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Fidelity to Buy UBS PaineWebber Clearing Unit


Mutual fund giant Fidelity announced last week that it plans to acquire Correspondent Services Corp., the clearing unit of UBS PaineWebber. The deal will make Fidelity the eighth-largest clearing firm in the U.S.

Published reports put that deal's value at between $300 million and $340 million, but neither side would comment on the figure. However, UBS stated in a release that it expects the deal to be "near breakeven" after taxes, amortization and other transaction-related costs.

Among the Top Eight

The deal will allow Fidelity to beef up in the clearing field, more than doubling its number of clients, bringing it to a total of about 300 and putting Fidelity in the top eight clearing firms, according to TowerGroup. Fidelity said the deal will bring 150 clients to its existing business, which is said to be at about 150 to 170 clients.

At the end of February, National Financial, Fidelity's existing source of clearing business, was the custodian for approximately $231.1 billion in correspondent broker/dealer assets. CSC will initially stay a separate subsidiary from Fidelity's National Financial unit.

The firms expect the purchase to close during the second quarter. However, this purchase may not have been the prize the company had been eyeing. Last year, Fidelity turned some heads as word spread that it had interest in purchasing Zurich, Switzerland-based Credit Suisse Group's Pershing unit. Fidelity has typically stayed away from acquisitions, instead relying on building its own business.

But, in early in 2003, CSFB agreed to sell its Pershing unit to The Bank of New York in a deal that combined $2 billion in cash, the repayment of a $480 million subordinated loan and a contingent payment of up to $50 million hinging on future performance. Pershing has more than 850 clients itself.

TowerGroup said there are an estimated 100 players in the clearing business, but that a large number of them may not be able to survive on their own. Leading the field is the Bank of New York, which has about 1,400 clients. Fiserv Inc. comes in second with around 500 clients, while Bear Stearns Securities, a unit of Bear Stearns Cos. weighs in with 400 clients.

Fidelity currently manages $755 billion in assets, down from its peak of $1 trillion, and has seen its profits struggle amid a tough economic climate. Profits tumbled 39% last year, and as losses continue to mount, the firm has been increasingly looking to expand in the high-net-worth asset area. UBS said it sold the clearing unit in order to concentrate on its core business of managing money for the rich.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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