UBS President Colm Kelleher is determined to see the bank’s share price rise and is courting major American investors to this end. finews.asia has calculated what this could do for its valuation.
finews.asia has already described it as «UBS’s greatest frustration.» Despite having a solid business and being a market leader in global private banking, the bank’s share price has not made any great leaps. What’s more – it doesn’t reflect the intrinsic value of the bank on the stock exchange. This contrasts with US competitors trading at several times their book value.
Colm Kelleher looks back on an illustrious career on Wall Street in New York, especially as president of Morgan Stanley, which has recently been turning an ever-bigger wheel in asset management. In a recent interview with the «NZZ» (in German only), Kelleher complained that investors fail to see UBS for what it really is, saying that there was no reason why the Swiss bank was trading at a discount to its American counterparts.
Extremely Difficult
Next Tuesday, Switzerland’s largest bank will present its financial results for 2022 concluding a year that proved to be extremely difficult for asset management as well as for investment banking as a whole.
UBS struggled with a drop in profits on all fronts in the third quarter. The total volume of invested assets also declined across the group from $4,432 billion to $3,706 billion.
Limited Potential
Considering that the outlook was cautious at the time, the final quarter of the year is unlikely to have brought a big turnaround. After a price increase of 22 percent in the past three months, the potential of the UBS share is limited.
Most likely much to Kelleher’s displeasure. According to the stock exchange service «Market Screener», various analysts’ estimates result in an average twelve-month price target of 21.10 Swiss francs per share. Currently, the shares are trading just below 20 francs.
Large Institutional Investors
But what would happen if UBS already had large institutional investors from the USA on its side – would the valuation be much higher than it currently is? finews.asia calculated using a collection of data from various institutions.
For this purpose, the shareholdings of 200 of the world’s leading asset managers, institutional investors and sovereign wealth funds were determined at the leading Wall Street banks J.P. Morgan, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley – and at UBS.
Fund Giants
This quickly reveals the dominance that US banks enjoy among large American investors. The most important of which are US fund houses with the largest business in exchange-traded funds (ETFs) – Blackrock, Vanguard and State Street.
UBS itself does not include the latter two in the list of significant shareholders; however, the entry in the bank’s share register is optional. According to the data available to finews.asia from September 2022, however, Vanguard holds 9.38 percent of the free float shares of J.P. Morgan, as well as 8.79 percent of Morgan Stanley.
Blackrock, the world’s largest asset manager, which UBS says has held 5.23 percent of UBS’s total share capital since last summer, has a 6.81 percent stake in J.P. Morgan and an 8.43 percent stake in Citigroup. According to the data, State Street does not hold any shares in the Swiss bank, but has 9.39 percent of Morgan Stanley’s free float.
Additional Demand
The comparison with the investment behavior of the potent Norwegian state fund Norges Bank Investment Management (NBIM) is interesting. According to UBS, the Norwegians last held 3.01 percent of total share capital. In contrast, NBIM’s most significant holding in US banks is Morgan Stanley with 1.22 percent, followed by Bank of America with 1.09 percent. These ratios seem to speak for Kelleher’s ambitions to score with the big US investors.
But if all share ratios are taken into account, it becomes clear that if US investors were equally committed to UBS as they are to Wall Street banks, the additional demand for UBS shares would correspond to about 15 percent of the free float at the Swiss institution.
Not the world
Although it would be a lot, it wouldn’t be the world, especially as purchases by the likes of Vanguard would probably take place over the medium term.
The reputation of these firms could encourage other investors to bet on UBS shares as well. Based on this analysis, it is difficult to imagine that UBS’s current price-to-book ratio of 1.2 will double after American fund giants came on board.
Striking Difference
A look at the shares of large investors also reminds us how striking the differences in market capitalization are. UBS currently has a market value of around 67.5 billion dollars, Morgan Stanley, on the other hand, 160 billion and J.P. Morgan as much as 408 billion dollars.
Compared to these sums, Switzerland’s largest bank is a dwarf – no matter how great its management’s ambitions are.
