UBS could see big gains after forced Credit Suisse merger. Big U.S. banks may also be winners, analysts say

Published Mon, Mar 20 20237:29 AM EDTUpdated Mon, Mar 20 20239:32 AM EDT

UBS ' acquisition of Credit Suisse could lead to big gains for the Swiss bank. Some banks in the U.S. could also benefit from it, according to analysts. UBS agreed to buy Credit Suisse for 3 billion Swiss francs, or around $3.2 billion, in a forced deal announced Sunday. The Swiss National Bank pledged to lend up to 100 billion Swiss francs, or $108 billion, to support the takeover, while the Swiss government also guaranteed it would assume losses up to 9 billion Swiss francs from certain assets over a preset time period to reduce risks to UBS. The deal has left Wall Street to figure out how the marriage of two globally important financial giants will reverberate throughout a global industry that's already on uneasy footing coming off the closures of Silicon Valley Bank and Signature Bank. For UBS shareholders, Bank of America analyst Alastair Ryan said, the deal could be good long term. He upgraded UBS' U.S.-listed shares to buy from neutral, citing potential cost synergies by combining two Switzerland-centric banks. Ryan also increased his price target to $24.81 from $22.65. His new target implies the stock could rally 36.3%. "The industrial logic is impeccable: CS was the closest competitor to UBS in wealth management and Switzerland; and both banks are heavy in Swiss central costs," he said in a Monday note to clients. As part of the deal, Credit Suisse shareholders receive 1 UBS share for every 22.48 Credit Suisse shares they hold. While Jefferies analyst Flora Bocahut said the deal itself could be beneficial for shareholders on paper, the onus is now on UBS to execute. Still, she called the deal positive considering alternatives included a nationalization or unwinding of Credit Suisse that would have increased risks to the broader sector. "We think the objective of this transaction, while solving CS' situation & associated risks for the system, is to reach a win/win, where UBS shareholders also get value out of this deal over time," she said in a note to clients Sunday. "However, UBS embarks significant execution risk, litigation risk, the buyback is temporarily suspended (unclear how long), UBS' capital requirement is likely to be revised up, and management focus will be captured by this deal for many quarters, maybe years." 'Goliath is winning' Others are questioning how the broader industry will fare — and have varied outlooks. Goldman Sachs chief credit strategist Lotfi Karoui moved his view of European banks back to overweight following the deal in a Sunday note to clients. "On Friday, we argued that the performance of the broader European banking sector would remain pressured until clarity is provided on Credit Suisse's future path and recommended moving to a neutral allocation on banks in the EUR market (from overweight previously)," Karoui said. "Today's outcome provides such clarity." Meanwhile, Goldman Sachs chief European economist Sven Jari Stehn said the bank crisis has made the firm expect the European Central Bank to hike interest rates by 25 basis points in May compared with a 50 basis-point increase expected before the financial sector challenges began. While the firm expects the Bank of England to hike rates by 25 basis points at its next meeting, Stehn said to no longer expect another interest rate increase in May. But Barclays analyst Amit Goel wasn't so sure, cutting his view on European banks to neutral from positive on Monday. Goel said he's more optimistic on banks in the United Kingdom, Ireland, France and the Netherlands compared with Switzerland, with preferred global equities including BNP Paribas, ABN AMRO Bank, HSBC and Lloyds Bank . "Recent events again go to show how fragile the banking system can be, even though regulation has increased several fold since the Global Financial Crisis," Goel said. "Following recent events we expect broader sector cost of equity to remain elevated for some time, and liquidity requirements to be revisited." Within the U.S., investors are continuing to weigh the risk of contagion within the sector, specifically watching regional banks. First Republic Bank lost more than 70% of its share value last week despite a group of banks saying it would aid First Republic with $30 billion in deposits. Bank of America analyst Ebrahim Poonawala said stock prices could stabilize if investors gain confidence that the deposit flight out of regional banks has been contained. Elsewhere, Poonawala noted investors will be watching the Federal Reserve policy meeting this week to see if the central bank goes through with an expected interest rate hike of 25 basis points. Wells Fargo's Mike Mayo, meanwhile, sees opportunity for U.S. banks coming out of the UBS takeover of Credit Suisse. Calling the deal proof that "Goliath is winning," he said U.S. banks may have an opening with the deal not slated to close until the end of the year. "To us, this merger further displays that the largest U.S. capital players can continue to gain global market share, as they've done for the past decade," Mayo said. — CNBC's Michael Bloom contributed to this report.