- The bank’s emergency takeover of its stricken local rival for CHF3 billion ($3.4 billion) was brokered by Swiss authorities over the course of a March weekend.
- UBS also expects to make up for it by booking a one-time gain of $34.8 billion from so-called “negative goodwill,” which refers to the acquisition of assets at a cost significantly below their intrinsic value.
- UBS highlighted that the short time frame in which it was forced to conduct due diligence may have affected its ability to “fully assess Credit Suisse’s assets and liabilities” prior to the takeover.
Swiss authorities brokered a controversial bailout of Credit Suisse by UBS for CHF3 billion ($3.37 billion) over the course of a weekend in March.
Fabrice Coverini | AFP | Getty Images
UBS estimates the financial hit to be about $17 billion from its emergency acquisition of Credit Suisse, according to a regulatory filing, and said the hasty deal may have affected its due diligence.
In a new filing with the U.S. Securities and Exchange Commission (SEC) late Tuesday night, the Swiss banking giant cited a total negative impact of about $13 billion in fair value adjustments to the new entity’s assets and liabilities, along with a potential $4 billion. Damaged by litigation and regulatory costs.
However, UBS also expects to make up for it by booking a one-time gain of $34.8 billion from so-called “negative goodwill,” which refers to the acquisition of assets at a cost significantly below their intrinsic value.
The bank’s emergency takeover of its stricken local rival for 3 billion Swiss francs ($3.4 billion) was seized by Swiss authorities over the course of a March weekend, with Credit Suisse teetering amid huge withdrawals of customer deposits and a dip in its stake. price.
In its amended F-4 filing, UBS also highlighted that the short time frame within which it was forced to conduct due diligence may have affected its ability to “fully assess Credit Suisse’s assets and liabilities” prior to the acquisition.
The filing revealed that Swiss government authorities approached UBS on March 15 while considering whether to initiate a sale of Credit Suisse in order to “calm the markets and avoid possible contagion in the financial system.” The bank had until March 19 to conduct due diligence and come back with a decision.
“If due diligence conditions affected UBS Group AG’s ability to carefully consider Credit Suisse’s liabilities and vulnerabilities, it is likely that UBS Group AG would have agreed to a much more difficult and risky bailout than it had anticipated,” UBS said. In the risk factors section of the deposit.
Despite highlighting this as a potential risk, UBS CEO Sergio Ermotti told CNBC last month that the Credit Suisse deal was not risky and would yield long-term benefits.
The most controversial aspect of the deal was regulator FINMA’s decision to erase about $17 billion of Credit Suisse’s additional Tier 1 (AT1) notes prior to taking possession of the shares, defying the traditional write-down arrangement, which led to legal action from AT1 bondholders.
Tuesday’s filing showed that UBS’ strategy committee began evaluating Credit Suisse in October 2022 as its rival’s financial situation worsened. The long-struggling lender saw massive net asset outflows at the end of 2022 on liquidity concerns.
UBS’ strategy committee concluded in February that the takeover of Credit Suisse was “undesirable”, and the bank continued to analyze the financial and legal implications of such a deal should the situation deteriorate to the point that Swiss authorities would ask UBS to intervene.
UBS announced last week that Credit Suisse CEO Ulrich Korner will join the executive board of the new combined entity once the deal is legally closed, which is expected within the next few weeks.
The group will operate as an “integrated banking group” with Credit Suisse retaining its brand independence for the foreseeable future, as UBS pursues a phased integration.
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