UBS Anticipates $17 Billion Impact from Hasty Credit Suisse Acquisition

UBS, the Swiss banking giant, anticipates a financial setback of approximately $17 billion stemming from its expedited acquisition of Credit Suisse, as indicated in recent SEC filings. The bank’s calculations suggest a $13 billion impact due to alterations in the fair value of the newly merged entity’s assets and liabilities. Additionally, the bank is bracing for potential legal and regulatory expenses that could reach $4 billion. The swift nature of the deal, orchestrated by Swiss authorities to avert Credit Suisse’s impending collapse, may have compromised the thoroughness of UBS’s due diligence.

Despite these financial challenges, UBS is set to counterbalance the losses with a one-time gain of nearly $34.8 billion, derived from “negative goodwill” – a financial term denoting the acquisition of assets at a cost significantly lower than their actual worth. The rushed acquisition came about as Credit Suisse faced enormous customer withdrawals and a drastic fall in share prices. The Swiss government, concerned about potential repercussions to the financial system, approached UBS with a proposition to purchase Credit Suisse to stabilize the market.

The UBS Strategy Committee began assessing Credit Suisse’s worsening financial situation back in October 2022, leading to a decision in February that the acquisition wasn’t desirable. However, as Credit Suisse’s condition continued to decline, UBS maintained its analysis of the potential financial and legal implications of a takeover. The emergency deal has been met with criticism, particularly FINMA’s decision to erase about $17 billion of Credit Suisse’s AT1 bonds before shareholdings, which has led to legal action from AT1 bondholders. Nonetheless, UBS CEO Sergio Ermotti asserts that the acquisition presents long-term benefits, and it’s expected to legally conclude in the coming weeks.