ZURICH, July 17 (Reuters) – UBS’s (UBSG.S) emergency takeover of Credit Suisse may lead to thousands of job losses, departures of key staff, and a risky integration challenge, but for many UBS investors, it increasingly looks like a good deal for Switzerland’s biggest bank.
Since UBS bought Credit Suisse in a 3 billion Swiss franc ($3.4 billion) deal completed last month, investors have come to share the optimism of UBS Chairman Colm Kelleher, who has highlighted the many opportunities as well as potential pitfalls arising from the takeover.
Several fund managers who hold UBS stock have told Reuters they think UBS has bought Credit Suisse at a good price, with some even describing it as a steal.
“I think UBS is being rather conservative about the true extent of the benefits it can get from this politically sensitive merger,” Guy de Blonay at Jupiter Asset Management said.
UBS agreed to take over CS in a rescue orchestrated by Swiss authorities as Switzerland’s second-largest teetered bank on the edge of collapse, creating a combined group overseeing more than $5 trillion of assets.
UBS has said the integration of the two organizations could take three to four years, during which time it plans to manage two separate parent companies – UBS AG and Credit Suisse AG – each with its own subsidiaries and branches.
Ultimately, the deal promises to give UBS a leading position in key markets it would otherwise have needed years to grow in size and reach.
“UBS got Credit Suisse for practically nothing, so accordingly the deal will work out for them,” another investor told Reuters.
STATE GUARANTEE
In a regulatory filing in May, UBS flagged tens of billions of dollars in potential costs and benefits from the takeover.
It said it expected a negative impact of $13 billion from fair value adjustments of the combined group’s financial assets and liabilities, and a further $4 billion in potential litigation and regulatory costs stemming from outflows.
However, these items would be more than offset by a 16 billion franc gain from the writedown of Credit Suisse’s AT1 bonds, as well as $34.8 billion from buying Credit Suisse at a fraction of its book value.
It also received a state guarantee to absorb up to 9 billion francs in losses. As a result, UBS has gained a huge risk buffer to help digest its cross-town rival.
“They wouldn’t have got this buffer in a normal merger,” said Andreas Thomae from Deka Investment.
Fund managers also raised doubts that competition watchdogs would have approved such a deal – which gives the combined bank a market share of more than a quarter of both Swiss domestic loans (26%) and domestic deposits (26%) – under normal circumstances.
“Now the authorities have waved the deal through because they had to find someone in an emergency situation,” Thomae added. “It’s an attractive deal for UBS if it goes through as planned.”
Still, UBS inherits a troubled legacy at Credit Suisse, said Thomae, pointing to legal risks which UBS has said could cost billions of…
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