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December 1, 2000

UBS Warburg's Global Power Plan The Action Is In Stamford For PaineWebber Pros

By Peter Chapman

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Attempting to assemble a world-class trading operation in the suburbs is tough. That's especially true for a foreign bank. Three years ago, when Swiss bank UBS Warburg built its North American headquarters in Stamford, Conn. - about 40 miles outside of New York City - it soon ran into recruiting problems. Young traders in the New York tri-state area preferred the action and the opportunities in the Big Apple. And they were leery of the here-today, gone-tomorrow reputation of foreign banks.

That's why UBS Warburg executives are now saying Thank you, PaineWebber.'

UBS Warburg bought the U.S. retail brokerage firm in November for its lucrative wealth management business, but got a bonus: PaineWebber's large Nasdaq and listed trading operation. If those traders can be convinced to reroute their commutes from New York City to Stamford - and for now most seem willing - the acquisition will accelerate the bank's plan to become one of the top five U.S. trading houses.

Euro League

In Europe, it is one of the top three, but UBS Warburg is in the middle of the pack in the U.S. The result of a merger in 1998 between UBS Securities and SBC Warburg Dillon Read, UBS Warburg is trying to elevate its stature in the U.S. to become a truly global investment bank. "We need to be bigger," said Bill Schneider, head of North American cash equities trading (stock trading in non-derivative instruments). "You can't be successful globally in the long-term unless you have the biggest piece of the pie - the U.S."

UBS Warburg trades only about 300 Nasdaq stocks. That's nowhere near the "critical mass" considered essential by Nasdaq desk head Jack Francis.

"At some point in time we need to trade over 1,000 stocks to truly help our customers," he said. "Right now, we're helping them with only a small portion of their problem."

Francis offers program trading as an example. "If a customer wants to trade a basket, we're not the first call," he said. "They will go to someone who trades the entire S&P 500."

After the merger, UBS Warburg will trade 700 Nasdaq stocks.

Trading more stocks is a trend among the biggest on Wall Street. Goldman Sachs, Morgan Stanley Dean Witter and Salomon Smith Barney are all pushing the number of stocks they trade into the thousands either through internal growth or acquisitions.

Even with just 300, UBS Warburg's trading operation is at capacity, according to Schneider. "We've been resource-constrained," he said. "It has gotten to the point where a trader handling 25 stocks cannot add any more either profitably or unprofitably. That would crush the rest of the book."

That's why the PaineWebber deal is considered such a boon. More traders will be able to trade more stocks which should boost volume and market share. UBS Warburg's Nasdaq staff of 29 will balloon to about 83 if all of PaineWebber's traders make the move. (Ninety percent have agreed to do so, says Francis.) Listed trading personnel - both on and off the floor - will grow from 44 to 101.