UBS AGM: The Credit Suisse Fall-Out

Shareholders of Switzerland's biggest bank will meet tomorrow for the first time since agreeing to buy out Credit Suisse.

UBS-CS Merger Under Investigation Already

UBS announced that it was reluctantly taking over Credit Suisse back on March 19, but the actual deal isn't expected to be completed until the end of the year. A lot can happen, particularly with UBS treating its potential new subsidiary as a competitor until the deal is done. And a lot has already been happening. 

Following the express merger announcement at the insistence of Swiss Authorities, the Swiss prosecution office has opened an investigation into the deal to see if anyone acted criminally - including government officials. Many people are unhappy with the merger, including members of the political sphere in Switzerland who questioned how much the SNB and the state are on the hook to provide liquidity for the deal. UBS executives championed the deal but then brought in a new CEO to oversee the company's expansion. Tomorrow's AGM will be the first time new CEO Sergio Ermotti will sit down with all the shareholders in person.

AGM Might Show No Share Buyback

Normally the general meetings are quiet affairs where the proposals from the executives sail through with unanimous votes. But the scope of the merger with Credit Suisse - and the fact that it was done without shareholders' approval - could open up more serious discussions. On the agenda for the meeting are things that are typically not controversial, such as executive pay, dividend and share buybacks.

The prior CEO of UBS promised that the annual dividend would still be paid following the merger. But there is uncertainty about the costs that it could entail and what other surprises might be lurking on Credit Suisse's books after it could not complete its annual report due to accounting errors. Prudence would at least consider not paying out a dividend, which might come up in the meeting. Also, UBS was expected to announce a new share buyback, which might not be effective given the potential financial hole in Credit Suisse.

On a more positive note for both banks, however, the SNB reported that sight deposits dropped last week, meaning UBS and Credit Suisse might not have needed to use the emergency lending as much, and could be in a better financial position than initially feared.

UBS GROUP AG in Wedge Pattern?

The share price of UBS seems undeterred by the banking crisis, but recent price action points to a wedge pattern despite the stock trading above the 20 mark. If bulls can defend the threshold, 22 and 23 become the next reverse Fibonacci levels of the 16.40-20.50 leg to keep an eye on. Conversely, losing the barrier might open up the door to 18.50 unless the leg comes with weak force and stops by 19.00.

Source: Spreadex / UBS GROUP AG

Key Takeaways

Tomorrow's AGM will be the first time the new UBS CEO will sit down with all the shareholders in person. The scope of the merger with Credit Suisse and the fact that it was done without shareholder approval could open up controversial discussions about executive pay, dividend and share buybacks. But questions remain about potential costs and other surprises on Credit Suisse's books, which might lead to no share buybacks.