UBS saw Credit Suisse deal as ‘not desirable’ – and could now take $17bn hit from it
UBS estimates it will take a $17bn hit from the takeover of its long time rival Credit Suisse as regulatory filings reveal it never wanted the deal to take place.
UBS estimates a negative impact of $13bn from fair value adjustments and $4bn in potential litigation and regulatory costs.
UBS executives have previously warned that the deal would impose significant costs on the bank but that it would not interfere with its existing strategy.
According to a filing with the US Securities and Exchange Commission (SEC), the bank was rushed into the deal, although it had been considering a merger for months.
In the event, the bank said it had less than four days to conduct due diligence due to the “emergency circumstances”.
‘Not desirable’
According to the filing, UBS began reviewing the situation at Credit Suisse in October when the struggling lender was facing substantial deposit outflows amidst social media rumours that it may collapse.
Although UBS management presented an assessment of the purchase in December, the UBS strategy committee concluded a deal was “not desirable” in February.
Since the merger, UBS has also imposed restrictions on Credit Suisse, including preventing it from granting a new credit line of over CHF100m. It expects Credit Suisse to post a substantial loss this year.
Despite the possible costs, UBS will also book a significant one-off gain of over $30bn in the second quarter if the deal is completed. This reflects the difference between the purchase price and the book value of Credit Suisse’s assets.
UBS swooped in for Credit Suisse when it was clear Credit Suisse would not be able to withstand asset outflows following years of scandal. In the end Credit Suisse was bought for $3.25bn, less than half its already significantly diminished market value.
Many analysts have pointed to the significant opportunities the deal poses for UBS, particularly in wealth management.