Credit Suisse takeover will turn UBS into wealth management ‘powerhouse,’ JPMorgan says

UBS Group’s US$3.3 billion acquisition of rival Credit Suisse Group will transform it into a banking juggernaut at a bargain price, JPMorgan analysts said on Tuesday (Apr 11).

The deal is set to turn UBS into a wealth management “powerhouse” with “one of the most attractive business models in global banking,” the analysts led by Kian Abouhossein said in a research note. Meanwhile, the price paid is “attractive” for UBS even after factoring in potential losses on Credit Suisse assets, litigation costs and restructuring expenses, they said. 

UBS bought Credit Suisse last month in a deal orchestrated by the Swiss government, following a collapse in confidence at the lender that threatened to trigger a broader financial crisis. UBS, already one of the world’s largest wealth managers, is now taking over a key rival for a fraction of the value of its assets and as much as 9 billion Swiss francs (S$13.2 billion) in government loss guarantees. 

UBS shares first plunged after the deal announcement but they have since gained more than 10% as investors increasingly seem to see the terms as positive. By comparison, the Bloomberg Europe 500 Banks And Financial Services Index – a benchmark for the industry as a whole – has only increased by about 5% over the same period. 

“The transaction has potential to be very attractive on an economic return-on-investment basis,” the analysts wrote. They forecast that the combined group could generate US$7 billion in wealth-management pre-tax profit by 2027. 

However, the government-orchestrated rescue of Credit Suisse has met with some discontent among the Swiss population and politicians, with some lawmakers voicing their frustration over the government’s use of emergency measures at a parliamentary session on Tuesday.

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Job cuts at Credit Suisse’s Swiss operations following the takeover could be delayed if they become “a political issue,” the JPMorgan analysts said in their note on Tuesday. Risks to the smooth execution of the deal could end up forcing UBS to sell or float the Credit Suisse’s domestic universal bank, which would fetch at least US$10 billion in such a scenario. 

That would “more than offset” the amount spent on the acquisition of the group by UBS, they wrote. BLOOMBERG