Fidelity to Acquire UBS Processing Unit

Fidelity Investments, the largest U.S. mutual-fund company, said Monday that it would acquire the U.S. securities-processing unit of UBS to add new sources of revenue as fees from managing money sink.

Fidelity agreed to pay $340 million in cash for UBS’ Correspondent Service Corp., which processes trades and keeps records for other brokers, said a person familiar with the deal. Fidelity and UBS declined to comment on the price.

The purchase will nearly double its roster of brokerage customers. Fidelity is diversifying amid a three-year stock market slump that contributed to a 39% drop in profit last year. The closely held firm considered buying Credit Suisse Group’s Pershing unit before it was sold to Bank of New York Co. for $2.5 billion in January.

Companies in the clearing business “feel challenged by the slowdown in the business and by the Pershing-Bank of New York merger,” said Robert Iati, director of securities and capital markets at TowerGroup, a Boston-based consulting firm. “The mid-market folks like [Correspondent Service] just can’t compete.”

Fidelity’s clearing operation, National Financial, was a custodian for $231 billion of brokerage assets at the end of February. It served about 170 brokerage customers at the end of last year, while the UBS unit served 150.

“This acquisition fits strategically with Fidelity and should benefit the correspondent clearing clients of both companies,” Robert Reynolds, Fidelity vice chairman and chief operating officer, said.

Fidelity ranks fourth among clearing firms by number of clients, behind BNY Pershing, which has about 1,400 clients, Fiserv Inc. with about 500 and Bear Stearns Cos.’ Bear Stearns Securities with about 400, Iati said. There are 75 to 100 clearing firms and all but the top 10 probably will merge or sell out, he said.

UBS, parent of UBS PaineWebber, said it would “near break even” on the sale after a $120-million tax deduction, amortization of goodwill and other costs.