As Utah's Banks Criticize CUs, New Competitor Enters

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Utah's bankers have more than credit unions to worry about as competitors.

Joining several of its U.S. investment bank and asset management rivals, a unit of Switzerland's UBS AG has applied to the State of Utah for an industrial loan corporation license. Pending approval from Utah's Department of Financial Institutions and the Federal Deposit Insurance Corp. on a related application, the industrial loan charter would allow the Zurich company to accept federally insured deposits from its U.S. customers-a first for UBS.

The filing, which the state accepted Feb. 21, was made mostly on behalf of UBS PaineWebber, the company's U.S. broker-dealer and asset-management operation. The application also lists several UBS affiliates that could make use of such a charter. UBS Bank USA submitted the application-in which it identifies itself as a subsidiary of UBS Americas Inc.-to the Department of Financial Institutions. The bank will be part of UBS PaineWebber, said a spokesman, Paul Marrone.

"UBS PaineWebber plans to establish a banking presence in.Utah to support the firm's individual wealth management business and fulfill increased requests from clients for collateralized lending," Marrone said. The charter will also help it meet customer demands for federally insured deposits, he said.

In recent years, more investment banks and asset managers have sought banking powers using industrial loan corporation charters as client demands changed. Three states have such a charter, and several of Wall Street's largest investment firms have been drawn to Utah's. Morgan Stanley has one, and Goldman Sachs Group Inc. applied for one in August. Merrill Lynch & Co. also has the Utah charter and is the state's largest bank by deposits, according to Thomson Corp.'s Sheshunoff Information Services. The draw? An industrial loan charter grants companies most of the powers bestowed by a commercial bank charter, including the ability to accept federally insured deposits and make consumer loans. Its main restriction is a pro hibition on accepting demand deposits if the corporation has assets of more than $100 million. But with the restriction comes a big benefit: The charter holder does not need to follow the Bank Holding Company Act and thus avoids supervision by the Federal Reserve banks.

A similar charter sparked controversy in California last spring when the discount retail giant Wal-Mart Stores Inc. applied to acquire a small Orange County industrial bank, by which Wal-Mart would gain banking powers. After an outcry from labor groups and community banks, which feared Wal-Mart would use the license to compete directly with banks, the California Legislature quickly passed a law prohibiting such purchases. In October Wal-Mart withdrew its application to buy the bank.

UBS bought New York-based PaineWebber in 2000 to expand its brokerage network in the United States, and the unit now contains all of UBS' private-client business. The public portion of the Utah application illuminates its intentions.

"The bank will not hold itself out to the retail public as provid-ing retail loans to consumer customers," UBS Bank USA said. It will not make home loans, small-business loans, small-farm loans, or "consumer loans to retail customers." And it will not open retail branches, hire tellers, or put up "pedestrian signage," it said.

Instead it has designated itself a wholesale bank, which will operate out of an office suite in the Wells Fargo Center in Salt Lake City. It plans to "offer a limited number of specialized products and services" to customers of UBS PaineWebber, UBS Warburg, UBS International, and UBS PaineWebber Puerto Rico, among others.

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