UBS Group AG anticipates incurring a financial impact of approximately $17 billion from the acquisition of Credit Suisse Group AG, according to a regulatory presentation. UBS estimates that fair value adjustments of the combined group’s assets and liabilities will result in a negative impact of $13 billion. Additionally, it expects potential litigation and regulatory costs of $4 billion arising from outflows.
However, UBS also forecasts a one-off gain of $34.8 billion due to the “negative goodwill” resulting from the purchase of Credit Suisse at a fraction of its book value. This financial cushion is expected to help absorb potential losses and could potentially boost UBS’s second-quarter profit if the transaction is successfully closed next month as planned.
UBS clarifies that these estimates are preliminary and subject to potential material changes. It acknowledges the possibility of booking restructuring provisions after the transaction’s completion, without providing specific figures.
Andreas Venditti, an analyst at Vontobel, noted that the financial information lacks an estimate of restructuring provisions and that such provisions will be booked post-transaction.
According to analysts at Jefferies, the total costs related to restructuring, litigation provisions, and the planned winding down of the non-core unit could reach $28 billion.
While the takeover is underway, UBS has implemented certain restrictions on Credit Suisse. For instance, Credit Suisse is prohibited from granting new credit facilities exceeding 100 million Swiss francs ($113 million) to investment-grade borrowers or more than 50 million francs to non-investment-grade borrowers, as per a UBS filing. Similar restrictions apply to capital expenses and certain contracts.
UBS states that it was compelled to expedite the deal and had less than four days to complete due diligence due to the “emergency circumstances” arising from Credit Suisse’s deteriorating financial condition. The deal, orchestrated by Swiss authorities over a weekend amidst global banking turmoil, involves UBS purchasing Credit Suisse for 3 billion Swiss francs ($3.4 billion) in stock and assuming potential losses of up to 5 billion francs from winding down part of the business.
Upon the legal closing of the transaction, UBS plans to manage two separate parent companies, UBS AG and Credit Suisse AG. The integration process is expected to span three to four years, during which both institutions will continue to operate independently with their own subsidiaries, branches, and client relationships.