Joint Ventures: Poor Man's Acquisition?

Citigroup and Morgan Stanley are merging their retail sales forces. UBS reportedly is talking with Wells Fargo's Wachovia Securities unit about combining their respective North American wealth management businesses. What's driving this consolidation, and is still more of it in the cards?

UBS and Citi ranked first and second in the world in private banking assets under management as of a year ago, with more than $1.7 trillion each. Hit hard by the global financial crisis, both had to scramble to hold onto high-net worth investors and financial advisers after being rescued by capital injections from the Swiss and U.S. governments, respectively.

Tie-ups like these more likely stem from weakness not strategy, says a recruiter who asks not to be named because he wasn't privy to the thinking behind the deals. Citi and Morgan Stanley, for instance, each face balance sheet and economic issues that effectively rule out a "normal acquisition," he says. The same conditions might be driving UBS and Wachovia: "It's not a strategic merger, it's just a way to unload something and get it off the books in the best way possible."

Beset with troubles at the U.S.-based investment bank it expanded earlier this decade, UBS was restructuring itself even before financial markets began disintegrating late in 2007. According to the New York Post, the bank's talks with Wachovia are preliminary and might not result in a deal to join its 8,000 U.S. retail brokers acquired in 2000 through the purchase of Paine Webber, with 16,000 Wachovia financial advisers.

UBS had discussed selling its UBS Financial Services unit to Morgan Stanley late last year. When Morgan Stanley opted instead for the Citigroup joint venture, UBS apparently went looking for another partner.