UBS is persistently linked in speculation to Deutsche Bank. Rumors aside, the Swiss bank enjoys being viewed as a white knight. Why?
Since Christian Sewing took over at Deutsche Bank in April, the stock has dropped by nearly one-third. At just over 8 euros per share, the German lender is entering perilous territory for its prospects to stay independent.
The rumors of a Deutsche Bank merger with Commerzbank quickly flared up again, or an alternative version of UBS taking over former German national champion. Sewing moved to nip the speculation in the bud: ««I don’t have any indication of that,» he said in German press, according to«Reuters». Reports of a potential merger with either Commerzbank or UBS as fiction.
Persistent Rumors
Fantasy or not, the rumors raise the issue of why UBS is always the white knight trotted out as a European savior. The bank, Switzerland's largest, was already raised in connection with a tie-up with Deutsche Bank last autumn.
And last year, persistent rumors circulated that UBS could be interested in buying troubled Commerzbank – or at least the German retail bank's corporate clients business.
Junior vs Senior Partner
With the frequently-cited mergers-and-acquisitions saying «it takes two to tango» as a foundation, the rumors posit a feeble partner – in this case Deutsche or Commerzbank, with their massively pressured stock prices – with a strong partner like UBS, one of the few European banks to completely fulfill regulatory requirements on capital, and on track with a solid business model.
Another reason that UBS is linked to takeover speculation is that the bank's investors wouldn't mind seeing more spark from from the shares. The Swiss firm's stock has stagnated – though not for the same reason that Deutsche's has tanked.
The contrast between the two banks is one reason that UBS, not a prodigious acquirer, is always mentioned in the sketchbooks as a potential savior. Another reason are intellectual simulations: a combo of UBS' and Deutsches' trading arms could be a competitor versus American banks, which have dominate the post-crisis league tables.
Lust for Size
Deutsche's wealth and asset management arms would give UBS a boost. Two years ago, UBS was reportedly interested when Deutsche Bank was pursuing a spin-off of its asset management arm.
Europe's desire for size often appears to be a driving motivation behind such rumors, sketches, and pitches. The «Economist», for example, revived and backed an old trope about tBarclays and Standard Chartered merging. The reasoning? At least the two British banks would be larger together.
Enormous Complexity
The frail state of Europe banking sector hardly flatters UBS – at home outside the bloc – as a potential savior for a firm within the European Union. In view of the enormous complexity that merging with an institute the size of Deutsche Bank would entail, such rumors must be treated as pure fantasy.
The emergence of speculation is more a reflection of the financial market doing its job: as soon as the valuation of a corporation sinks below its intrinsic worth, investors will view it as an attractive takeover candidate.
Takeover Target?
UBS itself has fallen prey to this mechanism: ex-Chairman Marcel Ospel was forced to combat takeover rumors in 2000 after the sharp fall in his bank's share price.
In 2008, HSBC was rumored to be interested in the crisis-hit Swiss bank. As recently as this summer, investors mused whether UBS could turn into a takeover candidate yet again.
