Rochdale Securities banking analyst Richard Bove downgraded UBS (NYSE:UBS) and Credit Suisse (NYSE:CS) from “Buy” to “Neutral,” based solely on the deteriorating economic situation in Europe.
Both banks were downgraded because of the sovereign debt crisis and the exposure they have to it, but UBS was of more concern to Bove based on that it is unknown at this time how exposed they really are, and consequently the amount of money at stake for them. Another worry is how much will have to be written down of that sovereign debt from the future earnings of the bank.
Credit Suisse stands basically in the same shoes as UBS, and while Bove views both of them as fairly sound operationally, their location in the middle of Europe could make them victims of the macro-economic situation hammering the region, which is unlikely to go away any time soon, and if you use Germany when they went through something similar, it took them 15 years to turn things around. And that was with a country willing to take the needed steps because they saw and understood the forces they had to deal with.
Already people are rioting over this, and that has went beyond Greece to Ireland and Spain, and it’s sure to grow like a virus from there, as countries like Spain, which has about a 20 percent unemployment rate with many of them young people, they have nothing to do but think about this and gravitate toward violent responses.
As far as Credit Suisse and UBS, they seem to be victims of the location they do business in, and even though Bove added solid praise to the way the two companies have been turning around, he doesn’t think they will be over to overcome the forces now being released in the region. He’s probably right.
Noting this, Bove also lowered the price target of Credit Suisse from $60 a share to $50 a share, while the price target of UBS from $21 a share to $16 a share.