Exclusive: UBS imposes SPAC restrictions on wealthy customers

Exclusive: UBS imposes SPAC restrictions on wealthy customers

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Earlier this month, UBS (UBS) has decided that its wealth management clients will be allowed to trade SPAC shares only on an unsolicited basis, a person familiar with the matter told CNN Business.

In other words, UBS consultants are not allowed to call their wealthy clients to encourage them to buy or sell specific SPACs on the open market. As soon as the new merged entity goes public, UBS advisers will be allowed to sell the shares.

A UBS spokesman declined to comment.

The decision was made, a person familiar with the matter said, due to the limited availability of information and research on SPACs prior to their merger with private companies.

Some SPACs ‘don’t make sense’

In fact, little is known about SPACs until they determine which company they will go public. SPACs have no business in operation, just a blank check and a management team in search of the right candidate for the merger.

SPAC’s restrictions on UBS do not extend to SPAC’s IPO offerings. UBS financial advisors can still review these so-called primary SPAC offers with eligible customers in businesses where UBS is an IPO subscriber, the person said. (Private banks like UBS typically offer these deals only to wealthy clients with equity above a specified level.)

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UBS’s restrictions on SPAC come as some experts, including former Federal Reserve employees and famous investor Jeremy Grantham, fear the blank check boom will be overblown. The SPACs listed in the United States have already raised more money this year than in the whole of 2020 – and the first quarter of the year is not even over.

“If you look at the SPAC market, you will see that there are some really attractive new companies and new technologies coming onto the market that are effectively financing,” Rick Rieder, director of global fixed income investments at BlackRock, told CNN Business this week. . “And then there are some that don’t make sense.”

Rieder expressed concern about how some SPACs will be able to grow to the high multiples they are accumulating. “You have to be very selective about where you are going and not just jump on that train because it was crazy,” he said.

Big banks like UBS are profiting

Celebrities like Alex Rodriguez, Jay-Z and Ciara Wilson have 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’s involvement. “Celebrities, like everyone else, may be tricked into participating in a risky investment or they may be better able to sustain the risk of loss,” said the SEC.
Don't invest in a SPAC just because a celebrity is involved, the SEC warns

The big banks, including UBS, are profiting from the SPAC craze. Investment banks receive fees in exchange for finding buyers for SPAC shares and establishing a floor below their share price. These rates are not as high as Wall Street companies earn on traditional IPOs, but the large SPAC turnover has helped to make up for that.

UBS was the main subscriber, or book broker, to 22 SPACs listed in the U.S. last year, the sixth among the top Wall Street companies, according to Dealogic. The Swiss bank was a major underwriter, along with Citigroup, of Bill Ackman’s SPAC, which raised $ 4 billion last July and is still looking for a merger candidate. UBS has led another 15 SPACs so far this year, according to Dealogic.
UBS is actively hiring in this expanding part of the capital market. A week ago, the company listed a position on LinkedIn for a New York-based investment banker directly focused on SPACs.
Martin Blessing, the former co-chairman of UBS Global Wealth Management, reportedly launched a SPAC earlier this week with the aim of buying a financial technology company.

It is not clear whether other major banks are imposing similar restrictions. Wells Fargo declined to comment, while representatives from companies like Goldman Sachs, Bank of America and JPMorgan did not respond to questions.

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