UBS has abandoned its planned
acquisition of Standard Chartered’s (StanChart) Indian mutual fund
management business at a price of about $129 million, apparently
after regulatory opposition from the Reserve Bank of India (RBI).
If confirmed, this will represent one of the most embarrassing
setbacks for a global private bank operating in Asia since
Citigroup was closed down in Japan in 2004 because of regulatory
infractions.

A new buyer will be sought for the $3.5 billion funds business,
which StanChart stressed has continued “to grow and operate
normally”. Goldman Sachs, Credit Suisse, Morgan Stanley, ING,
Deutsche Bank and Schroders are believed to be among potential
bidders.

The two banks decided not to continue negotiations after the sale
and purchase agreement they concluded in January 2007 expired, UBS
said. The deal was not granted “certain regulatory approvals”,
StanChart said in a separate statement, without elaborating.

The decision to drop talks is “entirely unrelated” to $10 billion
in writedowns stemming from the US subprime crisis that the Swiss
bank announced earlier this month, a UBS spokesman stressed.

Laundering charge

The RBI itself made no comment, but Indian media reports claim that
there was a money laundering charge pending with the Securities and
Exchange Board of India. This was apparently linked with accounts
in Switzerland held by a wealthy Indian racehorse owner.

UBS does have a securities operation in India and it is not clear
to what extent the regulatory rebuff will hamper its future private
client efforts in the country.

The deal with StanChart would have significantly enlarged its
client base. The StanChart business ranks as the ninth-largest
mutual fund manager in India with about $3.5 billion of assets,
equivalent to a 4 percent share of the domestic market. It is based
in Mumbai with offices in 27 other Indian cities.

The alliance between UBS and StanChart to distribute funds in Asia
will not be affected by the abandoned purchase.