UBS is closing its municipal bond business after failing to find a buyer for what was the third- largest underwriter of U.S. state and local government debt last year.
UBS will fire about 280 people, said Doug Morris, a spokesman. Zurich-based UBS, Switzerland's largest bank, said in May it would shutter its municipal bond division if it couldn't find a buyer.
``UBS explored a number of alternatives to exit the institutional municipals business and determined that because of the complexities of selling the business in the current market and limited market capacity for a business of this size, a sale of the business was unlikely in the near term,'' the company said in a statement.
UBS has said it plans to eliminate 7,000 jobs following $38 billion of fixed-income asset markdowns. Investment banks and securities firms in the past 10 months have cut 83,000 jobs amid losses and writedowns of $383 billion.
The company's action also follows the collapse earlier this year of the $330 billion auction-rate bond market, leaving investors with securities that they couldn't sell. UBS cut the value of its customers' auction-rate holdings, which were sometimes regarded as cash-equivalents, by about 5 percent in March.
Auction-Rate Share
Municipal debt made up about half of the auction-rate market at the end of 2007, according to a Feb. 13 report from Charlotte, North Carolina-based Bank of America Corp.
UBS will move some of its municipal bond personnel to its wealth management operations, the company's statement said. The division will be closed ``through an orderly wind-down,'' which the company expects will last over ``the next few months.''
UBS's share of the municipal bond business has been declining, and it now trails Citigroup Inc. and Merrill Lynch & Co. after ranking first in 2004, according to data compiled by Thomson Reuters.
``It's not the end of the industry, it's a reshuffling of the deck chairs,'' said Tom Doe, president and founder of the Concord, Massachusetts-based Municipal Market Advisors, a research firm. ``It's a realignment of the industry.''
Municipal issuance is expected to reach $400 billion this year, Doe said, predicting that ``a new firm will emerge.''
The company's acquisition of PaineWebber Group Inc. in 2000 helped it secure the top spot. PaineWebber ranked second among municipal market underwriters when it was acquired. The decision by the firm to put more bankers in offices outside of New York helped contribute to its success, Terry L. Atkinson, the director of UBS's municipal securities group, said in December 2004 interview.
Toll-Road Plan
UBS bankers helped New Jersey Governor Jon Corzine develop a plan earlier this year to borrow against the state's toll-road revenue to retire state debt and fund transportation capital projects. Corzine later dropped his proposal following legislative opposition.
Management changes have coincided with UBS's difficulties. Chairman Marcel Ospel resigned at the annual meeting in April amid losses arising from the subprime mortgage market collapse. He was replaced by the bank's general counsel, Peter Kurer.
Ospel's move followed departures of investment banking chief Huw Jenkins and former chief financial officer Clive Standish. Peter Wuffli was forced out as chief executive office by the bank's board of directors in July 2007 after the closing of a hedge fund that lost money on subprime holdings.
JPMorgan Chase & Co., the third biggest U.S. bank, will cut its municipal bond department by about 15 percent, a person familiar with the company's decision said this week. The group has about 170 people. The move follows the company's purchase of Bear Stearns Cos.
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