The Federal Reserve Board on Monday gave its approval for Union Bank of Switzerland to acquire Swiss Bank Corp., but it ordered the new company to shed its U.S. merchant banking business.

The Fed's approval was the final hurdle to creation of the $600 billion- asset financial giant, which will have $40 billion of assets in the United States and branches in New York, Chicago, Stamford, Conn., San Francisco, Miami, and Houston.

A Swiss Bank spokesman said the institutions expect to close the deal by June 28.

In the United States, the new bank will underwrite corporate and government securities, offer leases, provide investment advice, conduct community development projects, offer brokerage services, serve as a trustee, and extend credit.

UBS had asked the Fed for permission to continue conducting merchant banking services here, an activity barred to most U.S. and foreign banks since 1978. Swiss Bank Corp., however, was exempt from the prohibition because it operated a merchant banking unit here before 1978.

The Fed rejected the request, ruling that Swiss Bank Corp. forfeited its right to the grandfathered powers when it agreed to give up its charter and join with UBS.

The bulk of the 32-page order is devoted to reviewing the banks' records of settling claims of Holocaust survivors. The Fed concluded that both banks are cooperating with investigators to resolve these claims. The agency noted that it consulted the State Department, New York State Banking Department, and a commission led by former Fed Chairman Paul Volcker that is helping to resolve nearly 6,000 of these claims.

The agency declined to address complaints involving specific Holocaust claims, saying foreign banking laws prevent it from considering these types of disputes in merger approvals. However, it did refer two complaints to Swiss regulators.

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