UBS buys Lloyds TSB's stake in SMH for pounds 100m

Union Bank of Switzerland is paying Lloyds TSB pounds 100m for its 90 per cent interest in Schroeder Muenchmeyer Hengst, the German private investment bank, and buying out the partners who own the rest of the shares. The deal is expected to result in a pounds 40m profit for the British bank.

Lloyds bought its majority holding in SMH in 1984 when it still harboured serious investment banking ambitions on the Continent. Alan Moore, Lloyds TSB's deputy chief executive, said yesterday that the German bank no longer fitted with its successful retail banking-based strategy.

Formed in 1969 from the merger of three German banks, SMH is a substantial fund manager in Germany and also provides a private banking service and corporate finance, broking and equity research to institutional clients.

With 400 employees and capital of DM180bn (pounds 62bn), SMH has recently restructured itself into a pure investment bank. Unlike its high street rivals NatWest and Barclays, Lloyds has shunned the volatile earnings of investment banking, concentrating instead on building up Britain's pre-eminent retail banking operation.

Cementing a deal which had been rumoured for almost a year, and survived one set of collapsed talks, the two banks said the new slimmed-down SMH Bank fitted neatly into the Swiss group - but would retain its own identity.

UBS said of the deal: "The combination of the activities of SMH and UBS will allow UBS to reach its strategic goals - entry to German private banking, expansion of global institutional asset management and of investment fund business - swiftly and efficiently."

Private banking and asset management were the largest contributor to UBS's profits in the first half, contributing 54 per cent of group earnings.

Analysts said the deal made sense, but did not dramatically change their outlook for the Swiss bank.

Madeleine Hofmann at Credit Suisse First Boston commented: "I don't consider this material to my view of UBS. UBS has for months and years said it wanted to acquire and expand in asset management. It can finance the acquisition from pocket money."

Claudia von Tuerk, equity analyst at Pictet & Cie, said: "It is rather a small acquisition for UBS, but an interesting move toward on-shore banking."

John Leonard, analyst at Salomon Brothers, added: "I view this as essentially a fill-in for UBS with a quality German brokerage house and good corporate relations.

"The price is too small to worry about, it's like a rounding error in estimates. It may have a positive effect of some 5 to 10 million francs on UBS's earnings. But it is not one that will cause me to change my estimates."