Rainmaker

At the peak of the global financial crisis the jokes came thick and fast: Used to Be Smart, Ugly Balance Sheet and even Underwritten By Switzerland.

In Australia, operatives of the Swiss investment bank UBS could only look on as Europe's biggest bank threatened to follow the likes of Lehman Brothers and Bear Stearns, racking up more than $US50 billion ($54 billion) in writedowns and losses linked to the crisis, the most of any European bank.

The bank was forced to accept a near $US6 billion bailout from the Swiss Government and cut more than 18,000 jobs across the globe. And, perhaps most gallingly in the self-absorbed world of investment banking, bonuses were frozen.

But there was more. UBS was caught in a tax avoidance scandal and admitted defrauding the US Government. It paid $US780 million in fines and disclosed the names of more than 4000 clients it had helped squirrel away money in overseas bank accounts.

The damage to its reputation was incalculable. It will take longer to rebuild the trust of clients than to return to profitability, admits the UBS global boss, Oswald Gruebel.

But in far-off Australia, a very different year was unfolding. Corporate Australia, too, was filled to the brim with debt. And those same investment bankers who earned their bonuses in the good times by encouraging companies to use cheap debt to make their "lazy" balance sheet work harder were now advising companies how to fix their broken jalopy. For another handsome fee.

But some local investment banks had problems of their own  Macquarie Group was under pressure with its own debt-filled balance sheet.

And when Merrill Lynch stumbled trying to raise $2 billion from Commonwealth Bank shareholders, UBS pounced, starting a snowball of momentum that would result in it playing a leading role early this year in helping rebuild corporate Australia's balance sheets.

With the banking alchemist's art of influencing the corporate decision makers to buy this, restructure that, UBS Australia picked up about 25 per cent market share in equity raisings in the first nine months of this year.

The fees are handsome, as are the prospects for a return to million-dollar boom-time bonuses.

Over the past decade UBS has built an enviable client list, making it the dominant advisory business in the country  advising boardrooms, investing wealthy clients' money and constructing deals for corporate chieftains wanting to build empires. But it has also taken reputational hits of its own, with some of the worst performing floats, worst capital raisings and heftiest investment writedowns in recent corporate memory.

He is arguably one of the leading powerbrokers in corporate Australia, but his is not a household name.

He features prominently on the BRW Young Rich List with a personal fortune estimated conservatively at about $40 million. But he does not appear in Who's Who of Business.

Matthew Grounds is the adviser of choice to James Packer, attending his wedding on the Cote d'Azur. And he has the ear of billionaire Kerry Stokes.

In late 2007 he paid $11 million for a new home in the exclusive Sydney harbourside suburb of Mosman with views out to Sydney Heads. And he calls the tennis player Lleyton Hewitt a neighbour at his Palm Beach weekender bought in 2005 for more than $4 million.

Just don't ask Grounds, the CEO of UBS Australia, to be photographed alone. After all, it's about the team.

Away from the pointy end of the financial market, Grounds, who turned 40 this year, is largely unknown. He grew up in southern Sydney, attending the same school, Woolooware High, as the Reserve Bank of Australia governor Glenn Stevens.

But in the corporate hallways and boardrooms, the boss of UBS Australia ranks among the most influential advisers in the country, having brokered the truce between the warring billionaires Packer and Stokes in their recent stoush over Packer's Consolidated Media Holdings.

No wonder then that among those singing his praises is the Seven Network boss, whose private investment vehicle, Australian Capital Equity, has in the past been advised by UBS.

Matthew and UBS did an excellent job for all concerned, and we look forward to continuing to work with them on CMH, Stokes tells the Herald.

And the Packer lieutenant John Alexander is even more effusive. In my view, Matthew is Australia's pre-eminent investment banker. He is very strategic, he is commercially nimble and above all, highly effective.

"But what also attracts us to UBS, and why they get the lion's share of our business, is the strength and depth of their team. Too often in investment banking you get an impressive head or front person but only average human capital back-up. That's certainly not the case at UBS.

UBS helped Packer raise $5 billion from the sale of Publishing & Broadcasting Ltd's old media assets including Channel Nine.

Speaking this week after the Commonwealth Bank was fined $100,000 by the corporate regulator for disclosure breaches relating to the failed raising with Merrill Lynch, the bank's chief executive, Ralph Norris, also praised Grounds.

"Matthew's quality of advice and his ability to move quickly and decisively have gained him a very strong following in corporate Australia.

Investment banking folklore has Grounds on the phone to Norris at dawn after Merrill dropped the ball, ready to pounce on the mandate  and its fees  and save Commonwealth Bank any further embarrassment.

The long-time Investors Mutual funds-manager Andrew King, now with Concise Asset Management, says UBS "execute well".

"In capital raisings, communications is absolutely crucial."

Even in the notoriously sniping world of investment banking, Grounds's competitors show respect. "They always have the best banker in the market because they're the best bank in the market," says one competitor in an unguarded moment.

Yet rivals agree it is Grounds and the one co-investment banking head, Guy Fowler, who are the rainmakers  the hard-nosed bankers who make the bank money.

"If Grounds or Fowler left there would be a big impact," one competitor says.

About the time that UBS's global woes played out over the past year, Australian companies that had loaded up with cheap debt on the advice of investment banks were scrambling to stabilise their balance sheets before the bubble burst.

Around them, debt-laden former market darlings such as Babcock & Brown, Allco Finance Group and ABC Learning were falling into the hands of their lenders, and boards across the country feared they too would not be able to repay their debts as the cost of funding rose. Pressure to raise more money from shareholders was building.

In those circumstances, corporate bosses want minimum risk, and that is largely achieved when banks underwrite the raising, in effect guaranteeing they will take up all the stock if investors will not.

When the Commonwealth Bank and Merrill Lynch came to blows over a $2 billion capital raising late last year Grounds and his team stepped in.

"That's the story of UBS," one competitor says. "They have linkages throughout the place because they've got such a long-term franchise that they can pinch those deals from time to time."

For a share sale of the likes of Commonwealth Bank's $2 billion target, the bank can typically earn a 2 or 3 per cent fee  up to $60 million.

When UBS helped the debt-ridden ports operator Asciano raise more than $2 billion, the bank reputedly earned a similar fee but not before an outcry over a deal forthe indebted boss and large shareholder Mark Rowsthorn.

UBS's head of equity capital markets, Simon Cox, rejected as "unequivocally incorrect" and "malicious" suggestions its winning the mandate to handle Asciano's $2.35 billion capital raising was linked to the bank's deal to provide a loan to Rowsthorn. Rowsthorn entered an arrangement with UBS in which he sold 40 million shares at $1.25 each and the took out a "collar" loan over his remaining securities. The deal allowed Rowsthorn to buy his full allotment of 76.2 million securities under the group's entitlement offer at the lower price of $1.10 a security.

UBS's big competitors claim they missed out then because they were all conflicted trying to advise outsiders wanting to buy Asciano, while acknowledging the UBS deal kept Rowsthorn in the box seat.

The tables turned when the private equity firm TPG, which missed out buying Asciano assets, retaliated by snubbing UBS from an advisory role in the float of its Myer department store business. But UBS was soon back, taking a central role when the Future Fund sold down $2.7 billion of its holdings in Telstra.

More than $50 billion has been raised by Australia's top 50 companies since the fourth quarter of last year. UBS says it has been involved with half of that money.

Dealogic, which compiles investment banking league tables, calculates UBS had about one-quarter of market share of the more than $43 billion raised since the start of this year.

In an interview at UBS's Chifley Tower offices this week, Grounds happily discusses the performance of his capital raising team that is topping league tables.

"Guy [Fowler] and I and the rest of the team are absolutely pleased with the performance of the business," Grounds says. But you won't see a repeat of the recapitalisation of the Australian market of that kind again in the near future, he adds.

But he declines comment on many other questions about the bank, citing the blackout period before the bank's quarterly results next month. He declines to reflect on the boom year investment banks are enjoying despite the perception those same banks caused the global financial mess by creating an array of products that turned into toxic debt.

That is an argument independent advisory firms are happy to pick up on.

"We have long held the view that there is a significant role for independent advisers in the market," says David Feetham, managing director of Gresham Advisory. "We believe that boards benefit from another view and advice which is seen to be free from any perceived or actual conflicts of interest or approach inherent in an integrated banking model."

One of Grounds's predecessors at the helm of UBS, Chris Mackay, puts the bank's success down to something else.

"What Guy and Matthew have been extremely good at is to put themselves forward in front of all of the CFOs, treasurers and boards over the past 18 months while you've had an unprecedented period of uncertainty and as they started to win mandates in that context there's a bit of a momentum build. People like to herd, particularly in times of uncertainty."

Rivals argue UBS's apparent dominance this year is largely confined to one area  equity raisings. Questions have been asked about the performance of the wealth management side as globally customers withdrew billions from the bank in the wake of the tax scam and amid fears over the bank's stability.

Grounds will not discuss any fallout to the company's brand, including outflows from the bank's wealth management business, saying only: "We've got five key businesses  asset management, wealth management, equities, fixed income and the investment banking business  and we see opportunities in all of those businesses. We continue to focus on all those opportunities."

Guy Fowler argues that in mergers and acquisitions the whole market has been "very slow".

While grounds and his team have been successful wooing the nation's boardrooms, it is that sway at the top end of town that can leave a bad taste in the mouth for small shareholders.

UBS has been caught in some stunning corporate wipeouts in recent years despite keeping its clients happy  among them the listing of the mortgage lender RAMS Home Loans.

When UBS helped the RAMS founder John Kinghorn float his business and pocket $650 million, the bank pocketed an estimated $20 million in fees. Six weeks later the global financial crisis hit, cruelling the RAMS short-term money market funding model and sending the company broke. Shareholders were wiped out, with the brand and ongoing business sold to competitor Westpac. The New York Times thought "it may be the worst initial public offering of the decade".

"They don't too often screw up, and when they do, like with RAMS, they get over it," one rival says.

There are other prominent examples from recent years, including raising money from Multiplex shareholders at $5.45 just before a profit warning brought about by problems with the Wembley Stadium project. Shares fell as low as $2.56 within months.

And despite the embarrassment of its involvement advising Qantas in the board-endorsed failed private equity buyout, UBS was still in the game for its advice.

Investors who missed out on cashing in their chips when the bid failed were keen to enjoy a capital return from the airline. UBS helped Qantas return more than $500 million to shareholders priced at an average $5.56 a share.

Then earlier this year, when Qantas needed to strengthen its balance sheet after the financial crisis, it was forced to raise money from shareholders, raising almost the same amount but this time at a significant discount of $1.85. While the Qantas board faced embarrassment for buying high and selling low, UBS was still able to pocket a fee.

About the only thing investment bankers like more than a good market rumour is money, or so the saying goes. As UBS's woes deepened globally and bonuses were frozen by the Swiss Government, rumours returned about the likelihood of a buyout of the bank's Australian operations led by Grounds.

Without a carrot to hang before his team, Grounds faced losing his greatest asset  his bankers. He will not comment, but banking circles are rife with suggestions he secured a profit-sharing deal. It is said he flew to Hong Kong to meet UBS top brass to discuss a profit share arrangement on the Australian business.

But some suggest it was for as few as six or eight of the bank's top stars. "If they hadn't got their deal done they might have lost half their team," one rival banker says.

Rivals have no doubt that UBS will be a smaller operation globally as a result of the financial crisis and its own internal crises. And they have not given up hope that will open up opportunities in Australia.

"They've got boardroom relationships and a bunch of legacy clients that will stand them in good stead for several years," one competitor says. And another: "What you can't replace ever is a rainmaker, and what those guys have in Chris [Mackay] originally and then Matthew were just a couple of really talented rainmaker guys who people trust.

"But if those guys walk across the road to Macquarie or Merrill I have no doubt those firms will become the dominant forces."