(Bloomberg) --Activist investor Cevian Capital AB is making a €1.2 billion ($1.3 billion) bet on UBS Group AG's bid to overtake Morgan Stanley as the world's pre-eminent wealth management company.
The Stockholm-based firm announced Tuesday that it has amassed a stake of about 1.3% in the Swiss bank over the course of this year, making it one of the lender's biggest shareholders. Cevian said the stake is based on confidence that UBS can successfully integrate Credit Suisse, and double its share price over the next two to three years.
"We think UBS should at least be valued on a par with Morgan Stanley," Cevian co-founder Lars Förberg said in an interview with Bloomberg Television. "The downside protection in UBS is immense."
UBS shares have risen by about 50% since the emergency rescue of its former local rival was announced in March, and Chief Executive Officer Sergio Ermotti has signaled that the bank will give more detail on its post-merger strategic direction in February. Cevian's stake ups the pressure on Ermotti and UBS Chairman Colm Kelleher to deliver on the potential of the biggest banking sector tie-up since the financial crisis.
UBS shares rose as much as 3% on Tuesday, and traded at 26.04 Swiss francs at 2:50 p.m. in Zurich. UBS declined to comment on the stake. The Financial Times reported the position earlier.
UBS continues to make progress on a multi-year integration and restructuring of its former rival which it acquired in an emergency rescue in March. The integration comes with a raft of potential difficulties from closing out positions to managing the legal liabilities inherited from Credit Suisse. The bank plans to give investors an update on its strategy in February.
Profit Target
UBS is already the undisputed top wealth manager in many parts of the world including Asia. Yet a challenge to Morgan Stanley, and a sustained boost to its valuation, would require growth in the US, the largest market for wealth-management services.
"We see in UBS that the management and board have laid out a clear strategy the next couple of years in integrating Credit Suisse into UBS," Förberg said. "It's going to create the largest global wealth manager. It's going to be an incredible business covering basically the entire globe. And outside of the US, it's going to be three times larger than its closest competitor. We support that process."
Cevian's optimism on UBS's prospects aren't universally shared, with analysts pointing to the risks inherent in the complex integration of Credit Suisse to the bank's relatively undersized investment bank compared to US peers.
"The age-old question is can EU banks match U.S. valuations," said Adam Terelak, an analyst at Medibanca SpA. "Not sure a deep restructuring and big uncertainty makes UBS the best candidate for that today. But it's certainly getting the attention of global investors."
Track Record
Cevian, Europe's largest dedicated activist, has a track record in the sector, with previous investments in Danske Bank A/S and Swedbank AB and an ongoing position in Nordea Bank Abp, the largest retail and corporate bank in the Nordics, where it has a board seat.
In September, the firm called on Nordea to up its
Cevia has also been known for turning up the heat on companies such as ABB Ltd. and Ericsson AB to boost their sustainability commitments.
It was also among investors that campaigned for better stock returns at ABB, leading to the abrupt exit of the engineering firm's then chief executive officer Ulrich Spiesshofer in 2019. It also sought higher payouts from Aviva Plc, forcing the UK insurer to dispose of non-core businesses.
UBS's top
Cevian signaled on Tuesday that it expects UBS to pursue higher returns than it is already doing.
"Management described a landing zone of 15% return on tangible equity in 2026," Förberg said. "We're thinking a lot not only about the landing zone, but also, the cruising altitude thereafter. We think the bank will be able to make more than 20% return on tangible equity."
