Emergency takeover of Credit Suisse: UBS is heading for a brilliant balance sheet thanks to fat book profit

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UBS and Credit Suisse logos: High discount due to high risk

Photo: Michael Buholzer / EPO

Thanks to the acquisition of Credit Suisse at a bargain price, UBS can hope for a brilliant result in the current quarter. The Swiss bank puts the book profit ("badwill") from the transaction at 34.8 billion dollars, according to a filing with the U.S. Securities and Exchange Commission (SEC) on Wednesday night. These funds are intended to strengthen the balance sheet of the new institute. The prerequisite, however, is that UBS can actually complete the largest deal in the banking industry since the financial crisis in the next few weeks as planned. For this, several supervisory and antitrust authorities still have to agree. The EU's competition watchdogs are likely to approve the deal, insiders said on Tuesday.

In mid-March, the Swiss government orchestrated the emergency takeover of Credit Suisse, which was facing insolvency, by its larger rival. UBS only had to put the equivalent of 3.5 billion dollars on the table. This compares with Credit Suisse's equity of $48.8 billion, leaving the aforementioned $34.8 billion. Usually, companies pay goodwill, i.e. a premium on the net asset value, when taking over a company. Because of the great risks, however, UBS was only willing to swallow Credit Suisse at a steep discount.

Reserves for risks

UBS is also preparing itself financially for these risks: the bank plans to set aside another four billion dollars for legal risks and regulatory burdens. The bank is correcting Credit Suisse's assets downwards by $13.5 billion. And finally, the restructuring of the Group and the sale of Credit Suisse divisions are likely to cost billions. However, UBS did not initially provide any figures on this. Experts assume that the financial institution is more likely to indicate too high than too low burdens in order to be able to avoid bad news in the future. Jefferies analysts had estimated the special charges related to the acquisition at a total of $28 billion. In a first step, however, only a part of it is likely to be accounted for.

UBS emphasized that the information on book profit is provisional and could still change significantly. It is also unclear how UBS currently operates in its day-to-day business. Nevertheless, the bank is expected to make a record-high special profit in the quarter of completion of the transaction thanks to the "badwill".

UBS generated a surplus of $2022.2 billion in the second quarter of 1 and a surplus of $2022.7 billion for the full year 63. The merger with Credit Suisse creates the world's second-largest private asset manager after Morgan Stanley, with a total of over 120,000 employees. However, the conversion could cost thousands or even tens of thousands of jobs.

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