Exclusive: UBS imposes SPAC restrictions on high net worth customers

by

Earlier this month, UBS UBS has decided that its asset management clients should only trade in SPAC shares unsolicited, a person familiar with the matter told CNN Business.

In other words, UBS advisers should not call their high net worth clients to encourage them to buy or sell specific SPACs that are traded in the open market. Once the newly merged entity has gone public, the UBS advisers will be allowed to pitch the shares.

A UBS spokesperson declined to comment.

The decision was made, the person familiar with the case said, due to the limited availability of information and research on SPACs before merging with private companies.

Some SPACs are of no use

Indeed, little is known about SPACs until they determine which company they will target to make public. SPACs have no operating companies, just a blank check and a management team looking for the right merger candidate.

The SPAC restrictions with UBS do not apply to SPAC IPO offers. UBS’s financial advisers are still able to review these so-called primary SPAC offers with eligible customers in deals where UBS is an underwriter of the IPO, the person said. (Private banks like UBS typically only offer these deals to high net worth clients with a net worth above a certain level.)

Wall Street's biggest fear is not Covid. It's inflation
The SPAC restrictions by UBS are because some experts, including former Federal Reserve officials and famed investor Jeremy Grantham, are concerned that the blank check boom is overdone. US-listed SPACs have already raised more money this year than in all of 2020 – and the first quarter of the year isn’t even over yet.

“If you look at the SPAC market, there are some really compelling new companies and new technologies coming onto the market that are effectively funding,” Rick Rieder, BlackRock’s chief investment officer for global fixed income, told CNN Business this week. “And then there are some that don’t make any sense.”

Rieder expressed concern about how some SPACs will ever be able to grow into the increased multiples they collect. “You have to be very selective about where you’re going and don’t just jump on that train because it’s gone crazy,” he said.

Big banks like UBS are cashing in

Celebrities like Alex Rodriguez, Jay-Z and Ciara Wilson have all lent their star power to SPACs in recent months.
The SEC issued a warning last week urging investors not to buy SPACs simply because of a celebrity involvement. Celebrities, like anyone else, may be tempted to participate in a risky investment or may be more able to bear the risk of loss, the SEC said.
Don't invest in a SPAC just because a celebrity is involved, SEC warns

Major banks, including UBS, are taking advantage of the SPAC craze. Investment banks receive fees in return for finding buyers for SPAC shares and placing a floor below their share price. These fees aren’t as high as what Wall Street companies earn from traditional IPOs, but the sheer number of SPAC deals have made up for that.

UBS was the leading underwriter, or bookrunner, last year on 22 US-listed SPACs, the sixth largest Wall Street firm according to Dealogic. The Swiss bank, along with Citigroup, was one of the leading insurers of Bill Ackman’s SPAC, which raised $ 4 billion last July and is still looking for a merger candidate. According to Dealogic, UBS has led an additional 15 SPACs so far this year.
UBS is actively recruiting staff in this fast-growing part of its capital market activities. A week ago, the company posted a position on LinkedIn for a New York-based investment banker who focused entirely on SPACs.
Martin Blessing, the former co-president of UBS Global Wealth Management, reportedly launched an SPAC aimed at buying a financial technology company earlier this week.

It is not clear whether other major banks impose similar restrictions. Wells Fargo declined to comment, while representatives from companies such as Goldman Sachs, Bank of America and JPMorgan did not respond to inquiries.

Source