UBS aims for No. 3 prime broker slot

NEW YORK (Reuters) - Investment bank and asset manager UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz) is pushing hard to build its prime brokerage business for hedge funds and aims to unseat the current No. 3 next year, a senior UBS executive told the Reuters Investment Banking Summit in New York on Wednesday.

Huw Jenkins, chief executive of UBS Investment Bank, said it is "a perfectly reasonable goal to be in the top three next year" in prime broker services. UBS is now around fifth place, according to industry analysts.

To meet its goal, Jenkins said UBS is focusing on new funds, which are expected to use more brokerage services as they grow over the years. He said the bank is close to its goal of winning mandates for one out of three new hedge fund start-ups.

Prime brokers provide trade execution, stock lending, leveraged finance, capital introduction and other services to hedge funds. Many of the larger funds employ several prime brokers.

Brad Hintz, securities industry analyst at AllianceBernstein (AB.N: Quote, Profile, Research, Stock Buzz), reacted skeptically to Jenkins' stated goals and said it would have a tough time.

"Is he telling us he's going to buy Bear Stearns BSC.N?" asked Hintz jokingly.

Hintz said the top three prime brokers -- Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz), Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) and Bear Stearns -- overwhelmingly dominate the market with some 66 percent market share.

Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) and UBS are roughly at fourth and fifth place, but are well behind the top-three with only single digit market shares, said Hintz.

Hintz said UBS can compete better with the Big Three, but it may require more aggressive leverage and stock lending policies, which are not only riskier but also less lucrative.

And UBS, as a global financial institution, can offer prime broker services in places where others aren't as strong, such as in Europe or in emerging hedge fund centers in Singapore and Dubai.