UBS expects to finish its takeover of Credit score Suisse “as early as June 12”, which can create an enormous Swiss financial institution with a steadiness sheet of $1.6 trillion.
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Firm: UBS Group AG (UBS)
Enterprise: UBS Group AG is a Switzerland-based holding firm. It conducts its operations via UBS AG and its subsidiaries. The corporate operates as a wealth supervisor with centered asset administration and funding banking capabilities. UBS is made up of 4 enterprise divisions: world wealth administration, private and company banking, asset administration, and funding banking.
Inventory Market Worth: $106.9B ($30.89 per share)
UBS shares YTD efficiency
Activist: Cevian Capital
Proportion Possession: 1.3%
Common Price: n/a
Activist Commentary: Cevian Capital is a world funding agency buying vital possession positions in publicly listed European corporations, the place long-term worth may be enhanced via lively possession. Cevian Capital is a long-term, hands-on proprietor of European listed corporations. It’s typically referred to as a “constructive activist” and is the most important and most skilled devoted activist investor in Europe. The agency was based in 2002. Cevian’s technique is to assist its corporations turn out to be higher and extra aggressive over the long term, and to earn its return via a rise in the actual long-term worth of the businesses. Its work at corporations is usually supported by different house owners and stakeholders.
What’s occurring
On Dec. 19, Cevian Capital announced that it had constructed a roughly $1.3 billion stake in UBS Group AG.
Behind the scenes
Cevian is a real pioneer in worldwide activist investing, having been doing it for greater than 20 years. The agency is taken into account the gold commonplace for activism in Europe. Cevian typically takes giant positions and has a really long-term funding horizon. The agency will likely be an lively shareholder however may even take board seats in lots of its core portfolio positions. Presently, Cevian’s professionals serve on the boards of 10 portfolio corporations in six completely different nations.
UBS is the most important world wealth supervisor with distinctive market positions and monetary energy, but it’s considered and priced by many as an odd financial institution. The biggest a part of its enterprise is wealth and asset administration, which makes up 60% of its world income. It is likely one of the largest wealth managers in america, however it’s by far the most important wealth administration agency on this planet, with thrice the property of the No. 2 agency. Furthermore, 55% of its wealth administration enterprise is exterior of the Americas. Twenty p.c of UBS’s income comes from Swiss retail and company banks, the place the corporate is the No. 1 participant. One other 20% of its income comes from funding banking. However in contrast to lots of its friends, funding banking at UBS is primarily used to help wealth and asset administration. It isn’t a risk-taking enterprise. Accordingly, solely 25% of UBS’s tangible fairness is from funding banking, versus 70% for Morgan Stanley. To place it one other approach, Morgan Stanley is a financial institution with a wealth administration enterprise whereas UBS is a wealth supervisor with a banking enterprise. You’ll count on the regular, predictable, lower-risk income of a wealth supervisor to commerce at a better a number of than a banking enterprise. But, UBS trades at 1.2 instances tangible e book worth, whereas Morgan Stanley trades at two instances tangible e book worth.
On the whole, banks are buying and selling at very enticing valuations proper now in Europe – at a 50% low cost to the market. UBS is an especially undervalued however high-quality enterprise with vital enchancment potential. First, because the merger with Credit score Suisse, the financial institution is in the course of a restructuring, which isn’t interesting to short-term buyers, however a possibility for long-term buyers like Cevian. Second, UBS’s efficiency might be improved: The corporate is getting a 14% return on tangible fairness, versus 20% for Morgan Stanley. Getting Credit score Suisse built-in and optimizing efficiency creates a really compelling funding for long-term buyers. Cevian thinks this might result in UBS shares buying and selling at $58 versus $30.89 at this time.
It is a giant place for Cevian: $1.3 billion, nearly 10% of the $14 billion it manages. Primarily based on the agency’s philosophy and historical past, Cevian has seemingly been constructing this place for a number of months, constructively participating with administration throughout that point. The agency has not indicated that it is on the lookout for a board seat in the mean time, which signifies that it is not looking for one proper now. Nonetheless, Cevian isn’t the kind of activist that asks for a board seat only for the sake of it. If Cevian isn’t asking for a board seat, it signifies that the agency is aligned with administration proper now and is having constructive talks with them on issues like revenue potential. Cevian will proceed to speak with administration. If sooner or later sooner or later, the agency thinks that it might probably add worth from a board stage, it can talk about board composition with the corporate at the moment. At ABB Group, the activist agency had an funding for about two years earlier than Cevian founder Lars Forberg went on the board. Greater than six years later, he’s still on the board. If Cevian takes a board seat at UBS sooner or later, the activist investor will carry with it the expertise and profitable observe document it is had in different banking corporations, akin to its present place in Nordea Bank.
Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.
