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Credit Suisse (CS) Mulling Business Overhaul Through Merger Deal
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Credit Suisse Group took the biggest hit among its peers following the collapse of Archegos Capital Management in March, losing $5.5 billion. Hence, management is now contemplating rolling out a restructuring plan. This could include a likely merger with UBS Group AG (UBS - Free Report) , per three people familiar about the matter. The news was reported by Reuters.
Per a few bank executives, the Swiss lender is likely to be confronted by investors for spinning-off its businesses or declining stock-market value, which might attract a foreign hostile takeover as well. According to a source as per the article, senior bank executives are scheduled to meet next week and might consider restructuring proposals in early July.
A person knowledgeable about the bank’s mindset told Reuters that a merger plan is the need of the hour. There is also a growing concern in Zurich about activist investors going after the bank in case of any inaction. Some of the likely restructuring proposals include Credit Suisse spinning off its local bank and letting the remaining firm go up for a merger, or scaling back the investment banking arm or selling the asset management business. Notably, divesting the U.S. investment bank is also an option.
Nonetheless, management’s discussions on restructuring are in the preliminary stage and no decisions have been made yet.
Per the article, while the takeover of Credit Suisse by any of the U.S. banks is unlikely to be well received, the decision to go with UBS Group will be more agreeable. The potential combination would have more than 110,000 employees and a market value of more than $85 billion.
However, the Credit Suisse-UBS Group combination is expected to be a matter of concern for regulators due to its dominant position, which might require shoring up their capital base. A source suggested that Credit Suisse can split its local banks to address any competitive concern.
Notably, earlier this year, when inquired about a partnership with Credit Suisse, the CEO of UBS Group, Ralph Hammers had discarded the idea, remarking that he preferred“organic” growth.
Conclusion
We believe the ongoing liquidity requirements and anti-money laundering controls on the bank will be a step forward in improving risk and compliance policies, aiding in the reduction of wrongful activities. Apart from Credit Suisse, other banks affected by the Archegos default are Nomura Holdings, Inc. (NMR - Free Report) , Mitsubishi UFJ Financial Group (MUFG - Free Report) , Morgan Stanley, UBS Group and Mizuho Bank. They were prime brokers that offered almost $50 billion worth of leverage to Archegos but collectively lost more than $10 billion due to the fallout.
Credit Suisse’s top line remains under pressure due to the prevalent negative interest rates in the domestic economy and bleak loan demand. Hence, restructuring initiatives are expected to lead to simplification of businesses and help contain expenses.
Shares of Credit Suisse have lost 15.8%, over the past six months, against 18.7% growth of the industry it belongs to.
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Credit Suisse (CS) Mulling Business Overhaul Through Merger Deal
Credit Suisse Group took the biggest hit among its peers following the collapse of Archegos Capital Management in March, losing $5.5 billion. Hence, management is now contemplating rolling out a restructuring plan. This could include a likely merger with UBS Group AG (UBS - Free Report) , per three people familiar about the matter. The news was reported by Reuters.
Per a few bank executives, the Swiss lender is likely to be confronted by investors for spinning-off its businesses or declining stock-market value, which might attract a foreign hostile takeover as well. According to a source as per the article, senior bank executives are scheduled to meet next week and might consider restructuring proposals in early July.
A person knowledgeable about the bank’s mindset told Reuters that a merger plan is the need of the hour. There is also a growing concern in Zurich about activist investors going after the bank in case of any inaction. Some of the likely restructuring proposals include Credit Suisse spinning off its local bank and letting the remaining firm go up for a merger, or scaling back the investment banking arm or selling the asset management business. Notably, divesting the U.S. investment bank is also an option.
Nonetheless, management’s discussions on restructuring are in the preliminary stage and no decisions have been made yet.
Per the article, while the takeover of Credit Suisse by any of the U.S. banks is unlikely to be well received, the decision to go with UBS Group will be more agreeable. The potential combination would have more than 110,000 employees and a market value of more than $85 billion.
However, the Credit Suisse-UBS Group combination is expected to be a matter of concern for regulators due to its dominant position, which might require shoring up their capital base. A source suggested that Credit Suisse can split its local banks to address any competitive concern.
Notably, earlier this year, when inquired about a partnership with Credit Suisse, the CEO of UBS Group, Ralph Hammers had discarded the idea, remarking that he preferred“organic” growth.
Conclusion
We believe the ongoing liquidity requirements and anti-money laundering controls on the bank will be a step forward in improving risk and compliance policies, aiding in the reduction of wrongful activities. Apart from Credit Suisse, other banks affected by the Archegos default are Nomura Holdings, Inc. (NMR - Free Report) , Mitsubishi UFJ Financial Group (MUFG - Free Report) , Morgan Stanley, UBS Group and Mizuho Bank. They were prime brokers that offered almost $50 billion worth of leverage to Archegos but collectively lost more than $10 billion due to the fallout.
Credit Suisse’s top line remains under pressure due to the prevalent negative interest rates in the domestic economy and bleak loan demand. Hence, restructuring initiatives are expected to lead to simplification of businesses and help contain expenses.
Shares of Credit Suisse have lost 15.8%, over the past six months, against 18.7% growth of the industry it belongs to.
The stock is currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Bitcoin, Like the Internet Itself, Could Change Everything
Blockchain and cryptocurrency has sparked one of the most exciting discussion topics of a generation. Some call it the “Internet of Money” and predict it could change the way money works forever. If true, it could do to banks what Netflix did to Blockbuster and Amazon did to Sears. Experts agree we’re still in the early stages of this technology, and as it grows, it will create several investing opportunities.
Zacks’ has just revealed 3 companies that can help investors capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
See 3 crypto-related stocks now >>