UBS expects to lose $17 billion from the Credit Suisse bailout, citing hasty due diligence

UBS estimates the financial damage caused by the emergency takeover at around 17 billion US dollars CreditSuisseaccording to a regulatory filing, saying the rushed deal may have hampered its due diligence.

In a new filing with the U.S. Securities and Exchange Commission late Tuesday night, the Swiss banking giant pointed to negative impacts totaling around $13 billion in fair value adjustments to the new combined company’s assets and liabilities, as well as potential ones $4 billion impacted by litigation and regulatory costs.

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However, UBS also expects to offset this by booking a $34.8 billion one-time gain on what it calls “negative goodwill,” which relates to the acquisition of assets at significantly lower costs than their true value.

The bank’s 3 billion Swiss francs ($3.4 billion) emergency takeover of its ailing domestic competitor was brokered by Swiss authorities over a weekend in March, with Credit Suisse on the brink of collapse amid massive withdrawals from customer deposits and a falling share price stood price.

In the amended F-4 filing, UBS also emphasized that the short timeframe in which it was required to conduct due diligence may have impacted its ability to “fully understand the assets and liabilities of Credit Suisse prior to the acquisition.” evaluate”.

Swiss government authorities contacted UBS on March 15, considering whether to initiate a sale of Credit Suisse to “calm markets and avoid the possibility of contagion in the financial system,” the filing says. The bank had until March 19 to complete its due diligence and make a decision.

“If due diligence circumstances compromised UBS Group AG’s ability to thoroughly assess Credit Suisse’s liabilities and vulnerabilities, it is possible that UBS Group AG has agreed to a rescue that is significantly more difficult and risky than it envisaged had,” UBS said in the “Risk Factors” section of the filing.

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

The most controversial aspect of the deal was regulator FINMA’s decision to wipe out approximately $17 billion of Credit Suisse’s AT1 (Additional Tier One) bonds before equity holdings, in violation of traditional write-off rules and legal action by AT1 bondholders led.

Tuesday’s filings showed that UBS’s strategy committee began evaluating Credit Suisse in October 2022 as the competitor’s financial condition deteriorated. The long-troubled lender saw massive net asset outflows towards the end of 2022 amid liquidity concerns.

The UBS strategy committee concluded in February that a takeover of Credit Suisse was “not desirable” and the bank continued to conduct an analysis of the financial and legal implications of such a deal should the situation deteriorate that far should intervene that the Swiss authorities would question UBS.

UBS announced last week that Ulrich Koerner, CEO of Credit Suisse, will join the management team of the new combined company once the transaction is legally complete, which is expected in the coming weeks.

The group will operate as an “integrated banking group” with Credit Suisse retaining its brand independence for the foreseeable future, while UBS will seek gradual integration.