Capital Markets

UBS Buying Schwab Unit

Schwab is selling the capital markets business for $265 million less than a year after buying it for $321 million.
Ed ZwirnSeptember 1, 2004

Swiss banking giant UBS AG announced yesterday that it would buy the capital markets division of discount brokerage Charles Schwab Corp. for $265 million. The deal that would make UBS one of the top traders on the Nasdaq Stock Market.

San Francisco-based Schwab is selling its Charles Schwab SoundView Capital Markets business less than a year after buying it for $321 million, according to wire service reports. The sale comes as Schwab changes its focus on individual, “retail” investors after a string of poor earnings reports led to the resignation of chief executive David Pottruck in July.

UBS will pay cash for the unit in the deal, according to the company, which expects to close the deal by the end of this year. “This transaction is consistent with our organic growth plan in combination with targeted acquisitions to ensure the growth of our franchises,” said John Costas, chairman and chief executive of UBS Investment Bank. UBS reportedly plans to integrate the acquired operations into its investment bank’s equities business.

Charles Schwab, who has returned as chairman and chief executive at Charles Schwab Corp. when Pottruck departed, said a lack of synergy between the SoundView unit and the company’s core businesses “given the current market environment” was a reason for the sale.

Besides boosting the company’s profit margin and return on equity, its departure from capital-markets business “reinforces our strategic focus on individual investors and independent financial advisors,” Schwab said. SoundView was spun off from research firm Gartner Group in 1985. In 1999, it was acquired by Wit Capital Group, which in turn sold it to Schwab.

Anticipating the sale on Monday, The Wall Street Journal reported that UBS is expected to cut back its research operation.