UBS' Buyout of Credit Suisse Gets EU Antitrust Approval
UBS Group AG’s UBS acquisition of Credit Suisse Group AG has received green signal from the European Commission — the European Union's antitrust regulator.
The European Commission gave approval to the merger on Thursday after a one-month review and concluded that the deal would not raise competition concerns in “any of the markets examined,” investment banking or wealth and asset management businesses.
“The combined entity will continue facing significant competitive pressure from a wide range of competitors in all of those markets,” the European Commission said in a statement.
In March 2023, UBS Group announced an all-share deal to acquire its troubled rival Credit Suisse in government-backed efforts to fend off panic in the global banking system. The transaction is an all-share deal for about $3.2 billion.
When the deal was announced, it was expected that the combined entity will have more than $5 trillion in total invested assets. The acquisition also fortifies UBS Group’s position as a preeminent global wealth manager with more than $3.4 billion in wealth management assets. The combined entity will have invested asset management assets of more than $1.5 trillion.
However, earlier, the company hinted at potential costs and benefits amounting to billions of dollars.
Particularly, UBS 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 its shareholders’ equity by $28.3 billion.
This will be offset by a $17.1-billion benefit from the AT1 bond write-downs and other factors.
UBS also imposed numerous restrictions on Credit Suisse, including lending and spending limits, and restrictions on the size of certain contracts the latter can enter into.
UBS Group’s shares have gained 8.5% on the NYSE over the past six months compared with the industry’s rise of 3.8%.
Image Source: Zacks Investment Research
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 Moves by Other Banks
Amid a challenging operating backdrop due to expectations of economic slowdown, banks are undertaking expansion moves through acquisitions. Recently, 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 the 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 fully diluted earnings per share, respectively.
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