UBS believes the new model for its investment bank gives it a competitive advantage in its target markets. On the strength of its success in Asia in 2013, it is hard to argue with that.

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