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UBS expects a $17 billion hit from the Credit Suisse bailout, a rushed due diligence warns




  • The bank’s emergency buyout of its embattled domestic rival for 3 billion Swiss francs ($3.4 billion) was brokered by Swiss authorities over a weekend in March.
  • UBS also expects to offset this by booking a one-off gain of $34.8 billion from so-called “negative goodwill”, which refers to the acquisition of assets at a much lower cost than their true value.
  • UBS highlighted that the short timeframe in which it was forced to conduct due diligence may have affected its ability to “fully evaluate Credit Suisse̵[ads1]7;s assets and liabilities” before the takeover.

Swiss authorities brokered the controversial bailout of Credit Suisse by UBS for 3 billion Swiss francs ($3.37 billion) over a weekend in March.

Fabrice Coffrini | AFP | Getty Images

UBS estimates a financial hit of about $17 billion from the emergency takeover of Credit Suisse, according to a regulatory filing, and said the rushed deal may have affected its due diligence.

In a new filing with the US Securities and Exchange Commission (SEC) late Tuesday night, the Swiss banking giant flagged a total negative impact of about $13 billion in fair value adjustments to the new combined entity’s assets and liabilities, along with a potential $4 billion. affected by litigation and regulatory costs.

However, UBS also expects to offset this by booking a one-off gain of $34.8 billion from so-called “negative goodwill”, which refers to the acquisition of assets at a much lower cost than their true value.

The bank’s emergency buyout of its stricken domestic rival for 3 billion Swiss francs ($3.4 billion) was brokered by Swiss authorities over a weekend in March, with Credit Suisse teetering on the brink of collapse amid massive customer deposit withdrawals and a falling share. price.

In the amended F-4 filing, UBS also highlighted that the short timeframe in which it was forced to conduct due diligence may have affected its ability to “fully evaluate Credit Suisse’s assets and liabilities” before the takeover.

Swiss authorities approached UBS on March 15 as it considered whether to initiate a sale of Credit Suisse to “calm the markets and avoid the possibility of contagion in the financial system,” the filing revealed. The bank had until 19 March to carry out its due diligence and come back with a decision.

“If the circumstances surrounding the due diligence affected UBS Group AG’s ability to thoroughly assess Credit Suisse’s liabilities and weaknesses, it is possible that UBS Group AG will have agreed to a rescue that is significantly more difficult and riskier than it intended,” said UBS in the risk factors section of the filing.

Although this is highlighted as a potential risk, UBS CEO Sergio Ermotti told CNBC last month that the Credit Suisse deal was not risky and would create long-term benefits.

The most controversial aspect of the deal was regulator FINMA’s decision to write off about $17 billion of Credit Suisse’s additional tier-one (AT1) bonds before shareholdings, which defied the conventional write-down order and resulted in legal action from AT1 bondholders.

Tuesday’s filing showed that the UBS strategy committee began evaluating Credit Suisse in October 2022 as the competitor’s financial situation worsened. The long-standing lender experienced massive outflows of net assets towards the end of 2022 amid liquidity concerns.

UBS’s strategy committee concluded in February that an acquisition of Credit Suisse was not desirable, and the bank continued to analyze the financial and legal implications of such a deal in case the situation deteriorated to the point that the Swiss authorities would ask UBS to step in.

UBS announced last week that Credit Suisse CEO Ulrich Koerner will join the executive board of the new combined entity once the deal is legally closed, which is expected in 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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