Australia to drive deals on rebound: UBS

Rory Tapner, Asia Pacific Chairman & CEO of UBS, is interviewed at the Reuters Finance Summit in Hong Kong November 10, 2008.

HONG KONG (Reuters) - Australia will be a source of deal-making in Asia-Pacific while India may be a laggard once markets stabilize and the flow of capital-raisings and M&A resumes, the regional head of UBS (UBSN.VX) said.

Violent market swings have left investors with whiplash and kept would-be buyers of companies and issuers of debt and equity on the sidelines.

"We need to get back to the point where people are confident that if they buy something, the following day it's not going to be 10 percent lower," said Rory Tapner, chairman and chief executive for Asia-Pacific at UBS.

When activity resumes, former high-flyer India may have a harder time given its heavy exposure to the global services sector, with overseas companies poised to cut back on outsourcing as domestic unemployment grows, Tapner said.

"India may be one of the markets that is going to perhaps find some of this tougher," he said at the Reuters Global Finance Summit.

China -- and the region -- will benefit from the stimulus package unveiled by Beijing on Sunday, Tapner said. In Australia, demand for resources will drive deals when conditions improve, while asset management and insurance firms will also do deals.

"If the world gets going again, I think that will be one of the first places that start to recover," he said of Australia.

Tapner declined to predict when a recovery might occur, but said Asia was better positioned to rebound than Western countries because of lower leverage and stronger economic growth rates.

He said some deals that had been planned in Asia may never make it to market as sellers object to lower valuations, but said that otherwise the pipeline of deals was healthy.

"The amount of activity in general here when the market volumes return will be very significant," Tapner said.

Some UBS bankers in Asia have turned their focus to restructuring distressed assets, a business that could account for roughly 15 percent of regional investment banking revenue in a year, compared with little now, he said.

Real estate finance may take longer to recover, said Tapner, a Briton who has headed the bank's Asia business since May 2004.

COMFORTABLE WITH HEADCOUNT

In the current downturn UBS has cut 7,500 jobs globally, of which 10 percent were in Asia -- a proportionately smaller share for a region that accounts for roughly 20 percent of the Zurich-based bank's global business.

UBS employed about 10,250 people in Asia at the end of the third quarter, and recently hired a team of oil and gas bankers from Lehman Brothers as well as a top China banker from the collapsed Wall Street firm.

"In terms of Asia-Pacific, I'm reasonably comfortable with current levels," Tapner said of the bank's headcount.

UBS, which is also the world's biggest wealth manager, has been a power in Asian investment banking in recent years. Tapner said the bank was poised to hang on to that market share and make gains as the competitive landscape shifts.

"When they do come back, we will capture at least our market share at the moment," he said.

The Swiss bank, which has made more writedowns than any other European bank amid the global financial crisis, ranks second in investment banking fees generated in Asia including Japan this year. It is just behind Citigroup (C.N) and ahead of Mizuho Financial Group (8411.T), according to Thomson Reuters data.

Last year, UBS ranked first in investment banking revenue in Asia, and was fourth in 2006.

"The last five or six weeks have definitely got more difficult in terms of, activity levels remain subdued and volatility has been high," said Tapner. "Things are stable, but they're stable at a lowish level," he said.

Shares in UBS have lost nearly 63 percent since the start of the year through Friday, worse than the 53 percent drop in the Dow Jones STOXX index of European bank stocks .SX7P.

Tapner said a key challenge was managing the expectations of staff through harsh markets after the recent boom years.

"It will recover but we're not getting back to where we were end 2006/early 2007 for some considerable time, and it's important that employees change their mindset to reflect this reality," he said.

(Editing by Anshuman Daga)