UBS Securities Still Open for Business, At Least for Competitive Deals

Market participants anticipating a time when UBS Securities LLC is no longer a competitor in the municipal bond market may have to wait. The firm will act as a registered municipal dealer until the shuttering of the department is completed later this year and will continue to bid on competitive deals, likely long into the future.

Since the beginning of June, when UBS officially closed its department, it has been the winning bidder on 13 relatively small competitive bond sales, according to Thomson Reuters. The deals have ranged in size from $37.8 million, sold by the Janesville School District, Wis., to $6.4 million, sold by North Andover, Mass.

"We continue to bid normally for competitive municipal deals, and have been named to at least one selling group," UBS spokesman Kris Kagel said in an e-mail.

Kagel also said the firm has continued to fulfill the obligations the bank agreed to before the closure was announced.

In late June UBS managed a privately placed $733 million sales tax deal for Puerto Rico. While the size of the competitive deals the bank is winning are small, its continuing presence in competitive underwriting took some by surprise. Jeffrey Timlin, a vice president at Sage Advisory Services in Austin, said UBS has remained active in some respects, consistently offering internal bid-wanted lists to the market.

"It has been surprising that I have seen them being so active in the market," Timlin said. "They are lightening up in [terms of personnel] but they don't seem to be closing down."

UBS AG, the Swiss banking giant and parent of UBS Securities, first announced on May 6 that it would be leaving the municipal market. At the time, the bank said it would keep a small trading operation, part of the municipal securities group, and transfer it back into the wealth management division for the purposes of serving the bank's wealth management clients.

When UBS officially shuttered its department a month later, the bank said it would no longer provide underwriting and structuring services to municipal issuers, while working to develop an "open architecture" platform for bringing new issue supply to its clients.

Its recent involvement in competitive deals seems to support the claim.

"One of the nice things about competitive deals is that you can buy into them, bid them, off of a secondary trading desk," said Guy LeBas, fixed-income strategist at Janney Montgomery Scott LLC. "UBS still has all the clients who are buying municipal bonds, they are just no longer involved in the primary underwriting and institutional trading. So I expect they are buying these deals to support their retail client base."

And as far as issuers looking to sell competitive deals, the bank's continuing presence means greater competition among bidders and potentially lower borrowing costs. UBS bid on and won a $34 million competitive sale offered on July 1 by California's Los Banos Unified School District.

"What I've heard publicly is that they are out of the origination business, but to me that has not meant that they are not bidding on competitive deals," said Adam Bauer, senior vice president with Fieldman, Rolapp & Associates, the financial adviser for the district.

However, the exact nature of the firm's plans for the open architecture platform it has mentioned are not immediately clear. UBS' Kagel said it is too early to comment on the firm's plans.

"While UBS Investment Bank has ended underwriting, as previously stated, our wealth management franchise is in discussion with other broker-dealers to create an open architecture platform for negotiated transactions," Kagel said.

Kagel said the transfer of the trading operation and competitive underwriting desk to wealth management involves logistical and regulatory hurdles, and is expected to be completed by the beginning of the fourth quarter.

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