UBS Chairman Colm Kelleher has made efforts to breathe more life into the bank's share price. Analysts appear to be unmoved.
In September, UBS analysts recommended Credit Suisse shares «hold» thereby downgrading the rating. Is Credit Suisse now returning the favor by downgrading UBS from «outperform» to «hold»?
Of course, it should be assumed that Credit Suisse analysts based their recommendations purely on facts, but the timing of the downgrade from its Paradeplatz rival in Zurich is likely to come at the worst possible time for UBS.
Because no less than Chairman Colm Kelleher has set himself the goal of ensuring Switzerland's largest bank gets respect in the financial markets on par with Wall Street powerhouses, and as such is also reflected in higher share prices. To this end, along with UBS CEO Ralph Hamers, the duo made the rounds in the US to make their case to major investors.
Others Better Positioned
Kelleher seemingly thinks the bank's shares should trade at twice their book value. Currently, the stock is trading at around 17 Swiss francs, with a price-to-book ratio of just over 1. The majority of 21 analysts recommend the stock a buy, with a median price target above 20 francs.
A lead analyst at Zuercher Kantonalbank (ZKB) was of little help recently. Although describing UBS as a well-oiled machine, the conclusion is the bank is fairly valued at current prices and recommends it as «market weight» rather than «overweight.» He says that strategically, there are probably banking stocks better positioned for rising interest rates at the moment. But if markets rally, UBS shares could become interesting because of the operating leverage in wealth management.
It's All About AuM
The Credit Suisse analysis makes a similar argument. The share prices of Swiss wealth management banks are doubly vulnerable when stock markets are underperforming because the institutions' earnings continue to depend very much on the «water level» of their assets under management. If private clients hold back, bank income generally falls faster than costs.
UBS's pursuit of an accommodating dividend policy is of only limited help. The ZKB analyst expects a dividend yield of 3.5 percent for 2023 and share buybacks of $4 billion next year, increasing to $5 billion in 2024.
