Morgan Stanley: Swiss Bank CEO Trip Report

Baer has a «once in a lifetime opportunity» – along with some other private banks – to gain share from some of the large integrated banks that have suffered in the market turmoil, in our view. This was one of the key takeaways from our meetings with the CEOs of the listed Swiss banks. Some banks look on track to hire twice as many bankers as they planned, with increased likelihood of higher client asset transfer with new hires, notwithstanding obvious market headwinds.

Upside pressure on cost/income ratios
We forecast «10% NNM in 2008 for Baer vs. «4.5% at CS WM and -1% at UBS WM+BB. But we also see upside pressure on cost/income ratios, particularly as client activity and AUM are under pressure from market/currency moves. This means we see revenues being softer across the board than in 2007, although current market levels are now well factored into expectations – whereas we suspect the flows are not on concerns of global slowdown.

Overweight on Baer
We have trimmed our EPS by 1-2% to SFr 5.14 for 08 and to SFr 6.02 for 09 to reflect today’s markets. The stock is on «12x base case 09e EPS vs. 14.5x in the last 10 years. As we expect solid cash generation and rich optionality at Baer, we see a good risk/reward vs. many European banks – we expect a number of continental players to disappoint – even if absolute performance maybe more constrained.

Implications for UBS
We think UBS A&WM will probably see «2 years of anaemic flows and downward pressure on profitability from defending market share.
Including our estimate of a further group loss in 2Q of SFr 3bn, the stock trades at 1.7x our 08e TBVPS and 8x 09e. We remain Equal-weight vs. European banks.

Implications for CSG
We reiterate our Overweight rating on CSG. While we are cautious on i-banking earnings (we model 09 at 05/06 levels) and see SFr 1bn of 2Q mark-downs, strong A&WM cash and capital generation provide support. At 1.8x TBVPS and 8x 09e, we see reasonable risk/reward vs. European banks.

The full report can be downloaded from the link below (Full Report).

(Morgan Stanley/mc/hfu)