RPT-UPDATE 1- UBS considers Paine Webber sale in review -sources

(Repeats with no changes to text of story; adds additional reporting credit) (Adds valuation estimate)

By John O'Donnell

LONDON, June 27 (Reuters) - Beleaguered Swiss bank UBS (UBSN.VX) is considering the sale of Paine Webber, the heart of its U.S. wealth management business, according to sources with direct knowledge of the matter.

UBS is under pressure from the Swiss financial watchdog and from one of its top shareholders, Olivant, to overhaul its business after more than $37 billion in writedowns during the credit turmoil.

The bank's management, led by Chief Executive Marcel Rohner, is also grappling with the U.S. trial of a former employee for helping a billionaire client hide $200 million.

Considering a sale of Paine Webber, the broker it bought nearly eight years ago for about $10 billion as a bridgehead into North America, is part of a review which is due to be concluded by October.

"If you are going to be a global wealth manager, then the U.S. is a market where you have to be present. But it is also the case that you have to make it more profitable. (A sale) is always an option," one of the sources told Reuters.

Another source said Paine Webber was "one of the assets that would be of serious interest to other people. If you were to merge Paine Webber with another brokerage, for example, there would be huge cost synergies," he said.

When Wachovia WB.N bought broker A.G. Edwards for $6.4 billion last year, it paid roughly $1 million per broker. A similar valuation for Paine Webber would value it at more than $8 billion.

A UBS spokesman declined to comment on whether Paine Webber -- the name has been ditched since the acquisition -- was under review, but said:

"UBS is the largest wealth manager in the world and a significant portion of global wealth resides in the U.S. The wealth management U.S. business is instrumental in offering investment solutions to America's wealthiest individuals."

In the June edition of a staff magazine, UBS Chairman Peter Kurer pledged to take a "hard look" at the group's strategy while underlining the need for every business to generate "sufficient profits".

UBS's U.S. wealth management business, which employs more than 8,200 brokers, made just 183 million Swiss francs pretax profit in the first three months of this year. It suffers from higher costs and thinner margins than the lucrative Swiss business.

Talking about the group review, chairman Kurer said: "It is imperative that we take another long, hard look at our strategy."

UBS is being helped in this review by investment bank Lazard (LAZ.N), whose chief Bruce Wasserstein also advised it on its acquisition of Paine Webber in 2000.

ROCKY ROAD

"We still have a rocky road ahead of us," said Kurer in the staff magazine. "It is going to take more hard work in the months ahead until we -- hopefully by the end of the year -- are back on track for success."

Many analysts see the U.S. wealth management business -- mostly Paine Webber -- as a natural candidate for sale, and senior bankers say it could make an attractive buy for Bank of America (BAC.N) or Morgan Stanley (MS.N).

The U.S. market has proven tough to crack. While UBS's Swiss business has predominantly very wealthy customers, the U.S. operation largely serves a more "downmarket" rich.

Paine Webber -- which sells investment advice and stock tips on commission -- has proven unsuccessful in tapping America's super-rich, say industry experts.

And its employees are more far expensive than those in Switzerland.

UBS is also embroiled in a legal battle that threatens to puncture strict Swiss banking secrecy rules.

One of its U.S. managers has been questioned by the U.S. authorities in an ongoing probe into whether UBS helped clients hide money from the tax authorities and is now required to stay at a hotel in the U.S. as the investigation continues. (Additional reporting by Dan Wilchins in New York; Editing by Alex Smith and Andrew Callus)