Municipal securities move house

When Massachusetts reorganized its school building program, it appointed UBS as bookrunner of a highly successful USD 2.5 billion bond issue. The state was not alone in its choice of a partner. In 2004, UBS led 566 new issues worth over USD 41 billion, more than any other firm, for US state governments, hospitals, and educational foundations.

UBS inherited the municipal securities team from its merger with PaineWebber in 2000 and has since built this New York-based business into a primary market leader. Today’s business is an integrated unit, comprising an investment banking capability, syndication, institutional and retail sales, research, and derivatives marketing. Regional trading desks are located in Chicago, Dallas, Los Angeles, Nashville, and Orlando, as well as New York.

With total annual issuance volumes approaching USD 400 billion, municipal securities are an integral part of the North American fixed income market. The market has grown to USD 2.1 trillion in outstanding bond market debt, compared with USD 5.0 trillion for the corporate market. For UBS, municipal securities form a part of its comprehensive offering to both institutional and private clients – for whom they represent a secure, attractive investment exempt from federal income tax.
The business is now moving house. On 1 July 2005, the municipal securities business transferred from UBS’s Wealth Management USA business area to the Investment Bank. Although the business retains its existing offices in central Manhattan, the change of reporting and organizational structure is still highly significant for its future. Being part of the Investment Bank’s infrastructure and risk management framework will help it expand its secondary trading business in line with demand from institutional clients. It will also be in a position to work more closely with other units of the Investment Bank. A case in point is the unit’s derivatives business built up over the past few years via a “joint venture” with the Investment Bank’s rates business. As primary issuers use derivatives to hedge risk and capitalize on funding opportunities, this aspect of the business is set to grow.

The move therefore makes sense not only from an internal perspective – risk management, capital allocation, knowledge-sharing – but from the most important viewpoint of all, that of clients. As part of the Investment Bank, the business is now better positioned to serve both investors and issuers.