UBS expects $17 billion hit from Credit Suisse rescue, flags hasty due diligence
Swiss authorities brokered the controversial emergency rescue of Credit Suisse by UBS for 3 billion Swiss francs ($3.37 billion) over the course of a weekend in March.
Fabrice Coffrini | AFP | Getty Images
UBS estimates a monetary hit of round $17 billion from its emergency takeover of Credit Suisse, in response to a regulatory submitting, and mentioned the rushed deal might have affected its due diligence.
In a brand new submitting with the U.S. Securities and Exchange Commission (SEC) late Tuesday night time, the Swiss banking large flagged a complete adverse impression of round $13 billion in honest worth changes of the brand new mixed entity’s belongings and liabilities, together with a possible $4 billion hit from litigation and regulatory prices.
However, UBS additionally expects to offset this by reserving a one-off $34.8 billion acquire from so-called “adverse goodwill,” which refers back to the acquisition of belongings at a a lot decrease value than their true value.
The bank’s emergency acquisition of its stricken domestic rival for 3 billion Swiss francs ($3.4 billion) was brokered by Swiss authorities over the course of a weekend in March, with Credit Suisse teetering on the point of collapse amid huge buyer deposit withdrawals and a plummeting share value.
In the amended F-4 submitting, UBS additionally highlighted that the brief timeframe below which it was compelled to conduct due diligence might have affected its capacity to “absolutely consider Credit Suisse’s belongings and liabilities” previous to the takeover.
Swiss governmental authorities approached UBS on March 15 whereas contemplating whether or not to provoke a sale of Credit Suisse with a purpose to “calm markets and keep away from the potential for contagion within the monetary system,” the submitting revealed. The financial institution had till March 19 to conduct its due diligence and return with a choice.
“If the circumstances of the due diligence affected UBS Group AG’s capacity to totally contemplate Credit Suisse’s liabilities and weaknesses, it’s attainable that UBS Group AG could have agreed to a rescue that’s significantly harder and dangerous than it had contemplated,” UBS mentioned within the Risk Factors part of the submitting.
Though that is highlighted as a possible danger, UBS CEO Sergio Ermotti informed CNBC final month that the Credit Suisse deal was not dangerous and would create long-term advantages.
The most controversial side of the deal was regulator FINMA’s determination to wipe out round $17 billion of Credit Suisse’s additional tier-one (AT1) bonds earlier than shareholdings, defying the standard order of write downs and leading to authorized motion from AT1 bondholders.
Tuesday’s submitting confirmed the UBS Strategy Committee started evaluating Credit Suisse in October 2022 as its rival’s monetary scenario worsened. The long-struggling lender skilled huge internet asset outflows towards the top of 2022 on the again of liquidity issues.
The UBS Strategy Committee concluded in February that an acquisition of Credit Suisse was “not fascinating,” and the financial institution continued to conduct evaluation of the monetary and authorized implications of such a deal in case the scenario deteriorated to the purpose that Swiss authorities would ask UBS to step in.
UBS final week introduced that Credit Suisse CEO Ulrich Koerner will join the executive board of the brand new mixed entity as soon as the deal legally closes, which is predicted inside the subsequent few weeks.
The group will function as an “built-in banking group” with Credit Suisse retaining its model independence for the foreseeable future, as UBS pursues a phased integration.