Banking & Finance

SNB shares rebound following UBS-Credit Suisse deal

March 21, 2023

Credit Suisse, which was taken over by UBS this week, is part owned by SNB

Saudi National Bank share price rose 3.4% on Tuesday
Sovereign wealth fund PIF owns 37.2% of SNB
‘SNB has a positive outlook’, says financial expert

Shares in SNB on Tuesday rose for a second session since the state-backed lender said its profits would be unaffected by the UBS takeover of rival Credit Suisse, the Swiss bank in which it owns a minority stake.

Saudi National Bank’s stock rose 3.4 percent to SR45.90 ($12.24), taking its gains to 10.6 percent from Thursday’s close of SR41.5, which was its lowest since the bank was created following the merger of National Commercial Bank and Samba Financial Group in January 2022.

In December SNB completed its purchase of 9.88 percent of Credit Suisse for 1.4 billion Swiss francs ($1.5 billion), having first revealed its plan to buy into the ailing lender in late October.

Swiss regulators instructed UBS to merge with domestic rival Credit Suisse, with a deal announced on March 19.

Credit Suisse shareholders will receive 1 UBS share for every 22.48 shares they hold in the ailing bank.

The deal valued Credit Suisse at 3 billion francs, which would make SNB’s stake now worth 296 million francs ($320 million).

SNB on Monday published a statement saying UBS’s takeover would have “nil impact on profitability”, which seems to have reassured investors – at least for now.

Shares had dropped 35 percent from when it said it would buy into Credit Suisse on October 27 to last Thursday’s close.

“The decision to invest in Credit Suisse was already not well liked by the market, but whatever negative impact is now more than discounted in its current market valuation so I don’t see further downside – in fact, it’s now trading at very attractive multiples,” said Shabbir Malik, a bank analyst at EFG Hermes in Dubai.

Saudi Arabia’s banking sector index had fallen 9.0 percent this year to Monday’s market close, according to Kuwait’s Kamco Invest.

“SNB is attractively priced,” said Chiradeep Ghosh, vice president for financial institutions at Bahrain’s SICO Bank.

“It’s not necessarily screaming ‘buy’, but its domestic business is strong, and it has a large balance sheet and so can participate in Saudi’s giga projects. SNB has a positive outlook.”

SNB took a partial write down on its Credit Suisse investment in late 2022 and will take a further hit in its first-quarter financials, although accounting rules mean this will not have any effect on the bank’s profits; the investment is classified as other comprehensive income and so is not part of its profit and loss statement.

The bank estimates the decline in the value of its Credit Suisse investment will impact its capital adequacy ratio by 35 basis points.

“In the context of SNB’s balance sheet its Credit Suisse investment was quite small, but investors were spooked that SNB was looking at markets outside Saudi Arabia when the big opportunity is domestic,” EFG’s Malik said.

Credit Suisse made a net loss of 7.29 billion Swiss francs in 2022. The bank suffered huge losses from the collapse of US hedge fund Archegos Capital and British financial services firm Greensill Capital.

These woes contributed to a loss of confidence among customers, prompting the Swiss banking regulator to act.

In announcing its planned Credit Suisse investment, SNB said the purpose was to develop its asset management, wealth management and investment banking capabilities in Saudi Arabia and the Middle East.

Credit Suisse’s takeover means SNB will have to approach this plan differently, said Malik.

“But I saw this more as a tactical investment by SNB – it was aiming to get in at a low valuation and then sell when Credit Suisse’s strategic transformation was implemented and its valuations had improved,” he added.

“So, SNB would have sold eventually while in the meantime it could leverage the strong association it would have had with Credit Suisse to build its own wealth management and asset management expertise.

“Credit Suisse’s fall won’t affect SNB’s growth aspirations in Saudi.”

The Public Investment Fund, which is chaired by Saudi’s Crown Prince Mohammed Bin Salman, owns 37.2 percent of SNB.