UBS Sees Grounds Riff Like Richards Winning Asia DealsNarayanan Somasundaram and Elena Logutenkova
As UBS AG board members gathered in Sydney last year to consider the bank’s fate, they joined 200 clients to drink champagne, eat canapes and mingle among beds of anthurium with purple spadixes jutting into the air.
Chairman Axel Weber, who had flown to Australia from Zurich for the board’s first-ever meeting there, took the stage at Cafe Sydney overlooking the harbor and lauded Matthew Grounds and his team for their “unparalleled footprint across the region.” Grounds, 44, who heads UBS’s Asia-Pacific corporate client-solutions unit, led Switzerland’s largest bank to the No. 1 position in equity underwriting in the region excluding Japan in 2012, and he’s doing the same this year.
UBS’s Asia-Pacific performance stands in contrast to the rest of the world, where the bank is undergoing radical surgery, discussed at the Sydney meeting, to shutter most debt-trading and cut 10,000 jobs. The firm has almost doubled its market share from last year in advising on mergers and acquisitions in the region, according to data compiled by Bloomberg.
“People incorrectly put that down just to me,” Grounds said in an interview in a sun-flooded, 16th-floor conference room at UBS’s Australian headquarters in Sydney, citing 20 years of teamwork among his business heads who sometimes just give him a role to come in and play for a deal they’ve already scripted. “I’m trying to be like Keith Richards.”
That may well make Grounds the “rock star” that the Australian Financial Review called him in a profile last year, a term that causes him to roll his eyes, knit his brow, and complain. He’s hardly Mick Jagger, the front man for the Rolling Stones, whom he saw on their most recent world tour, he said. Instead, he said, he’s more like Richards, the guy playing riffs in the background.
Grounds, who’s also chief executive officer for Australia and New Zealand, has plenty to strut about. The holding company for UBS’s Australian businesses reported a 63 percent increase in profit to A$60.8 million ($55 million) last year in a filing to the Australian Securities and Investments Commission.
That’s in contrast to the net loss of 2.5 billion francs ($2.7 billion) UBS posted worldwide after being fined about $1.5 billion for trying to rig benchmarks such as the London interbank offered rate.
UBS ranks sixth this year in M&A advising worldwide, moving up from 11th place last week before it helped Vodafone Group Plc on its $130 billion sale of a stake in Verizon Communications Inc., and is sixth in equity underwriting, data compiled by Bloomberg show.
The future of UBS could look like the Australian and Asian businesses, Grounds said in the interview in July, calling them capital-light, dominant in equities and with a strong position in research and investment banking.
“I’m not saying UBS is going to be No. 1 globally,” he said. “But there’s no reason why Europe can’t have this model.”
The corporate client-solutions unit that Grounds heads in the Asia-Pacific region -- which includes advisory, equity and debt capital markets, as well as financing for businesses -- is key to growth in a part of the world where linking investment banking with Asia’s increasing number of wealthy clients is critical to profitability, said Christopher Wheeler, a London-based analyst with Mediobanca SpA.
The unit contributed 35 percent of investment-banking revenue worldwide in the first half of the year compared with 23 percent before the 2008 financial crisis, when UBS was building up fixed-income trading.
“It’s not so much as nice to have, it’s essential,” Wheeler said. “The big entrepreneurs very much look for a holistic service.”
UBS has been able to take advantage of relationships between wealth management, headed in Asia by Kathryn Shih in Hong Kong, and the investment bank, according to Matthew Hanning, who reports to Grounds as co-head of investment banking for the region, excluding Japan. The reorganization is freeing up resources to grow in Asia, “where the integrated bank story has worked very well,” Hanning said in a phone interview.
The Swiss bank is pushing both sides to cooperate in selling products they manage or underwrite, such as bonds, to wealthy customers. UBS also is pressing to handle those clients’ deals in a region where the number of millionaires is rising faster than in developed economies and the wealthiest people are the ones with companies seeking to go public or issue bonds.
UBS tied with New York-based Citigroup Inc. as the biggest private bank by assets in the Asia-Pacific region last year, according to the Boston Consulting Group. The bank said in July that it has a relationship with as many as 80 percent of Asia’s billionaires. It reported 1.7 trillion francs under management, with 210 billion francs of that in Asia.
Hanning and Guy Fowler, head of investment banking for Australia and New Zealand, also cited teamwork for the strong track record. Knowing each other’s views and having earned trust from top management means the bank can move faster on deals.
“It’s quite a unique, almost family-like culture,” said Fowler, one of the 20-year team members Grounds credits for UBS’s success in Australia. “We can get things done quickly, and I’d say more quickly than a lot of our competitors.”
Several of UBS’s equity deals in Southeast Asia this year were linked to wealthy families. In Thailand, CP All Pcl, controlled by billionaire Dhanin Chearavanont’s Charoen Pokphand Group, raised $315 million in a February offering. In the Philippines, billionaire Lucio Tan’s LT Group Inc. sold $912 million of stock in April.
The surge in such transactions vindicated the move last year by UBS’s CEO Sergio Ermotti to shrink riskier and capital-intensive businesses, such as bond trading, to concentrate on wealth management. The bank sped up its reduction in risk-weighted assets, surpassing the year-end level it had targeted.
Grounds became the head of UBS Australia and New Zealand in May 2008, moving up from joint head of investment banking. He joined Potter Warburg & Co., a UBS predecessor, in 1994 from boutique investment bank Schroders Australia Ltd.
A graduate of the University of New South Wales, where he studied commerce and law, Grounds worked at Clayton Utz, an Australian commercial law firm, before starting on a finance career. He lives with his wife and two children in the Sydney suburb of Mosman.
“He’s a good manager, runs a very tight ship and also has a very global view on where Australia is in the global perspective and how local companies act internationally,” Oswald Gruebel, a former UBS CEO, said in a phone interview. “He’s a good dealmaker and a good manager, which is something you don’t find very often among investment bankers. Usually it’s one or the other.”
In 2008, after Grounds took over the Australian unit, UBS “completely dominated the recapitalization of the Australian banking system” in an unprecedented way, as typically banks would jointly underwrite capital raising, and UBS was the sole underwriter for some of the deals, said Magellan Financial Group Ltd. CEO Hamish Douglass, who calls Grounds a friend.
“It goes down to Matthew’s skills and relationship at the highest levels of corporate Australia and also the dominance of the UBS equity-capital-markets franchise,” Douglass said.
UBS helped Australian banks and insurers raised about A$13 billion of equity capital in 2008 and 2009, data compiled by Bloomberg show, including a last-minute underwriting of a Commonwealth Bank of Australia offering after the bank terminated a transaction led by Merrill Lynch & Co. The New York-based bank said at the time it didn’t accept the bank’s version of the events that led to its dismissal.
Yesterday, UBS was the sole underwriter for energy-utility investor DUET Group’s A$100 million capital raising in its latest deal.
The Swiss bank’s Australian unit contributed about 45 percent of the total Asia-Pacific fees from 2008 to 2012, up from 41.8 percent before Grounds took over, according to data compiled by New York-based consultant Freeman & Co. The Asia-Pacific region generated 21 percent of UBS’s global fees in 2012 and the first half of 2013, the data show.
This year, UBS has jumped to be the No. 1 share-sale underwriter in Southeast Asia for the first time in six years, from fourth last year, data compiled by Bloomberg show. The bank has helped raise about 33 percent of Southeast Asia’s total from equity sales, compared with 23 percent for second-place CIMB Group Holdings Bhd.
When the Queensland state government wanted to sell part of its stake last year in QR National Ltd., a rail-freight company now called Aurizon Holdings Ltd., top investment banks vied for the deal, Grounds said. So he told the state’s officials that, contrary to the discount his competitors were suggesting, UBS could help lift the stock’s trading price based on precedents over the last 10 years, he said.
UBS arranged in October for the state to sell some shares to select investors and for the company to buy back its stock. Five months later, when UBS helped the state cut its remaining 18 percent stake in half, the strategy proved right. The holding sold at A$4.03 a share, a 16 percent increase from October. The stock closed at A$4.50 a share in Sydney today.
Here’s the catch: It was Fowler’s idea, Grounds said, adding that he himself was skeptical at first, until Fowler convinced him. After that, his role was to come in and sell it.
“I love going into a client meeting,” said Grounds. “It happens many times, ‘Well, Matthew, are you absolutely committed to this?’ I will say, ‘Yeah, I am.’ But in a couple of weeks they’d be saying not, ‘Where’s Matthew?’ but ‘Where is Guy, or where is Anthony Sweetman?” he said, referring to Fowler and to Sweetman, the head of corporate advisory services in Australia and New Zealand.
Grounds did take the lead role in the Commonwealth Bank share offering on Dec. 17, 2008, according to Ralph Norris, the bank’s former CEO, who called Grounds’ actions “magnificent” that day.
“He saw the Merrill transaction had failed,” Norris said in a phone interview. “He rang me first thing the next morning after the issues had become obvious the previous night. Matthew indicated to me he could undertake and complete the transaction by midday. This was half past seven in the morning. I said, ‘Come and see me.’ We had a discussion, and I decided we would undertake the capital-raising with UBS. He delivered.”
“He’s top-rank,” Norris said. “There’s no doubt about that.”
One place where UBS isn’t tops in Asia is Japan. It ranks ninth in equity and equity-linked underwriting in a market led by Nomura Holdings Inc., Daiwa Securities Group Inc. and Goldman Sachs Group Inc., data compiled by Bloomberg show. In 2004, UBS was as high as fourth. Grounds said he intends to change that. UBS has a new managing director at its Japan banking unit, Junya Nishiwaki, who was hired from Goldman Sachs and started Aug. 23.
“Improving our position in Japan would be our priority just by investing in people,” Grounds said. “We would like to be among the top three international banks of choice in Japan.”
The bank plans to increase its Asia corporate advisory and capital markets team by 10 percent over three years, Grounds said in an interview in April, even as UBS is paring fixed-income jobs.
There won’t be a letup on China, where regulators have frozen approvals on initial public offerings for more than 10 months amid an equity-market slump, Grounds said. The firm’s joint venture in China, UBS Securities Co., has been the top underwriter backed by a foreign bank for domestic share sales since 2010, ahead of Goldman Sachs’s joint venture, Goldman Sachs Gao Hua Securities Co., data compiled by Bloomberg show.
“We have such a strong position, we are just going to maintain it,” Grounds said.
UBS also beat Goldman Sachs in 2008 in Australia when it became the first international bank to open an office in Perth ahead of that area’s mining boom. Natural resources-related equity offerings ballooned to A$23 billion in 2009 and M&A increased to a record A$55 billion in 2011. Goldman Sachs set up an office in Perth last year, according to Hayley Morris, a Sydney-based spokeswoman for the New York-based firm, who declined to comment further.
“If I say we can do it, we’ll do it,” Grounds said. “It’s very hard to replicate our depth. That sounds arrogant. The reality is there is a lot of power in our team.”
To protect his top managers in Australia from global cost-cutting at a time when UBS is scaling back pay and bonuses worldwide, Grounds managed to secure pay incentives, a “long-term, deferred-retention senior incentive” plan available only in Australia, according to UBS’s 2012 annual report.
In addition to making sure his team is well-compensated, Grounds insists on sharing the accolades.
“This cannot be about me,” he said. “If this is about me, it hurts my capacity to enable.”