UBS defends change to report on Australian power privatisation

UBS has defended its decision to amend a research report into the partial sale of an Australian electricity network - a client of its investment bank - that had prompted regulators to investigate the "Chinese walls" that separate its operations.

The case has highlighted the strength of UBS, which has held the top investment bank spot in Australia for eight years, and the role of Matthew Grounds, its star banker and Australia chief executive.

Mr Grounds and other senior executives told a parliamentary inquiry on Monday that the bank's research team had acted independently when they redrafted a report that questioned the New South Wales government's landmark policy just weeks before a state election.

The partial sale of the electricity network, which is expected to raise up to A$13bn, was a highly contentious issue in the election in March.

UBS and Deutsche Bank are advising on the sale and are set to reap millions of dollars in fees from the transaction, expected this year.

The report was originally sent to bank clients with the title "Bad for the budget, good for the state" but was withdrawn and reissued as "Good for the state". The new version included comments that highlighted the benefits of premier Mike Baird's policy to sell long-term leases to the network.

Mr Baird told the inquiry his staff contacted Mr Grounds and Guy Fowler, head of investment banking for UBS in Australia, to complain about the note rather than the analysts who wrote the research.

The state premier insisted that his staff did not ask for the report to be rewritten. "My staff did not ask UBS to change the report. Full stop. End of story," he said.

The Australian Securities & Investments Commission, the regulator, is also investigating the conduct of UBS, which said the decision to amend the report was made by the head of research.

Mr Grounds told the inquiry: "The very fact that the research report went out at this point in time highlights our commitment to ensure that our research is independent.

"Research needs to be independent and it is very important that it is independent to anything that happens on the investment banking side," he said.

Mr Grounds cemented his reputation as a rainmaker during the financial crisis when he helped many Australian banks raise funds in rollercoaster markets. Most notably he led a last-minute rescue of a $1.7bn capital raising for Commonwealth Bank of Australia, the country's biggest lender, when Merrill Lynch failed to pull off the deal.

Last year he stepped back from running UBS's Asia-Pacific investment banking operations to take a more local role.

UBS's Australian dealmakers are known locally for a forthright approach to business, frequently calling executives of deals for which they are not mandated to find out why.

"If there's a deal they are not on, they are super aggressive," said one rival investment banking head. "People fear annoying them because they have so much of the equity flow."

On average, UBS generates 43 per cent of its Asian investment banking fees in Australia, compared with 30 per cent for Goldman Sachs, its closest global rival, according to Dealogic data.

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