2023-05-18 10:58:01 ET
Just before UBS's ( NYSE: UBS ) acquisition of Credit Suisse ( NYSE: CS ) was announced, Third Point had invested in Credit Suisse bonds, Third Point CEO and Chief Investment Officer Daniel Loeb said in a letter to investors.
Once the rescue was announced, though, "the equity of UBS presented the more compelling way to invest in this situation." As a result, the firm rotated into UBS ( UBS ) stock and out of CS bonds, he said.
"We see the rescue of CS as a transformative deal for UBS at a highly compelling price and with downside-protected terms," Loeb wrote.
The combined company will be the world's second largest wealth manager and Europe's third largest asset manager, "enhancing UBS’s competitive positioning and scale in its most attractive capital-light and high return-on-equity businesses."
UBS's ( UBS ) early guidance sees cutting Credit Suisse's ( CS ) existing expense base by 50% while the deal expands UBS geographically and through product diversification, Loeb said. The main execution risk the the "right-sizing" of Credit Suisse's loss-making Investment Banking division, he added.
"We believe that early guidance will prove to be conservative, and we see significant upside as UBS ( UBS ) integrates CS, realizing the significant cost synergies and completing the wind-down of non-strategic divisions," he said.
During Q1 2023, its flagship Third Point Offshore Fund returned -4.1% as shorts and hedges were weighed on its performance, costing it ~4%. Losses in shorts and hedging more than offset any gains the fund realized in IT and Communications.
Loeb said losses stemmed from single name shorts that surged in January as well as baskets and indices hedging some of its largest positions. "We have re-evaluated the risk and sizing guidelines around shorts, eliminating many of the technical factors that caused this underperformance, dampening the “basis risk” and overall volatility from these efforts," Loeb said.
On Monday, Third Point disclosed new stakes in Alphabet, Micron, AMD, and Alibaba in Q1.
More on UBS and Credit Suisse:
- UBS discloses takeover financials from rushed Credit Suisse deal
- UBS set to win unconditional European approval for Credit Suisse deal
- UBS Group Q1 Earnings: Expected Weakness Shows How Resilient Business Is
For further details see:
Dan Loeb's Third Point bets on UBS's transformative Credit Suisse deal