UBS-Credit Suisse Deal to Lift Crisis-Hit Bank ETFs
Switzerland’s biggest bank, UBS Group UBS, has agreed to acquire the crisis-hit Credit Suisse Group CS in an emergency rescue deal engineered by Swiss authorities to prevent the meltdown spreading through the global financial system (read: How to Profit From Banking Carnage With Inverse ETFs).
Following the news, shares of CS jumped nearly 7% in after-market hours on Mar 17 after suffering the biggest weekly drop of 25.5% since March 2020. UBS shares also climbed 5.2% after market. This would provide a boost to bank ETFs, which were badly hit by the Credit Suisse crisis. iShares U.S. Regional Banks ETF IAT, Invesco KBW Bank ETF KBWB, SPDR S&P Regional Banking ETF KRE, First Trust Nasdaq Bank ETF FTXO and SPDR S&P Bank ETF KBE were all down in double digits last week.
Deal in Focus
UBS will pay 3 billion Swiss francs ($3.25 billion) for Credit Suisse, about 60% lower than what the bank was worth when markets closed on Mar 17. As such, Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Mar 17.
The Swiss government would provide more than $9 billion to backstop some losses that UBS may incur by taking over Credit Suisse. The Swiss National Bank also provided more than $100 billion of liquidity to UBS to help facilitate the deal. The historic deal is expected to close by the end of 2023. It does not need the approval of shareholders after the Swiss government agreed to change the law to remove any uncertainty about the deal.
The deal would “secure financial stability and protect the Swiss economy” and represent the first megamerger of systemically important global banks since the 2008 financial crisis. Notably, UBS and Credit Suisse are both in a group of the 30 global systemically important banks watched closely by regulators, and Credit Suisse's failure would ripple throughout the entire financial system (read: Bank ETFs Tumble on Silicon Valley Bank Carnage).
Financial market regulators around the world cheered UBS’ takeover of Credit Suisse. A group of central banks, including the Federal Reserve and the Swiss National Bank, announced an expanded dollar swap line, a type of international lending operation. They called the expansion “an important liquidity backstop to ease strains in global funding markets.”
iShares U.S. Regional Banks ETF (IAT)
iShares U.S. Regional Banks ETF offers exposure to 37 small and mid-cap regional bank stocks by tracking the Dow Jones U.S. Select Regional Banks Index. It is largely concentrated on the top three firms with a double-digit allocation each.
iShares U.S. Regional Banks ETF has amassed $639.7 million in its asset base while seeing a good volume of 354,000 shares a day. The product charges 39 bps in annual fees and has a Zacks ETF Rank #4 (Sell) with a High risk outlook.
Invesco KBW Bank ETF (KBWB)
Invesco KBW Bank ETF provides exposure to the 23 leading national money centers and regional banks or thrifts. It follows the KBW Nasdaq Bank Index. Invesco KBW Bank ETF is concentrated on the top five firms that collectively make up 43.7% share.
Invesco KBW Bank ETF has managed $1.3 billion in its asset base and trades in a solid volume of 1.6 million shares per day on average. The expense ratio comes in at 0.35%. KBWB has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
SPDR S&P Regional Banking ETF (KRE)
SPDR S&P Regional Banking ETF provides exposure to the regional banks’ segment by tracking the S&P Regional Banks Select Industry Index. It holds 142 stocks in its basket, with each accounting for no more than 2.1% of the assets (read: 5 Most Heavily Shorted ETFs So Far This Year).
SPDR S&P Regional Banking ETF has AUM of $3.2 billion and charges 35 bps in annual fees. It trades in an average daily volume of 14 million shares and has a Zacks ETF Rank #4 with a High risk outlook.
First Trust Nasdaq Bank ETF (FTXO)
First Trust Nasdaq Bank ETF follows the Nasdaq US Smart Banks Index, which measures the performance of U.S. companies within the banking industry. It holds 50 securities in its basket with a heavy concentration on the top firms and charges 60 bps in annual fees.
First Trust Nasdaq Bank ETF has AUM of $166.3 million and trades in a volume of 69,000 per share on average. The product has a Zacks ETF Rank #2 (Buy).
SPDR S&P Bank ETF (KBE)
SPDR S&P Bank ETF offers equal-weight exposure to 97 banking stocks by tracking the S&P Banks Select Industry Index. Regional banks dominate the portfolio with a 70.8% share, while thrifts & mortgage finance, diversified banks, other diversified financial services and asset management & custody banks take the remainder.
SPDR S&P Bank ETF has amassed $1.4 billion in its asset base while trading in a heavy volume of 3 million shares a day, on average. The product charges 35 bps in annual fees and has a Zacks ETF Rank #4.
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Credit Suisse Group (CS) : Free Stock Analysis Report
UBS Group AG (UBS) : Free Stock Analysis Report
SPDR S&P Bank ETF (KBE): ETF Research Reports
SPDR S&P Regional Banking ETF (KRE): ETF Research Reports
Invesco KBW Bank ETF (KBWB): ETF Research Reports
iShares U.S. Regional Banks ETF (IAT): ETF Research Reports
First Trust NASDAQ Bank ETF (FTXO): ETF Research Reports
