Reaping the benefits of last year's spate of mega-mergers, the newly formed UBS Warburg/PaineWebber managed to eke out a victory over another recently consolidated competitor, Credit Suisse First Boston/DLJ, grabbing the No. 1 slot for residential MBS underwriters for the first quarter of 2001, according to Thomson Financial Securities Data.
Warburg's $11.63 billion in MBS proceeds for the quarter was enough to edge out CSFB's $11.5 billion, but the two mortgage powerhouses are running neck-in-neck: Warburg accounted for 16.9% of the market share, while CSFB represented 16.7% market share for combined public and Rule 144A MBS issuance.
Bear Stearns, Lehman Brothers and Salomon Smith Barney filled out the third, fourth and fifth positions on the MBS league tables, respectively. While the top three slots differed from each other by only $1 billion or less in proceeds, Lehman's issuance of $7.47 billion was considerably lower than Bear's $10.4 billion.
It seems that the recently merged entities are establishing a new hierarchy for MBS manager rankings: Lehman had consistently been No. 1 or No. 2 on the MBS league tables for the last three years; it is now ranked No. 4 for overall MBS underwriting, and ranked No. 5 for Non-Agency MBS for 1Q 2001.
This apparent sea change in RMBS leaders is a result of the consolidated banks' ability to leverage the benefits and resources of each of the merged companies, sources said. In the case of UBS Warburg, a strong mortgage team from PaineWebber was kept intact and transitioned over to the new company. Some of the members of the tightly knit PaineWebber research team have worked together for nearly 15 years, and the strength of the group, coupled with UBS' strong global franchise, seems to reflect a formula for success.
"UBS wasn't in the mortgage business, and they used this merger as an opportunity to get into it using a pre-existing proven brand," said Ramesh Singh, managing director and head of MBS at UBS Warburg. "This is the same mortgage and asset-backed research team that was at PaineWebber. We have leveraged our resources to grow our already existing business model, which is one of customer trading, high position turnover, and we grew that with our balance-sheet resources from UBS. This led to a move in league table rankings, which isn't entirely unexpected, since we now have more resources with which to work and an integrated business approach."
And it is quite an ascension: had the two banks been combined a year ago, UBS PaineWebber would have ranked No. 8 for the same time period in 2000. PaineWebber, by itself, was always a consistent player in the market, and ranked No. 6 for the first quarter of 2000, with $1.9 billion in MBS underwritten. It typically ranked between No. 5 and No. 8 for the last two years.
But post-merger, competition will be keener than ever, as rival CSFB came out on top for the RMBS manager league tables for the year 2000. According to Singh, what will differentiate UBS Warburg from its closest rivals in 2001 will be its unwaning commitment to core businesses, as well as the rapport that the members of its team have with each other, and its global focus.
"Many people on this team have worked together for a long time, and we all have a common purpose, which is to pursue the model of trading with our clients," Singh said. "I'm not sure that that same continuity exists at all of our competitors. There is a lot of deal flow coming from our international colleagues, and we've been involved as co-managers in U.K. and Australian mortgage deals. We are seeing the benefits of origination internationally."
The question of being committed to longtime clients and core businesses is a factor that many MBS shops are facing this year (see ASR 3/5/01, p.1). Some firms that choose to branch out in different directions and distance themselves from low-margin businesses may end up dropping in league-table rankings, observers say.
"While no firm will abandon an established business that has been profitable, firms won't allocate new head count or capital, because that will go to higher-growth businesses, like derivatives or high yield," said an MBS observer. "When there is attrition in an established business, firms are reluctant to replace a senior person with another senior person."
But the mere fact that UBS Warburg left PaineWebber's mortgage team intact shows a commitment to the product, Singh said. "RMBS is a core business for us, one we've been doing for years and one we feel we do well, and it is one that UBS Warburg will grow with the resources and our global platform. This represents an investment by UBS Warburg in the business, and through many conversations I've had with management, they have expressed support and encouragement to build our division."
According to Singh, the first quarter of 2001 saw growing volumes for MBS versus 2000, and given the level of rates the bank's expectations are that mortgage supply will increase further from here, and the trading and underwriting of MBS "will continue to grow within fixed-income as an important part of the market. Refinance volume alone will account for a lot of the supply."
Warburg's franchise certainly came out of the gates like gangbusters this quarter, and Singh expects his firm to be a top name for the rest of the year.
"When UBS took this 100-person group into its fixed-income department, that showed its commitment to the fixed-income markets," Singh said.