UBS expects to finish its takeover of Credit Suisse “as early as June 12”, which can create a large Swiss financial institution with a steadiness sheet of $1.6 trillion.
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Company: UBS Group AG (UBS)
Business: UBS Group AG is a Switzerland-based holding firm. It conducts its operations via UBS AG and its subsidiaries. The firm operates as a wealth supervisor with centered asset administration and funding banking capabilities. UBS is made up of 4 enterprise divisions: international wealth administration, private and company banking, asset administration, and funding banking.
Stock Market Value: $106.9B ($30.89 per share)
UBS shares YTD efficiency
Activist: Cevian Capital
Percentage Ownership: 1.3%
Average Cost: n/a
Activist Commentary: Cevian Capital is a global funding agency buying vital possession positions in publicly listed European corporations, the place long-term value may be enhanced via lively possession. Cevian Capital is a long-term, hands-on proprietor of European listed corporations. It is usually known as a “constructive activist” and is the largest and most skilled devoted activist investor in Europe. The agency was based in 2002. Cevian’s technique is to help its corporations develop into higher and extra aggressive over the long term, and to earn its return via a rise in the actual long-term value of the corporations. Its work at corporations is usually supported by different homeowners and stakeholders.
What’s taking place
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 true 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 massive positions and has a very long-term funding horizon. The agency can be an lively shareholder however may also take board seats in a lot of its core portfolio positions. Currently, Cevian’s professionals serve on the boards of 10 portfolio corporations in six completely different nations.
UBS is the largest international wealth supervisor with distinctive market positions and monetary power, but it is seen and priced by many as an atypical financial institution. The largest a part of its enterprise is wealth and asset administration, which makes up 60% of its international income. It is considered one of the largest wealth managers in the United States, however it is by far the largest wealth administration agency in the world, with thrice the property of the No. 2 agency. Moreover, 55% of its wealth administration enterprise is outdoors of the Americas. Twenty p.c of UBS’s income comes from Swiss retail and company banks, the place the firm is the No. 1 participant. Another 20% of its income comes from funding banking. But not like a lot of its friends, funding banking at UBS is primarily used to assist wealth and asset administration. It will not be a risk-taking enterprise. Accordingly, solely 25% of UBS’s tangible fairness is from funding banking, versus 70% for Morgan Stanley. To put it one other manner, Morgan Stanley is a financial institution with a wealth administration enterprise whereas UBS is a wealth supervisor with a banking enterprise. You would count on the regular, predictable, lower-risk income of a wealth supervisor to commerce at a increased a number of than a banking enterprise. Yet, UBS trades at 1.2 instances tangible guide value, whereas Morgan Stanley trades at two instances tangible guide value.
In common, banks are buying and selling at very enticing valuations proper now in Europe – at a 50% low cost to the market. UBS is a particularly undervalued however high-quality enterprise with vital enchancment potential. First, since the merger with Credit Suisse, the financial institution is in the center of a restructuring, which isn’t interesting to short-term traders, however a chance for long-term traders like Cevian. Second, UBS’s efficiency could be improved: The firm is getting a 14% return on tangible fairness, versus 20% for Morgan Stanley. Getting Credit Suisse built-in and optimizing efficiency creates a very compelling funding for long-term traders. Cevian thinks this could result in UBS shares buying and selling at $58 versus $30.89 as we speak.
This is a massive place for Cevian: $1.3 billion, virtually 10% of the $14 billion it manages. Based on the agency’s philosophy and historical past, Cevian has probably been constructing this place for a number of months, constructively partaking with administration throughout that point. The agency has not indicated that it’s searching for a board seat at the second, which implies that it’s not trying to find one proper now. However, Cevian will not be the kind of activist that asks for a board seat only for the sake of it. If Cevian will not be asking for a board seat, it implies 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 in some unspecified time in the future in the future, the agency thinks that it can add value from a board stage, it will focus on board composition with the firm 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. More than six years later, he’s still on the board. If Cevian takes a board seat at UBS in the future, the activist investor will convey with it the expertise and profitable track record it’s 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.