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Markets fade, but ambitions do not. Sometimes, in fact, downturns sharpen the appetites of even sated institutions.

Markets fade, but ambitions do not. Sometimes, in fact, downturns sharpen the appetites of even sated institutions.

By Michael Carroll
June 2001
Institutional Investor Magazine

This month's issue takes a look at two examples of the phenomenon: North Carolina's First Union Corp., which in April made a surprising, and controversial, bid for neighboring Wachovia Corp.; and UBS, the Swiss financial services giant that wants to jump-start its U.S. investment banking activity.

Both companies saw opportunities in recent market weakness. First Union took advantage of credit problems that made Wachovia vulnerable; UBS leaped at the chance to hire topflight bankers from rival investment houses. Both are defying the odds - and the skeptics. In this month's cover story ("Ken Do"), Senior Writer Jacqueline S. Gold explores the thinking behind First Union CEO Ken Thompson's Wachovia bid. When Thompson, a First Union lifer, took over for the cancer-stricken Ed Crutchfield in April 2000, First Union was reeling from overaggressive expansion that would force it to restate earnings twice in one year. Thompson acted quickly to win back Wall Street's favor: slashing the dividend, closing branches and shuttering the Money Store, a foolhardy acquisition that helped lead First Union to a record $2.7 billion restructuring charge in a single quarter. And he vowed to concentrate on execution rather than acquisition.

Then Wachovia came along, and Thompson reversed course. At $76 billion, this would be the biggest acquisition (by asset size) ever for First Union. But the self-effacing North Carolina native is in a nasty fight with SunTrust Banks, Wachovia's spurned suitor, and shareholders of both First Union and Wachovia are grousing at him. First Union investors are unhappy that he's doing any deal; Wachovia stockholders want a better offer.

UBS is also sailing into the prevailing winds. As other Wall Street firms slash their payrolls, the Swiss bank is on a hiring binge. Its goal is to catapult into the top five of U.S. investment banks and secure a position among the global elite. Other firms have tried and failed to do this: Deutsche Bank, J.P. Morgan and Smith Barney Shearson - to name three - all spent untold millions without breaking into the exclusive upper tier. "UBS is fighting the weight of history in its quest," says Staff Writer Jenny Anderson, who profiles the firm on "Taking on America."

One U.S. bank after another has stumbled trying to build an empire by acquisition; one investment bank after another has exhausted itself assaulting the bulge bracket. But opportunists, like First Union and UBS, just keep knocking.