Blink and you will probably miss another huge development in the banking world. Following multiple crises and after a week of growing speculation over Credit Suisse’s fate, on Sunday afternoon, in an effort to avert another crisis that threatened to further destabilize the global economy, local rival UBS (UBS) stepped in to acquire the troubled Swiss bank.
The purchase price amounts to more than $3 billion but represents a steep 59% discount to the previous closing price of CS shares, which tumbled in Monday’s pre-market trading.
Subject to regulatory approval in countries outside of Switzerland – the deal is already supported by the Swiss authorities – the transaction is scheduled to close in 2Q23 and does not require shareholder approval. The actions taken have already been lauded by the Bank of England, Federal Reserve, and ECB.
In the meantime, Credit Suisse investment bank will be closed down and UBS will halt its stock buyback program. Credit Suisse’s integration is expected to last 3-4 years; By 2027, UBS expects the deal to be EPS-accretive, and should result in annualized cost savings of $8 billion by then.
Taking something of a swipe at those at the helm of the rescued Credit Suisse ship, UBS chair Colm Kelleher noted that while the acquisition is “attractive” for UBS shareholders, as far as Credit Suisse is concerned, it is “an emergency rescue.” Kelleher also added that he had hoped this day would not come, which seems to confirm RBC analyst Anke Reingen’s suspicion that the deal is not one UBS was banking on.
“The acquisition of CS by UBS seems attractive on paper longer-term and comes with a number of support measures intended to bridge near-term uncertainty (liquidity lines, additional buffers against mark downs, no competition concerns, no shareholder approval),” the analyst explained. “Nevertheless, we think this is unlikely to be the preferred route for UBS, but it appears to have been a necessary move not just for Swiss banks but the global banks sector overall.”
All told, Reingen’s UBS rating stays an Outperform (i.e., Buy) while her CHF24 ($25.89) average target represents one-year upside of 42%. (To watch Reingen’s track record, click here)
Elsewhere on Wall Street, the stock garners an additional 6 Buys, 3 Holds and 1 Sell, for a Moderate Buy consensus rating. Going by the $25.44 average target, a year from now, investors will be sitting on returns of 40%. (See UBS stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
