UBS Group AG UBS announced that it expects to complete the acquisition of Credit Suisse as early as Jun 12, 2023. In government-backed efforts to fend off panic in global banking system, following the collapse of Silicon Valley Bank, UBS had agreed to acquire Credit Suisse in March 2023 in an all-share deal valued at $3.2 billion.
Credit Suisse shareholders will receive one UBS share for every 22.48 outstanding shares held. Upon completion of the acquisition, shares of Credit Suisse and American Depositary will be delisted from the SIX Swiss Exchange and the New York Stock Exchange.
Post acquisition, Credit Suisse will be merged into UBS Group. Also, UBS will assume all of Credit Suisse’s obligations under its outstanding debt securities.
The European Commission approved the merger on May 25, 2023, leading to expectations of deal closure. The approval was granted after a one-month review and conclusion that the deal would not raise competition concerns in “any of the markets examined,” investment banking, and wealth and asset management businesses.
When the deal was announced, it was expected to generate an annual run-rate of cost reductions of more than $8 billion by 2027. UBS Group had also expected the transaction to be accretive to EPS by 2027 and the bank to remain well-capitalized above its 13% target.
During deal announcement, it was expected that the combined entity will have more than $5 trillion in total invested assets. The acquisition will also fortify UBS Group’s position as a preeminent global wealth manager with more than $3.4 billion in wealth management assets. Also, the combined entity was expected to have invested asset management assets of more than $1.5 trillion.
However, as UBS prepared to complete the takeover, in mid-May it projected a negative impact of $13 billion on its shareholders’ equity from fair value adjustments of the combined group's financial assets and liabilities.
Further, it has kept aside $4 billion for potential litigation and regulatory costs stemming from outflows. Credit Suisse’s $17 billion AT1 bonds were written down as part of emergency liquidity assistance. This may result in significant litigation against Credit Suisse and UBS. Hence, the provision for litigation expenses seems apt.
This, along with other asset write-downs, switch in accounting standards and other factors will negatively impact shareholders’ equity by $28.3 billion. This will be offset by a benefit of $17.1 billion from AT1 bond write-downs and other factors.
UBS also imposed numerous restrictions on Credit Suisse, including lending and spending limits, and restrictions on size of certain contracts the latter can enter into.
UBS Group’s shares have gained 9.1% on the NYSE over the past six months compared with the industry’s growth of 5.7%.
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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 Another Bank
Amid a challenging operating backdrop due to expectations of economic slowdown, banks are undertaking expansion moves through acquisitions.
In May 2023, LCNB Corp. LCNB entered into an agreement to acquire Cincinnati Bancorp, Inc. CNNB in a stock-and-cash transaction. Closing of the deal, subject to regulatory approval, CNNB shareholder approval and other customary conditions, is expected in the fourth quarter of 2023. The approval of LCNB shareholders is not required.
The deal is expected to significantly increase LCNB’s existing presence in the Cincinnati market and expand its community banking franchise across Ohio River into the compelling Northern Kentucky market. Excluding one-time transaction costs, LCNB expects the transaction to be 18.2% and 26.2% accretive to 2024 and 2025 earnings per share, respectively.
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