Swiss banking giant UBS (NYSE:UBS) has agreed to buy its crisis-hit rival Credit Suisse (NYSE:CS)(GB:0QP5) for over $3 billion. The deal comes at the behest of the Swiss government, which rushed to avoid global turmoil in the banking system.
Per the agreement, UBS will be the surviving entity upon the deal’s closure. Further, shareholders of Credit Suisse will get one UBS stock for every 22.48 shares of Credit Suisse.
Until the deal is completed, Credit Suisse will conduct its business in the ordinary course and focus on restructuring measures in alliance with UBS. Furthermore, the Swiss National Bank will provide Credit Suisse with substantial additional liquidity.
Credit Suisse Required Emergency Rescue
Credit Suisse’s Chairman, Axel P. Lehmann, said that the “announced merger represents the best available outcome” as the bank was battling against significant legacy issues, including litigation provisions and the negative impact on its financials from exposure to the failed Greensill Capital and Archegos Capital Management.
Further, management changes, massive losses (7.29 billion Swiss Francs in 2022), and the recent misstatements of account balances or disclosures significantly impacted investors’ and customers’ confidence in Credit Suisse.
It’s worth highlighting that the bank witnessed significantly higher withdrawals of deposits and non-renewals of maturing time deposits. For instance, customer deposits declined by 138 billion Swiss Francs in 4Q22. This massive outflow led management to partially utilize liquidity buffers.
While the bank was forced to utilize its buffers, the slump in its shares and bonds indicated that Credit Suisse had run out of the road and could soon become illiquid.
UBS to Emerge as a Leading Asset Manager in Europe
The combination will likely create a business with more than $5 trillion in total invested assets and boost UBS’s competitive position as the leading wealth manager with over $3.4 trillion in invested assets. UBS’ management highlighted that the acquisition would make the bank the top asset manager in Europe, carrying over $1.5 trillion in invested assets.
The deal is a win for UBS shareholders. The transaction will be earnings- accretive to UBS by 2027. Moreover, the business combination is expected to generate an annual cost reduction of over $8 billion by 2027.
What’s the Prediction for UBS Stock?
The merger with Credit Suisse will make UBS a leading asset manager and extend its competitive positioning in the Swiss Home market. Further, the deal is expected to be EPS accretive. UBS is well-capitalized and expected to maintain its progressive cash dividend policy.
UBS stock has received seven Buy, three Hold, and one Sell recommendations for a Moderate Buy consensus rating. Analysts’ average price target of $25.43 implies 39.73% upside potential.
