UBS

Former Credit Suisse shareholders are contesting the 2023 merger, alleging that UBS significantly undervalued the bank at the time of the acquisition. A Zurich court has subsequently ordered UBS to grant full access to internal takeover documents. These materials will enable independent experts to determine whether CS's going-concern value exceeded the final purchase price. Financially, UBS faces a potential liability of up to CHF 50bn ($65bn at worst) probably due in 20 years. This news arrives amidst a tug-of-war between the regulator and UBS, with the latter facing an additional $24bn capital requirement. 

We expect a negative market reaction.

This clouds visibility for UBS. But that was to be expected as the takeover/ rescue will probably stay in history as the best M&A deal ever. There is absolutely no way the deal can be broken off so the only question is: Are CS shareholders entitled to anything and if anything, how much? And more importantly, who should pay if they are entitled to any compensation? 

As a reminder, Credit Suisse shareholders were not given the opportunity to vote on the merger with UBS. The deal was pushed through in March 2023 using an emergency ordinance (Notverordnung) issued by the Swiss Federal Council. This specifically bypassed the standard requirement for shareholder approval to ensure the transaction could be completed before markets opened the following Monday, preventing a potential global financial collapse. Likewise, UBS shareholders didn't get to have a say on the merger and there are few reasons why they should ultimately pay more for that mess.

In all, the 20 years span to solve that judicial mess looks optimistic to our expert. In any case, he thinks courts are likely to uphold the government's right to act under emergency law to protect the stability of the national economy. We stick to our reduce rating on UBS, solely based on the fact that it is somewhat expensive. Should stock fall substantially on that news, he will reassess the opportunity to re-enter the name, but at this stage, he tends to be cautious on European banks.