UBS investors are starting to like the Credit Suisse deal

ZURICH, Jul 17 (Reuters) – The emergency takeover of Credit Suisse by banking group UBS could result in thousands of job losses, the departure of key employees and many risks associated with integrating the two titans, but many UBS investors are already beginning to see the deal as a win for Switzerland’s biggest bank.

Swiss lender UBS completed an emergency takeover of Credit Suisse last month, and investors are slowly embracing the optimism of UBS chief Colm Kelleher, who has recognized both the many opportunities and potential pitfalls of an acquisition on such a gigantic scale.

Several fund managers who own shares in UBS told Reuters they believed UBS had acquired Credit Suisse at a good price, with some even calling the deal a “steal”.

“I think UBS is pretty modest about the real value it can get from this politically sensitive merger,” said Guy de Blonay of Jupiter Asset Management.

UBS agreed to the Swiss government’s takeover of Credit Suisse as part of the bank rescue, creating a combined group at the instigation and with the help of the government that controls over $5 trillion in assets.

UBS said the integration of the two financial giants could take three to four years, during which time it plans to operate two separate parent companies – UBS AG and Credit Suisse AG – each with subsidiaries and affiliates.

Ultimately, the deal will give UBS a leadership position in key markets that would otherwise take years to achieve.

STATE WARRANTY

In May, UBS, in a statement to the regulator, pointed to tens of billions of dollars in potential costs and benefits of the acquisition.

The bank estimated the negative impact of adjusting the assets and liabilities of the future combined group at $13 billion. The lender said another $4 billion could cost potential litigation and legal settlements related to the outflow of funds.

However, these points will be more than offset by a CHF 16 billion gain from a write-down on the AT1 bonds issued by Credit Suisse, as well as a USD 34.8 billion purchase of Credit Suisse at a price well below its book value.

In addition, the lender received a state guarantee to cover losses of up to 9 billion francs – a huge buffer that will help UBS “digest” the absorbed competitor.

“They wouldn’t get that buffer in a normal merger,” said Andreas Thomae of Deka Investment.

The fund managers also expressed doubts that under normal circumstances competition authorities would have approved such a transaction, which would result in the combined bank receiving more than a quarter of the domestic market for both loans (26%) and deposits (26%) in Switzerland.

“Now the authorities gave their approval to the deal because they needed to look for someone in an emergency,” added Tomae. “This is an attractive deal for UBS if it goes to plan.”

However, UBS also inherits Credit Suisse’s problems, Tomae said, pointing to legal risks that UBS says could cost billions of dollars.

According to another financial manager, the biggest risk for UBS is the departure of many of Credit Suisse’s top advisers in the industry of millionaires and billionaires.

He said competitors are pulling entire teams away from Credit Suisse, and some customers are likely to follow suit.

In the worst-case scenario, up to half of the assets Credit Suisse managed before the massive payouts began last October could leave the bank for other managers.

The first two years will not be easy for UBS, but it is also more positive in the long run. In three to five years, the acquisition is likely to pay off, one fund manager said.

MILLING COW

UBS shares are up more than 5% since the deal was announced, slightly approaching the average share performance of the STOXX Europe 600 financial subindex.

JP Morgan analysts expect a big jump in UBS shares as the acquisition brings positive results. The bank set a target share price of CHF 27 until the end of 2024, compared to the current level of CHF 18.22.

Analyst Kian Abuhossein sees UBS as a powerful wealth management firm, capable of raising $150 billion in cash from new clients annually.

This equates to three years of asset management by Julius Baer, ​​who replaced Credit Suisse as the second largest personal wealth manager in Switzerland.

According to Deka’s Tomae, the combined market share of UBS and Credit Suisse in Switzerland is within acceptable limits. “(For UBS) it’s a great investment, a good cash cow,” he said.

($1 = CHF0.8592)

The original message in English is available at the code: (Oliver Hurt)