The buzz in the structured finance world last week in response to the merger of UBS Warburg and PaineWebber carried mostly a positive tone, as market participants sang the praises of combined securitization teams that could possibly forge a stronger market presence for the new company. However, some market players warned that impending control of the combined research divisions would surely emanate from Warburg's headquarters in Connecticut.

"Warburg was looking to rebuild its ABS effort, so anybody involved in ABS at PaineWebber in probably in a pretty good spot," said an ABS market observer. "UBS has already said that they want to be a player in this business, so this could be a real winner for those guys. But beyond that, they're all dead meat. If I were a fixed-income researcher [at PaineWebber], I'd get your resume out there because you're out the door. The UBS fixed-income researchers are all up in Stamford and they're the ones who are going to call the shots."

Despite these types of predictions, the majority of market players said that the merger would have positive ramifications for ABS, residential MBS and CMBS.

Additionally, a spokesman for UBS Warburg, Ted Meyer, noted: "We intend to keep operations at PaineWebber intact. Actually, there has been minimal overlap between the two companies. This was not a merger of cost efficiencies; it was about growth."

Indeed, each bank has different strengths. PaineWebber has a leading market share in mortgage-backed securities underwriting as well as a separate asset management business that works with mortgage investors such as pension funds. UBS Warburg has extensive ties overseas, which opens up markets for PaineWebber products. Further, European clients have become more and more interested in U.S. investment products, according to Meyer.

"Primarily what we're doing is adding a substantial private client group, which creates a bigger market for our securities," Meyer said. "So for PaineWebber clients, this clearly brings to them the opportunity for new products, additional global content in the way of research, as well as products that they haven't been exposed to before."

Certainly, the deal is expected to produce increased sales of fixed-income products such as MBS, including structured products and derivatives.

"Having this instantaneous strength will be an asset," Meyer added. "Certainly, ABS has been a strength of [PaineWebber's] and it is also an area that we've been planning to strengthen."

While PW is a strong residential MBS player, UBS' newly formed commercial mortgage-backed team has made it a leading competitor in that sector. UBS' alliance with Lehman Brothers for this year's $1.4 billion conduit showed the market that the UBS-Lehman team was going to be a major contender in the commercial realm.

"UBS certainly seems to have a decent origination effort going," said a CMBS trader. "They built that up nicely, and they're coming with another deal in either August or September. They seem to be pretty good and have a good team that originates large loans and some normal-size loans.

"PaineWebber, on the other hand, does have a couple of traders themselves, and their own origination shop - kind of more standard stuff. It certainly seems like you could meld the two and have a stronger player than the two separate entities."

Under the merger agreement, UBS will offer $73.50 per PaineWebber share, valuing PW's outstanding share capital at $10.8 billion. The merger is recommended by the board of PW and supported by General Electric and Yasuda Mutual Life, PW's two largest shareholders, who together account for approximately 30% of the issued share capital. -

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