(Yahoo!Financial) - After much speculation and concern about a banking crisis, UBS (UBS) made its play for its stricken long-time Swiss rival late Sunday by agreeing to a $3.2 billion takeover of Credit Suisse (CS).
"It's a historic day, and a day we hoped would not come," UBS chair Colm Kelleher said on a call Sunday night that included UBS CEO Hamers. No Credit Suisse executives or board members were on the call.
UBS execs said they would move "fast" to wind down Credit Suisse's investment bank. The company also said it had taken reserves against Credit Suisse's high-profile litigation matters.
Credit Suisse stock fell more than 52% in early trading on Monday while UBS shed around 3%.
Here's what Wall Street is saying early on about the deal.
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. The UBS investment case changes substantially. The issues currently impacting the global banking sector are not over."
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. On Friday, we argued that the performance of the broader European banking sector would remain pressured until clarity is provided on Credit Suisse’s future path and recommended moving to a neutral allocation on banks in the EUR market (from overweight previously). Today’s outcome provides such clarity. In particular, 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. Of course, we are mindful that the situation among US regional banks remains fluid. But as we discussed on Friday, we take comfort from the limited contagion from US regional banks to larger money center banks, a trend we expect will persist. We reiterate our overweight allocation on US money center banks in the USD market."
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. The CS drama now shifts from negotiation risk to execution risk, which the Swiss authorities are moving aggressively to manage down, but is not zero. Market focus will likely broaden out to other weaker European banks as well as US regional banks."
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. So far in 2023 despite all the skeptics and many yelling fire in a crowded theater on the tech sector, NASDAQ is up roughly 13% this year with over the last few weeks more investors quickly moving to large cap tech stocks in a jittery financial backdrop with the SVB black eye moment followed by the CS arranged marriage announced this weekend."
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. Some repricing of AT1 assets in the EU is plausible, given that investors will now be looking at whether individual banks have “similar footnotes” as CS, but given the strong response from the ECB, this will be isolated events."
BMO Capital Markets' James Fotheringham: "U.S. investment banks are waking up to one less global competitor, as UBS management committed to down-sizing CS's trading and investment banking operations; GS, MS, JPM and others should benefit from market share development to offset otherwise-languishing global CIB revenues."
By Brian Sozzi · Executive Editor
