Cevian’s Hopes for UBS Are Probably a Bit Rich

Cevian Capital AB’s $1.3 billion bet on UBS Group AG is unusual in more ways than one. The Stockholm-based investment firm is typically a quiet activist, working behind the scenes to steer management thinking. This time it’s being very public about what looks like a straightforward value play.

Cevian’s backing, which it revealed on Tuesday, is a big vote of confidence for the Swiss bank. The stake might be just 1.3% of UBS’s shares, but it’s about 10% of the fund’s assets under management. The investor has been talking to UBS’s management since before it started building its stake in April. Relations are friendly now, but things could get frosty if UBS fails to fulfil Cevian’s grand hopes, which look hard to reach.

Lars Förberg, Cevian chief executive officer, told Bloomberg TV on Tuesday that UBS’s management was doing an excellent job integrating former rival Credit Suisse after its emergency takeover and things were heading in the right direction. Förberg thinks UBS can catch up with the current valuation of Morgan Stanley within two to three years, which would roughly double the Swiss bank’s share price.

The key to that thesis, though, is more growth and better profitability in UBS’s wealth business, which Förberg called the largest truly global money manager for the rich. (Morgan Stanley has more assets, but it’s very focused on the US.) One big question is whether wealth remains a slam-dunk strategy for banks: For more than a decade, ultra-low interest rates and vast quantities of central bank money held volatility down and lifted asset prices up. That world may be gone for good.

UBS shares have already jumped by more than 50% since Credit Suisse’s failure in March, but Förberg said the “downside protection on UBS is immense.” Another partner at Cevian told Swedish TV on Tuesday it was “impossible to lose money” on the bank, according to Bloomberg News. If that’s not tempting the fickle gods of finance, then I don’t know what is.

So what could go wrong? UBS has made a strong start to carving up Credit Suisse, but in many ways its work so far has been the easy part. It made faster headway than expected in the third quarter on cost cuts and sales of unwanted assets, but it was helped by the many Credit Suisse bankers who walked away rather than waited to see if they would keep their jobs.