Exclusive: UBS imposes SPAC restrictions on wealthy customers

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

In other words, UBS advisers are not allowed to call their wealthy clients to encourage them to buy or sell certain SPACs that trade on the open market. Once the new merged entity has become public, UBS advisers will be allowed to distribute the shares.

A UBS spokesman declined to comment.

The decision was made, said the person familiar with the matter, due to the limited availability of information and research on SPACs before they merged with private companies.

Some SPACs “don’t make sense”

Indeed, little is known about SPAC until they decide which company they will aim to bring to the public. SPACs do not have operating companies, only an blank check and a management team looking for the right candidate for the merger.

UBS’s SPAC restrictions do not extend to SPAC IPO offerings. UBS financial advisors are still in a position to review these so-called primary SPAC offerings with eligible clients in transactions in which UBS is a subscriber to the IPO, the person said. (Private banks such as UBS typically offer these offers only to wealthy customers with a net worth above a specified level.)

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UBS’s SPAC restrictions come as some experts, including former Federal Reserve officials and renowned investor Jeremy Grantham, worry that the empty-checking boom is exaggerated. US-listed SPACs have already raised more money this year than in 2020 – and the first quarter of the year has not even ended.

“If you look at the SPAC market, there are some really attractive companies in the market and new technologies that finance efficiently,” Rick Rieder, BlackRock’s chief global fixed income investment director, told CNN Business this week. “And then there are some that make no sense.”

Rieder has expressed concern about how some SPACs will ever be able to grow into the high multiples they gather. “You have to be really selective about where you’re going and not just jump on that train, because he’s gone crazy,” he said.

Big banks like UBS cash in

Stars including 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 solely because of the involvement of a star. “Stars, like anyone else, may be enticed to participate in a risky investment or may be better able to bear the risk of loss,” the SEC said.
Don't invest in a SPAC just because a celebrity is involved, the SEC warns

Big banks, including UBS, are investing in SPAC’s madness. Investment banks receive commissions in exchange for finding buyers for SPAC shares and placing a plan below their share price. These fees are not as high as what Wall Street firms do for traditional IPOs, but the high volume of SPAC transactions has helped offset this.

Last year, UBS was the main subscriber, or book runner, to 22 SPACs listed in the US, the sixth largest company on Wall Street, according to Dealogic. The Swiss bank was one of the main subscribers, along with Citigroup, for Bill Ackman’s SPAC, which raised $ 4 billion last July and is still looking for a merger candidate. UBS has run 15 more SPACs so far this year, according to Dealogic.
UBS is actively engaged in this expanding part of the capital markets. One week ago, the company listed a position on LinkedIn for a New York-based investment banker focused directly on SPACs.
Martin Blessing, former co-chair of UBS Global Wealth Management, reportedly launched an SPAC earlier this week to buy a financial technology company.

It is unclear whether other major banks impose similar restrictions. Wells Fargo declined to comment, while representatives of companies such as Goldman Sachs, Bank of America and JPMorgan did not answer questions.

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