Mortgage securities are a key part of a move by Union Bank of Switzerland to raise its profile in the United States.
The company's investment bank, UBS Securities, is leading the effort to become one of Wall Street's premier underwriters and traders of securities backed by mortgage loans.
Kevin J. Finnerty, a managing director for Union Bank of Switzerland, directs the action from a Park Avenue office in New York City just across from Bear, Stearns & Co., where he spent 11 years as a mortgage executive before joining UBS in November. His goal: "To build a well-rounded operation that is very customer driven."
Right now, UBS traders handle about $40 billion of mortgage securities a month, a relatively modest volume by Wall Street standards. "We wouldn't be in the top five at this point," Mr. Finnerty said. "But that's not our mandate. We want to be very good at all we do."
UBS wants to better tap into the "sunshine period" now under way in the mortgage securitization business, Mr. Finnerty said. "Prepayments aren't high, and there is a general lack of credit problems," making the securities more appealing to investors.
Indeed, the recent move by the Federal Reserve Board to tighten short- term rates could serve to reduce prepayments even further.
Investment banks like UBS Securities are the bridge between lenders and investors. The companies buy securitized loans that carry guarantees from Fannie Mae and Freddie Mac. Investment banks also help lenders securitize and sell jumbo and subprime mortgages that do not qualify for guarantees from Fannie and Freddie.
Price and reputation are driving factors for choosing one investment bank over its more than a dozen competitors, mortgage lenders say.
"We look at the costs and the company's relationship to various parties- like credit agencies-that will be part of the securitization process," said Roger Murphree, vice president in the capital markets group at Collateral Mortgage, Birmingham, Ala.
"The better the investment firm's sales network is, the better execution we get when we sell the securities," Mr. Murphree said.
Like mortgage lending, the securities business relies heavily on relationships. UBS is making an "aggressive investment" to attract managers, analysts, and traders who are already well known to investors, Mr. Finnerty said.
"Our approach is very opportunistic," he said. "We're looking to hire 'A' players."
Mr. Finnerty has so far brought on 10 industry veterans from firms with mortgage trading and underwriting prowess, like Donaldson, Lufkin & Jenrette and Greenwich Capital Holdings.
By having a deep bench, UBS "will be a better partner" to lenders and investors, said Richard Brounstein, a managing director and co-head of national fixed-income sales.
The expertise could also help UBS weather volatility in the mortgage business. "Mortgages are very sophisticated products," Mr. Finnerty said. "There are risks up and down the curve" because of rate shifts, prepayment activity, and structural issues.
"I'm confident that by working with the right people, we can get the job done," he said.
