Magazine article American Banker

UBS Has Deal for Schwab's Capital Markets Unit

Magazine article American Banker

UBS Has Deal for Schwab's Capital Markets Unit

Article excerpt

Ending weeks of speculation about its institutional arm, Charles Schwab Corp. announced a deal to sell Schwab Soundview Capital Markets to UBS AG and plans to exit its other institutional businesses over the next 60 days.

The San Francisco company said Tuesday that it would sell SSCM, which contains its proprietary trading unit and other institutional operations, to the Swiss giant for $265 million in cash. Schwab also said it plans to exit institutional businesses not under the SSCM umbrella, including institutional research, as it refocuses on its core retail strategy.

UBS said it would bring "some people" over from Schwab, but it was too early to say how many. Schwab would not say how many employees the sale would affect.

UBS, which plans to merge SSCM into its U.S. operations, would acquire Schwab's proprietary trading technology, its institutional sales and trading business, and its over-the-counter, listed, and Nasdaq market-making operations and correspondent business.

The agreement would also give UBS access to Schwab's equity and listed options order flow for eight years. According to a UBS spokesman, that business involves 200 million trades a day.

To pay for the cost of severance and excess real estate, Schwab would take a noncash after-tax charge of approximately $75 million $85 million this quarter and after-tax charges of $70 million to $80 million sometime this year.

A deal for Schwab's capital markets unit had been widely anticipated for several weeks after the company fired its chief executive, David S. Pottruck, in July and twice cut trading commissions for retail customers. It is trying to boost retail trading volume and win back customers who have defected to other pure-play discount operations.

Daniel Goldberg, an analyst with Bear, Stearns & Co., said the capital markets business generated 7%, or $75 million, of the parent's revenue during the second quarter, and selling it should increase Schwab's pretax margins by 1 percentage point. …

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