UBS has agreed to a $3.2 billion takeover of Swiss rival Credit Suisse (CS), saying it will move quickly to wind down its investment bank.
“It's a historic day, and a day we hoped would not come,” UBS Chair Colm Kelleher said on a phone call that did not include CS executives or board members, according to Yahoo Finance.
Reaction on Wall Street was swift. Here is a sampling:
Vontobel's Andreas Venditti: “Thanks to the transaction, a collapse of CS has been avoided. This would have had massive consequences for the Swiss economy, the Swiss financial center, and UBS as well. UBS pays CHF 3 bn for a business that was valued multiples of that just a few weeks ago. In addition, it has secured important loss protections. However, there are many uncertainties and significant risks.”
Goldman Sachs' Lotfi Karoui: “For credit markets, the read-through is twofold: In both the USD and EUR markets, the excess premium that investors had been demanding to hold European bank credit risk now has room to compress. The liquidity and loss guarantees provided by the SNB and the Swiss government are likely to act as dampeners for tail risk and help close the recent valuation gap between European banks and non-financials. As such, we don’t think a neutral allocation is warranted and are shifting back to an overweight allocation.”
Evercore ISI's Krishna Guha: “The agreement – which should achieve its goal of stabilizing CS – is strongly positive for stability and global markets relative to a no-deal scenario. But the decision to completely write down CHF 15.8bn in CS AT1 debt – which we warned last week could be at risk to enable SNB funding on the scale required – risks spreading contagion through the European banking system via repricing of bail-in debt and equity at other banks. The outcome for equity-holders may also worry investors in other weak banks, particularly but not only in Europe. If this makes it harder to raise equity capital it could have downsides for stability.”
Wedbush's Dan Ives: “With this game of musical chairs happening on the banking sector and nervousness across the financials with the Credit Suisse fire sale to UBS announced over the weekend, we continue to strongly believe the tech trade will be viewed more as the safety trade on the Street looking ahead.”
22V Research's Jacob Funk Kirkegaard: “Overall, my view is per my note on the ECB decision last week that European banks are well capitalized, have good liquidity (thanks ECB TLTROs) and given the design of the euro area with spreads and volatility in risk free rates will generally tend to hedge interest rate risk much more than US banks do. As such, I do not believe this is the beginning of a new European banking crisis, as at least maturity mismatches and interest rate risks are among those issues with generally a lot of focus (and hedges) and therefore relatively less risk (despite the ECB’s rapid hikes) than apparently among US regional banks.”