UBS To Become A Wealth Management 'Powerhouse' After Credit Suisse Takeover

Analysts at JPMorgan Securities said Tuesday that UBS Group AG, which bought rival Credit Suisse Group AG for $3.3 billion in April, may be able to turn into a banking juggernaut at an extremely low price by taking on Credit Suisse Group AG.

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Based on the analysts led by Kian Abouhossein's research note, the deal will make UBS one of the most powerful wealth management companies in the world, with the most attractive business model in global banking. However, even after estimating the losses that could occur on Credit Suisse assets, litigation costs, and restructuring costs, they said that the price paid for UBS is still "attractive." 

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It was last month that UBS bought Credit Suisse, which was orchestrated by the Swiss government, after a collapse in confidence at the lender that threatened to lead to a broader economic downturn. Taking over a key competitor is one of the world's biggest wealth management companies. UBS is now taking over a rival for a fraction of what its assets are worth and the government has pledged to guarantee losses in the amount of 9 billion Swiss francs ($9.9 billion). 

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Immediately after the announcement of the deal, UBS shares plunged, but they have since rebounded more than 10% as investors seem to be increasingly positive about the terms. The Bloomberg Europe 500 Banks And Financial Services Index has only increased by about 5% since the beginning of the year — and that is the benchmark for the entire financial services sector. 

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By 2027, they predict the combined group will generate $7 billion in wealth management pre-tax profit per year from the combined group, which would represent a strong return on investment. The analysts also predicted that the combined group could become the largest wealth manager in the world by 2027. 

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Despite this, some of the Swiss public and politicians seem to be unsatisfied with the government's use of emergency measures in order to rescue Credit Suisse, and some members of the parliamentary committee expressed their frustration with the government's use of emergency measures during a parliamentary session on Tuesday.

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In their note on Tuesday, JPMorgan analysts predicted that job cuts could be delayed if they become a political issue at Credit Suisse's Swiss operations following the takeover. If the deal does not execute smoothly, UBS might need to sell or float Credit Suisse's domestic universal bank, which would fetch at least $10 billion. 

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Those figures would essentially repay the amount spent by UBS on acquiring the group by more than offsetting the amount spent on the acquisition.