Some cheering news on an otherwise tough day for UBS - the Swiss bank has bagged key roles for both Lloyds and RBS, as the two British banks agree to a massive shake-up that involves taking 31 billion pounds more of government money. As Victoria Howley and Daisy Ku wrote earlier:

“UBS AG (UBSN.VX) has taken key roles on two landmark deals to shore up British banks — landing the Swiss bank a welcome boost in fees and prestige on the same day it shocked the market with worse-than-expected results.

“UBS is working alongside Bank of America Merrill Lynch (BAC.N) to raise 13.5 billion pounds ($22 billion) for Lloyds Banking Group Plc (LLOY.L) in the world’s largest rights issue.

“It is also working with Morgan Stanley (MS.N) to advise Royal Bank of Scotland Plc (RBS.L) on its participation in the UK government’s Asset Protection Scheme (APS). [ID:nL3540088]

“UBS’s advisory team is led by Alex Wilmot-Sitwell, co-chief executive of the investment bank, and Chris Fox, a managing director in the bank’s London financial institutions group.

“Lloyds is paying 500 million pounds in fees and expenses, of which 190 million pounds ($309 million) will go to the six banks underwriting the rights issue — UBS and Merrill alongside Citi (C.N), Goldman Sachs (GS.N), HSBC (HSBA.L) and JPMorgan Cazenove (JPM.N).

“As joint sponsors and global co-ordinators, UBS and Merrill are likely to earn more than the other four, implying payouts of more than 32 million pounds each.”

For the full story, click here.

For more on UBS honcho Wilmot-Sitwell, see this profile in the Times of London from April, with nuggets such as the fact his father is credited with inventing the “dawn raid”.

Elsewhere, Legal Week magazine has the skinny on the “Magic Circle” law firms working for RBS, Lloyds and the Treasury.

A bitter U.S. tax row has hit UBS harder than many investors thought and the Swiss wealth management giant is still losing more rich client money than what it manages to attract, its disappointing third-quarter results showed.

UBS shares tanked and the data suggest turnaround maestro Oswald Gruebel may have to work a bit harder to bring home the profit that will convince the super rich to stick around.

“Reputation is a fragile dimension, painstaking to build but easily broken. It will take a more than persuasive convincing for wealthy clients to fully perceive the firm as a safe haven again, even though there are positive shoots of normality returning,” said Cubillas Ding, senior analyst at international financial research and consulting firm Celent.

Will the arrival of Merrill Lynch veteran Robert McCann, hired to restore trust in UBS’ battered American wealth franchise, improve things?

Photo credit: The U.S. flag flies outside the U.S. headquarters of Swiss bank UBS in New York August 4, 2009.  REUTERS/Brendan McDermid (UNITED STATES BUSINESS)

Like SocGen before them, UBS strategists are looking forward to a pickup in M&A next year.

From a note published on Monday:

“We expect 2009 to mark the trough in global M&A transactions and for activity to pick up in 2010 and beyond. For FY2010, globally we expect M&A activity in the region of $2.5-2.7trl, an increase of 15% on current annualised run rate for 2009 and close to levels last seen in mid 2004-05. The biggest driver of an increase in activity is likely to be the increase in risk appetite in equity markets and in the boardroom, a return to earnings growth and profitability by World Inc and a backlog of pending asset disposals.”

“Credit conditions are also supportive and we expect private equity and bank lending to pick up at some point next year.”

“We do think investors can take advantage of the growing interest in M&A as the likelihood of deals gets priced into stocks. The average take-out premium historically has been 30-40%, much of which is earned around the announcement of a deal. Merger arbitrage post bid announcement has earned a levered IRR around of 9% this year.”

“Despite a 27% decline in global M&A activity in 2009, deal volumes in Asia remained strong. At the current run rate, 2009 activity in the region will be up on 2008, taking APAC’s share of global M&A to 25%, from 6% in 1995. A meaningful pick-up in global activity in 2010 will require a rebound from trough deal volumes this year in the Americas and Europe.”

“M&A activity could be especially prevalent in the Financials and Healthcare sector due to the shock of increased regulation affecting their industry dynamics. The Healthcare sector, along with Technology is one of the best placed sectors from a balance sheet point of view too, generating high free cash flow and with limited debt on the balance sheet (or net cash in the case of Tech). Asset disposals at the Industrials and Materials sectors could be a theme if excess capacity pressures intensify.”

Despite a dismal couple of years for M&A, the strategists also say there has been a longer-term shift to a higher “natural rate” of mergers than in previous eras (see graph), as dealmaking benefits from globalisation, deregulation, privatisation and the development of financing markets.

Here are the highlights from this week’s Thomson Reuters investment banking scorecard:

Cadbury deal lifts UK M&A to $168.8 billion

The $19.3 billion offer by Kraft Foods for UK confectioner Cadbury lifted UK target M&A to $168.8 billion for the year-to-date period, an increase of 19% over last year. The transaction could rank as the second largest non-government acquisition in the UK this year after Xstrata’s $42.5 billion bid for Anglo American in June.

UBS, which advised on both the Cadbury and Anglo deals as well as the UK government investments in Lloyds Banking Group and RBS, leads the year-to-date UK target league table with $124.6 billion from 21 announced deals.

Biggest week for U.S. corporate debt since May

Bolstered by multi-billion dollar deals in the financial and insurance sectors, the market for U.S. corporate investment grade debt saw its biggest week for news issues since May. Hong Kong’s Hutchison Whampoa topped the list of global debt offerings this week, raising $3 billion in the U.S. markets, while insurers Prudential Financial and Met Life each raised over $1 billion.

JP Morgan holds first place with 13% of the market, while Bank of America has 12.8% of investment grade underwriting in the U.S.

Asia Pacific tech M&A hits $15.2 billion

This week’s $3.1 billion acquisition of Singapore-based Chartered Semiconductor Manufacturing by state-owned Advanced Technology Investment Co, a UAE sovereign wealth fund, brings year-to-date Asia Pacific technology volume to $15.2 billion, a 33% increase over last year at this time.  Deals in the both the materials and consumer staples sectors are up over 60% in the region this year.

Overall, worldwide sovereign wealth fund acquisition activity totals $25 billion so far this year, a 32% decline over 2008.

When Switzerland sold its stake in the country’s largest bank at the top end of its price range, it made a hefty profit on compensation for interest lost from shedding the mandatory convertible notes it held in the bank early. It’s not as if it didn’t deserve a big payoff, having gone to the mat with the mighty U.S. government to defend UBS over allegations that it aided and abetted wealthy American tax dodgers.

Our source says the Swiss sold 332 million shares at 16.50 Swiss francs each, at the top end of a 16 to 16.50 francs price range, with books being three to five times oversubscribed. That gives government 5.5 billion Swiss francs ($5.1 billion), plus 1.8 billion francs in compensation, making a profit on the 6 billion francs it shelled out in its rescue attempt last October.

Has the U.S. regulatory offensive poked so many holes in the Swiss banking system as to rob it of its best asset? While UBS is starting to pay its dues, it could be taking on fresh liability by complying with the order to hand over the names of thousands of UBS’s rich American clients to Washington. This could result in fresh provisions for big legal bills, as outed clients sue UBS for breaking that same Swiss banking secrecy law that had been so important to the wealth management bank for so long.

The U.S. is gunning for other banks too, and European governments have been vocal about clamping down on tax-havens, so how UBS handles the fallout could set precedents across the off-shore wealth-management industry.

Details emerge of the Swiss government’s disposal of 9 percent stake in UBS. Traders snapped up the 332 million shares at the top end of the expected price range in a heavily oversubscribed sale, a source told us. 

Talks over a complicated merger between telecommunications firms MTN and Bharti Airtel are extended for a second time until the end of September. As uncertainty over a successful completion drags on one shareholder we talked to said the extension showed that the deal may be too complex.

For the latest Reuters stories on M&A and investment banking, click here.

For a round-up of other stories featured in the media today take a look at our market chatter.

UBS shares are on the rise after news of a deal in principle to end U.S. government tax litigation against the Swiss wealth management giant. This probably involves the bank handing over the names of 5,000 U.S. clients holding secret Swiss accounts, or 10 percent of the names Washington was after. The best news for investors right now is there is no fine involved.

Hardly the end of uncertainty the market would normally crave. While the deal will not formally violate Swiss bank secrecy rules, it’s hardly going to end pressure on Switzerland and UBS — and the entire offshore financial world — to stop shielding the wealthy from paying their dues.

For now, the ebbing threat of a fine, removing the risk of more capital-raising by UBS, is being welcomed. Now, all the bank needs is a business model built on better citizenship. Perhaps they can manage something dramatic before they report quarterly results tomorrow. UBS is expected to post a second-quarter net loss of 1.1 billion Swiss francs ($1 billion). It lost billions of business from wealthy clients after it handed over about 250 names in February to settle a separate U.S. criminal probe.

By Sarah Young, from Acquisitions Monthly

It’s widely acknowledged that the tables have turned on private equity and with debt scarce it is their bids for assets which are looking uncompetitive compared to offers from the strategic buyers they out-priced time and again in the days of readily-available leverage.

But there are exceptions to this new reality.

Insiders say that bank appetite to lend to private equity firms bidding for German credit card payments processor Easycash is such that the four or five buyout houses participating in the UBS-run auction are in with a reasonable chance of winning the asset.

Banks are willing to lend between 3x and 4x last year’s ebitda to fund the deal, meaning it could weigh in at around the €250 million plus mark.

Their competition on the trade side is going to come from French information technology conglomerate Atos Origin and US player Global Payments, both of which are understood to be in the running.

The performance of the company over the last twelve months and the stability of its earnings going forward plus its strong development under its current private equity owner, Warburg Pincus, has apparently convinced banks that lending to buyout firms to fund the acquisition of Easycash is a wise use of their limited liquidity.

There won’t be much of a summer holiday for the interest parties - first offers are due at the beginning of August with final offers due by the end of September.

A federal judge has agreed to delay the UBS tax-evasion trial as the U.S. and the Swiss seek a resolution. UBS shares gained strongly on the presumption that a delay was near.

A source familiar with the situation told Reuters the talks, now led by the U.S. and Swiss governments, were aimed at finding a way to allow the bank to transfer client data without breaching Swiss law. No doubt the discussions, and perhaps even the nature of a settlement, will be murky.

That a settlement is being sought may be a short-sighted reason to buy UBS stock. Without its precious secrecy to define it, Swiss banking would lose the standing that has made it the wealth-management center of the world. The fact that the two sides are talking may indicate Washington is willing to accept less than unconditional surrender. But make no mistake: Settlement means less secrecy, not more. While a settlement would help the bank with this particular mess, it could have an added sting in the form of a payment from UBS to the U.S. government.

Longer term, tax lawyers say European governments, which are also trying to recoup unpaid tax money from offshore banks, could also put pressure on Switzerland as a global fight against tax cheats gathers pace.

TMT is heating up. Vodafone, the British mobile phone operator, is pondering a bid for T-Mobile UK, while Microsoft has hired Morgan Stanley to sell its digital agency Razorfish. Both stories are in the Financial Times. Private equity group Candover says it has ended talks with potential acquirers, confident it can meet debt covenants. For all Reuters Deals news, click here.

And here’s what other media are writing today.

* Anglo American (AAL.L) is building its defences against a 41 billion pound ($67.74 billion) merger approach from Xstrata (XTA.L) by plotting talks about a major Chinese investment, the Sunday Telegraph reported.

* Switzerland’s UBS (UBSN.VX) is to pay 3 to 5 billion Swiss francs ($2.77-$4.62 billion) in the next two weeks to settle a U.S. tax probe into the bank, Swiss newspaper Sonntag reported on Sunday.

* China National Offshore Oil Corp (CNOOC) (0883.HK) and Petrochina are planning bids for a stake in Canadian oil firm InterOil Corp’s (IOC.N) natural gas project that could be worth up to $500 million, the South China Morning Post reported on Monday.

* The potential buyer of General Motors Corp’s (GMGMQ.PK) Hummer division will begin formal talks with Chinese regulators on Monday in an effort to win approval for its acquisition, The Wall Street Journal said on Saturday.

* British train and bus operator National Express Group Plc <NEX.L> has rejected an unsolicited takeover bid from rival FirstGroup Plc <FGP.L>, the Financial Times reported on Monday, without citing sources.