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UBS Gets Capital Regulatory Relief, Updates on Loss Guarantee
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Owing to Credit Suisse’s merger with UBS Group AG (UBS - Free Report) , the combined entity will be subjected to higher “too big to fail” capital requirements. The regulatory requirement will be applicable to the combined entity after a two-year transitional period phasing in from early 2026, per the regulatory filing made on Jun 5.
In addition, UBS Group AG received a temporary regulatory relief to use certain capital and liquidity rulings applied to Credit Suisse. Further, both the banks may temporarily continue to use their respective existing rules for the calculation of risk-weighted assets.
Since the announcement of the merger, UBS has been in active discussions with the Swiss government to finalize the detailed terms and negotiate a definitive Loss Protection Agreement. The agreement is now expected to be finalized by Jun 7.
UBS Group AG is likely to face potential losses upon realization of a portfolio of certain hard-to-value-assets of Credit Suisse. Per the Loss Protection Agreement, UBS will bear the first CHF 5 billion of such losses. The agreement provides for a government guarantee covering losses up to CHF 9 billion over and above the loss borne by UBS.
Any further loss guarantee exceeding CHF 14 billion was not included in the special ordinance. The same will require a separate legal basis in the form of a parliamentary approval in the ordinary legislative procedure as well as the commitment credit.
Further, if circumstances require, UBS and the Swiss government will jointly examine a solution for losses exceeding CHF 14 billion. It is also expected to provide for the sharing of possible profits.
Moreover, the deal struck between UBS Group AG and Credit Suisse requires UBS to accept the state’s involvement in how it disposes any unwanted business acquired from Credit Suisse.
Recently, UBS announced that it expects to complete the acquisition as early as Jun 12, 2023. Also, UBS will assume all of Credit Suisse’s obligations under its outstanding debt securities.
Post-merger integration process is expected to take up to three-five years. Also, the deal is likely to be accretive to earnings per share by 2027.
UBS Group AG’s shares have gained 11.6% on the NYSE over the past six months compared with the industry’s growth of 5.3%.
KKR & Co. Inc. (KKR - Free Report) has agreed to acquire Circor International, an industrial machinery maker, for $1.6 billion. The news was first reported by the Wall Street Journal.
After the acquisition, KKR will take Circor private as it seeks to double down on investments in the flow-control market.
Franklin Resources, Inc. (BEN - Free Report) entered a strategic partnership with Power Corporation of Canada and its subsidiaries, the Power Group of Companies. Power Corporation holds controlling interests in Great-West Lifeco, Inc. and IGM Financial, with assets under management of $2.1 trillion as of Mar 31, 2023.
As part of the partnership, Franklin will acquire Putnam Investments — a global asset management firm with $136 billion in AUM as of April 2023 end from Great-West. This will be acquired for around $925 million in a stock-and-cash deal. With this, Great-West will hold a 6.2% stake in BEN.
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UBS Gets Capital Regulatory Relief, Updates on Loss Guarantee
Owing to Credit Suisse’s merger with UBS Group AG (UBS - Free Report) , the combined entity will be subjected to higher “too big to fail” capital requirements. The regulatory requirement will be applicable to the combined entity after a two-year transitional period phasing in from early 2026, per the regulatory filing made on Jun 5.
In addition, UBS Group AG received a temporary regulatory relief to use certain capital and liquidity rulings applied to Credit Suisse. Further, both the banks may temporarily continue to use their respective existing rules for the calculation of risk-weighted assets.
Since the announcement of the merger, UBS has been in active discussions with the Swiss government to finalize the detailed terms and negotiate a definitive Loss Protection Agreement. The agreement is now expected to be finalized by Jun 7.
UBS Group AG is likely to face potential losses upon realization of a portfolio of certain hard-to-value-assets of Credit Suisse. Per the Loss Protection Agreement, UBS will bear the first CHF 5 billion of such losses. The agreement provides for a government guarantee covering losses up to CHF 9 billion over and above the loss borne by UBS.
Any further loss guarantee exceeding CHF 14 billion was not included in the special ordinance. The same will require a separate legal basis in the form of a parliamentary approval in the ordinary legislative procedure as well as the commitment credit.
Further, if circumstances require, UBS and the Swiss government will jointly examine a solution for losses exceeding CHF 14 billion. It is also expected to provide for the sharing of possible profits.
Moreover, the deal struck between UBS Group AG and Credit Suisse requires UBS to accept the state’s involvement in how it disposes any unwanted business acquired from Credit Suisse.
Recently, UBS announced that it expects to complete the acquisition as early as Jun 12, 2023. Also, UBS will assume all of Credit Suisse’s obligations under its outstanding debt securities.
Post-merger integration process is expected to take up to three-five years. Also, the deal is likely to be accretive to earnings per share by 2027.
UBS Group AG’s shares have gained 11.6% on the NYSE over the past six months compared with the industry’s growth of 5.3%.
Image Source: Zacks Investment Research
UBS carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Inorganic Move by Stocks in the Finance Sector
KKR & Co. Inc. (KKR - Free Report) has agreed to acquire Circor International, an industrial machinery maker, for $1.6 billion. The news was first reported by the Wall Street Journal.
After the acquisition, KKR will take Circor private as it seeks to double down on investments in the flow-control market.
Franklin Resources, Inc. (BEN - Free Report) entered a strategic partnership with Power Corporation of Canada and its subsidiaries, the Power Group of Companies. Power Corporation holds controlling interests in Great-West Lifeco, Inc. and IGM Financial, with assets under management of $2.1 trillion as of Mar 31, 2023.
As part of the partnership, Franklin will acquire Putnam Investments — a global asset management firm with $136 billion in AUM as of April 2023 end from Great-West. This will be acquired for around $925 million in a stock-and-cash deal. With this, Great-West will hold a 6.2% stake in BEN.