Analyst at Bank of America Corp (NYSE:BAC) have upgraded their rating and price target on UBS after it was revealed the investment bank would be buying troubled lender Credit Suisse.
The analysts upgraded their price target from ‘Neutral' to ‘Buy’ and upped their price target from 21 CHF to 23 CHF. UBS shares were trading up 8.3% at 18.75 CHF on Tuesday afternoon in Zurich.
In a note to clients, the analysts described the industrial logic of the takeover as “impeccable.”
“CS was the closest competitor to UBS in wealth management and Switzerland, and both banks are heavy in Swiss central costs,” they wrote.
“Being next door to one another, cost synergies could be substantial: UBS targets US$8bn by 2027 or 19% of the combined 2022 cost base. This compares with US$9.6bn 2022 UBS pre-tax profits.”
They noted that the acquisition would enhance UBS in terms of scale, domestically and wealth, with CS giving UBS a 30% share in Swiss deposits and moving it from US$4tn to US$5tn in invested assets.
“Until further details are available, we do not change forecasts, but UBS targets earnings accretion by 2027, notes a 74% tangible book value per share uplift and re-commits to its progressive dividend. Its buyback is suspended temporarily,” they wrote.
BofA analysts also pointed out that UBS would have a smaller relative Investment Bank balance sheet at 25%, compared with 33% historically, opening up a re-rating potential.
“The market has rewarded more-Swiss and Wealth, less-IB business mixes and we see the potential for a re-rating from current multiples,” they wrote.
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