Business & Finance
Business and Finance
Business and Finance
Thu, October 7, 2010 UBS AG, Credit Suisse Group, Dr Pepper Snapple Group, The Coca-Cola Company and Coca-Cola Enterprises
CHICAGO--([ BUSINESS WIRE ])--Zacks.com Analyst Blog features: UBS AG (NYSE: [ UBS ]), Credit Suisse Group (NYSE: [ CS ]), Dr Pepper Snapple Group Inc. (NYSE: [ DPS ]), TheCoca-Cola Company (NYSE: [ KO ]) and Coca-Cola Enterprises (NYSE: [ CCE ]).
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Here are highlights from Tuesdaya™s Analyst Blog:
Swiss Propose Strict Capital Rules
According to a proposal made by the Swiss government committee this Monday, Swiss banking giants UBS AG (NYSE: [ UBS ]) and Credit Suisse Group (NYSE: [ CS ]) will need to retain more capital in reserve. The proposal, which is supported by the Swiss National Bank and the country's financial regulator FINMA, would now require the parliamenta™s approval. The requirements are said to exceed the levels set by the international standards, Basel III.
Capital Requirements
As per the proposal, UBS and Credit Suisse need to hold reserves of 10% in common equity and 19% in total capital. This includes 4.5% as the base requirement and 5.5% as a cushion. The companies need to keep another 9% in capital based on their current size, which may be held in contingent convertible (CoCo) bonds. Banks have until the end of 2018 to meet the requirements.The levels exceed the international standard requirements of 7% for common equity and 10.5% minimum for total capital.
A CoCo bond is a convertible bond in which the price of the underlying stock must reach a certain level before any conversion is allowed. Here the CoCo bonds would turn to equity if the capital ratios of the banks fall below a pre-determined trigger level. With changes in the banka™s balance sheet and market share in the domestic market, the capital requirements would also alter.
In addition, banks need to have leverage ratio of at least 5%. Banks should also formularize a right structure and regulators would suggest changes if they fail to provide a proper and convincing structure on their own.
Our Take
The recent crisis jeopardized global financial institutions and had some substantial impact on these Swiss banks. This led the governments to look for tighter regulations across the world. International standards like Basel III should help in ensuring that banks have enough capital to overcome any economic risk.
It could result in fewer bank failures and reduce the usage of taxpayersa™ funds in saving the troubled financial institutions. However, we believe that the implementation of such rigorous measures would require the banks to change their business structure in the upcoming years.
Dr. Pepper's License Deal
Dr Pepper Snapple Group Inc. (NYSE: [ DPS ]) announced the completion of the transaction with TheCoca-Cola Company (NYSE: [ KO ]) to license some of its brands. The agreement grants Coca-Cola the distribution rights for Dr Pepper in the U.S. and Canada Dry in North East U.S. for a one-time payment of $715 million. Dr Pepper Snapple has plans to use a fraction of the cash proceeds to augment its share repurchase program.
The 20-year deal (with a provision for 20-year renewals) with Dr Pepper Snapple Group is part of Coca-Colaa™s acquisition of the North American bottling operations of Coca-Cola Enterprises (NYSE: [ CCE ]), announced in February 2010, and consummated recently. The deal also provides Dr Pepper Snapple with the option to sell Squirt, Canada Dry, Schweppes and Cactus Cooler, which were formerly sold by the bottler, in certain U.S. territories where it has a distribution footprint.
The addition of non-Coke brands, such as Dr Pepper and Diet Dr Pepper will increase the array of choices to Coke's new high-tech Freestyle machine (fountain drink dispenser) that is expanding gradually. Freestyle is a touch screen technology, which allures customers with its more than 100 flavors, allowing them to fix their drinks as per personal preferences.
Dr Pepper Snapplea™s shares maintain a Zacks #3 Rank, which translates into a short-term aHolda™ recommendation. Our long-term recommendation for the stock remains Neutral.
Overall, we believe that the distribution right will be potent enough to take the Coke a step further, thereby gaining market share, increasing sales volume and winning consumer loyalty.
Coca-Colaa™s shares maintain a Zacks #2 Rank, which translates into a short-term Buy recommendation. Our long-term recommendation for the stock remains Neutral.
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