Morgan Stanley is a dubious saviour for UBS
MS•A possible Morgan Stanley acquisition of UBS could cost about $138 billion and generate more than $10 billion in annual savings, but estimated returns could fall below 13% after lost business. The analysis says UBS may be more likely to buy a smaller U.S. bank than be acquired.
1. Potential deal economics
Morgan Stanley is a possible buyer if UBS decides a change of ownership is the best response to proposed Swiss capital reforms. The analysis estimates that excluding UBS's Swiss domestic unit, valued by Jefferies at $39 billion, the remaining businesses are worth $111 billion; a 25% premium would put the purchase price at about $138 billion. UBS shareholders would own roughly one-third of the combined group.
2. Savings and risks
The UBS businesses outside Switzerland could generate about $13.1 billion in profit after tax in 2030, based on Visible Alpha consensus estimates. The analysis estimates potential annual cost savings above $10 billion, including $1.7 billion in U.S. wealth management, $850 million in asset management and about $7.5 billion from investment banking. After restructuring costs, estimated returns on invested capital would exceed 14%, but could fall below 13% if lost business equalled 10% of expected revenue for UBS's investment bank and non-U.S. wealth business.
3. UBS could buy instead
The analysis argues that those returns may be unattractive for Morgan Stanley, which analysts expect to earn a 24% return on tangible equity next year. It says UBS could instead buy a smaller U.S. bank, potentially allowing it to control a combined group and create a path to change its domicile over time.
