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UBS Group (UBS) to Buy Credit Suisse in $3.2B Rescue Deal
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UBS Group AG (UBS - Free Report) has announced an all-share deal to acquire its troubled rival Credit Suisse Group in government-backed efforts to fend off further panic in the global banking system.
The failure of Silicon Valley Bank and Signature Bank spurred panic in the global banking system. Troubles ensued for Credit Suisse after the company’s managers identified “material weaknesses” in its internal controls on financial reporting as of the end of the prior year. Moreover, shares of CS plunged to historic lows after the company’s biggest investor refused further investment in the bank.
Hence, in order to restore confidence in the stability of the Swiss economy and the banking system, the Swiss Federal Department of Finance, the Swiss Financial Market Supervisory Authority and the Swiss National Bank started the merger discussions.
With the buyout, the combined entity will have more than $5 trillion in total invested assets. The acquisition also fortifies UBS’s position as a preeminent global wealth manager with more than $3.4 billion in wealth management assets. The combined entity will have invested asset management assets of more than $1.5 trillion.
Under the terms of the transaction, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, with the exchange ratio indicating a total price consideration of CHF 3 billion (or $3.2 billion).
UBS also gets CHF 25 billion of downside protection from the transaction to support restructuring costs, marks and purchase price adjustments, and another 50% downside protection on non-core assets. The Swiss National Bank has offered unrestricted access to both banks in a bid to provide additional liquidity.
UBS plans to sell off parts of Credit Suisse and pare down Credit Suisse’s investment banking business. Nonetheless, Credit Suisse’s strategic global banking businesses will be retained.
The acquisition is expected to generate an annual run-rate of cost reductions of more than $8 billion by 2027. UBS also expects the transaction to be accretive to EPS by 2027 and the bank to remain well-capitalized above its 13% target. The deal will enhance UBS’s position in the Swiss home market.
Per UBS management, “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure. Acquiring Credit Suisse’s capabilities in wealth, asset management and Swiss universal banking will augment UBS’s strategy of growing its capital-light businesses. The transaction will bring benefits to clients and create long-term sustainable value for our investors.”
Our Take
UBS’s deal to acquire Credit Suisse has significantly reduced any immediate risk of a Swiss banking failure. The liquidity support provided by the Swiss National Bank offers a safety net and is a positive. As management noted, the deal will be accretive to earnings and enhance shareholder value.
UBS Group’s shares have gained 14.5% on the NYSE over the past six months compared with the industry’s rise of 0.2%.
Recently, New York Community Bancorp, Inc. (NYCB - Free Report) announced that NYCB’s bank subsidiary, Flagstar Bank, would acquire $38 billion in assets and assume $36 billion of liabilities of Signature Bridge Bank, N.A., from the Federal Deposit Insurance Corporation (“FDIC”).The deal comes after Signature Bank was closed by the regulators following the collapse of Silicon Valley Bank. The FDIC took over the fallen bank.
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UBS Group (UBS) to Buy Credit Suisse in $3.2B Rescue Deal
UBS Group AG (UBS - Free Report) has announced an all-share deal to acquire its troubled rival Credit Suisse Group in government-backed efforts to fend off further panic in the global banking system.
The failure of Silicon Valley Bank and Signature Bank spurred panic in the global banking system. Troubles ensued for Credit Suisse after the company’s managers identified “material weaknesses” in its internal controls on financial reporting as of the end of the prior year. Moreover, shares of CS plunged to historic lows after the company’s biggest investor refused further investment in the bank.
Hence, in order to restore confidence in the stability of the Swiss economy and the banking system, the Swiss Federal Department of Finance, the Swiss Financial Market Supervisory Authority and the Swiss National Bank started the merger discussions.
With the buyout, the combined entity will have more than $5 trillion in total invested assets. The acquisition also fortifies UBS’s position as a preeminent global wealth manager with more than $3.4 billion in wealth management assets. The combined entity will have invested asset management assets of more than $1.5 trillion.
Under the terms of the transaction, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, with the exchange ratio indicating a total price consideration of CHF 3 billion (or $3.2 billion).
UBS also gets CHF 25 billion of downside protection from the transaction to support restructuring costs, marks and purchase price adjustments, and another 50% downside protection on non-core assets. The Swiss National Bank has offered unrestricted access to both banks in a bid to provide additional liquidity.
UBS plans to sell off parts of Credit Suisse and pare down Credit Suisse’s investment banking business. Nonetheless, Credit Suisse’s strategic global banking businesses will be retained.
The acquisition is expected to generate an annual run-rate of cost reductions of more than $8 billion by 2027. UBS also expects the transaction to be accretive to EPS by 2027 and the bank to remain well-capitalized above its 13% target. The deal will enhance UBS’s position in the Swiss home market.
Per UBS management, “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure. Acquiring Credit Suisse’s capabilities in wealth, asset management and Swiss universal banking will augment UBS’s strategy of growing its capital-light businesses. The transaction will bring benefits to clients and create long-term sustainable value for our investors.”
Our Take
UBS’s deal to acquire Credit Suisse has significantly reduced any immediate risk of a Swiss banking failure. The liquidity support provided by the Swiss National Bank offers a safety net and is a positive. As management noted, the deal will be accretive to earnings and enhance shareholder value.
UBS Group’s shares have gained 14.5% on the NYSE over the past six months compared with the industry’s rise of 0.2%.
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UBS sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Recently, New York Community Bancorp, Inc. (NYCB - Free Report) announced that NYCB’s bank subsidiary, Flagstar Bank, would acquire $38 billion in assets and assume $36 billion of liabilities of Signature Bridge Bank, N.A., from the Federal Deposit Insurance Corporation (“FDIC”).The deal comes after Signature Bank was closed by the regulators following the collapse of Silicon Valley Bank. The FDIC took over the fallen bank.