Credit Suisse bump trade looks over-optimistic
NEW YORK, March 20 (Reuters Breakingviews) - Investors in Credit Suisse’s bombed-out stock are getting a little ahead of themselves. Despite losing more than 60% of their value on Monday morning, following a government-backed deal with UBS (UBSG.S)announced the previous evening, the bank’s shares closed at just over 0.82 Swiss francs($0.9). At that level, they’re 7% above the implied value of UBS’s offer, and a wider 13% using the lenders’ U.S.-listed shares, which trade until later in the day.
Such a premium usually means that the target’s shareholders expect a bump or competing offer. They might be remembering JPMorgan’s (JPM.N) takeover of Bear Stearns shortly before the 2008 crisis, which saw the buyer’s Chief Executive Jamie Dimon boost his bid to $10 per share from $2 originally. That deal, like UBS’s rescue of Credit Suisse, was also a government-arranged attempt to prop up an ailing bank.
But that’s where the similarities end. Unlike Credit Suisse, Bear Stearns’ shareholders got a vote, giving them leverage to argue for a higher price. The only reason UBS’s Chair Colm Kelleher would have to raise his bid would be if another buyer swooped in.
That’s hard to imagine. The deal hinges on about 9 billion Swiss francs of state support and a giant cash line from the country’s central bank. Authorities would understandably be loath to offer such guarantees to a foreign party, over which they would have no control. Credit Suisse shareholders have little left but hope. In this case, optimism may end in disappointment. (By Liam Proud)
Follow @Breakingviews on Twitter
(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)
Capital Calls - More concise insights on global finance:
Ryan Reynolds flexes as corporate convert read more
FedEx delivers, for now read more
China’s easing moment may be short lived read more
Carlsberg CEO’s big job is to keep glass steady read more
Enel self-help plan has one known unknown read more
($1 = 0.9285 Swiss francs)
Our Standards: The Thomson Reuters Trust Principles.