UBS flags $22.8 billion hit from Credit Suisse takeover
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UBS' takeover of rival Credit Suisse is the first rescue of a global bank since the financial crisis of 2008.
PHOTO: REUTERS
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ZURICH - UBS Group expects a financial hit of about US$17 billion (S$22.8 billion) from the takeover of Credit Suisse Group, the bank said in a presentation on Wednesday as it prepares to complete the rescue of its struggling Swiss rival.
UBS estimates a negative impact of US$13 billion from fair value adjustments of the combined group’s assets and liabilities. UBS also sees US$4 billion in potential lawsuits and regulatory costs stemming from outflows, the bank said.
UBS, however, also estimated it would book a one-off gain stemming from the so-called “negative goodwill” of US$34.8 billion (S$46.8 billion) by buying Credit Suisse for a fraction of its book value. The financial cushion will help absorb potential losses and could result in a boost to the lender’s second-quarter profit if UBS closes the transaction in June as planned.
UBS said the estimates were preliminary and the numbers could change materially later on.
The bank also said it might book restructuring provisions after that, but offered no numbers.
Analysts at Jefferies had estimated that restructuring costs, litigation provisions and the planned winding down of the non-core unit could total US$28 billion.
Meanwhile, UBS has implemented a number of restrictions on Credit Suisse while the takeover is under way.
In certain cases, Credit Suisse cannot grant a new credit facility or credit line exceeding 100 million Swiss francs (S$149.2 million) to investment-grade borrowers or more than 50 million francs to non-investment-grade borrowers, a UBS filing showed.
Credit Suisse also cannot undertake capital expenditure of more than 10 million francs or enter into certain contracts worth more than 3 million francs a year.
The filing shows Credit Suisse cannot order any “material amendments” to its employee terms and conditions, including remuneration and pension entitlements, till deal closure.
UBS agreed in March to buy Credit Suisse for 3 billion Swiss francs in stock and to assume up to 5 billion francs in losses that would stem from winding down part of the business, in a shotgun merger engineered by the Swiss authorities over a weekend amid a global banking turmoil.
The deal, the first rescue of a global bank since the 2008 financial crisis, will create a wealth manager with more than US$5 trillion in invested assets and over 120,000 employees globally.
The Swiss state is backing the deal with up to 250 billion Swiss francs in public funds. Switzerland’s government is providing a guarantee of up to 9 billion francs for further potential losses on a clearly defined part of Credit Suisse’s portfolio.
UBS signalled no quick turnaround for the 167-year-old Credit Suisse, which came to the brink of collapse during the recent global banking sector turmoil after years of scandals and losses.
It said it expected both the Credit Suisse group and its investment bank to report substantial pre-tax losses in the second quarter and the whole of 2023.
Credit Suisse faces certain restrictions in its ability to do business until its acquisition by UBS is completed, according to a regulatory filing on Tuesday.
Following the legal closing of the transaction, UBS Group plans to manage two separate parent companies – UBS and Credit Suisse, UBS said last week. It has said the integration process could take three to four years.
During that time, each institution will continue to have its own subsidiaries and branches, serve its clients and deal with counterparties. REUTERS
