UBS Group AG (SIX:UBSG) is bracing for a financial impact of approximately $17 billion resulting from its takeover of struggling Swiss rival, Credit Suisse Group AG (SIX:CSGN). The bank shared these estimates in an early presentation on Wednesday, ahead of the acquisition's completion.
According to UBS, the combined group's assets and liabilities will undergo fair value adjustments that could negatively affect them by around $13 billion. Additionally, potential litigation and regulatory costs stemming from outflows might amount to another $4 billion.
On a brighter note, UBS also projected a one-time gain due to "negative goodwill" worth roughly $34.8 billion. This comes as a result of purchasing Credit Suisse at just a fraction of its book value. This financial cushion is expected to help offset potential losses and possibly boost the lender's Q2 profit if the transaction closes next month as planned.
The bank emphasized that these figures are preliminary estimates subject to change later on. It also mentioned possible restructuring provisions after closing but did not provide any specific numbers.
Analysts at Jefferies previously estimated total restructuring costs, litigation provisions, and winding down non-core units could reach up to $28 billion altogether.
During the ongoing takeover process, UBS has imposed several restrictions on Credit Suisse activities:
- In certain cases involving investment grade borrowers or non-investment grade borrowers, new credit facilities or credit lines granted by Credit Suisse cannot exceed 100 million Swiss francs ($113 million) or more than 50 million francs respectively.
- Capital expenditures must remain below 10 million francs while entering into contracts with values exceeding 3 million francs per year is prohibited.
- Material amendments regarding employee terms and conditions—such as remuneration and pension entitlements—cannot be ordered until the deal is finalized.
The merger will create a wealth manager with over $5 trillion invested assets and more than 120,000 employees worldwide. Switzerland's government has committed up to 250 billion Swiss francs in public funds to support the deal and provide guarantees for further potential losses on specific parts of Credit Suisse's portfolio worth up to 9 billion francs.
UBS does not anticipate an immediate turnaround for its rival bank; both Credit Suisse Group and its investment bank are expected to report significant pre-tax losses throughout Q2 and this year as well.
Upon closing the transaction, two separate parent companies—UBS AG and Credit Suisse AG—will be managed under UBS Group AG. While integration could take three or four years, each institution will continue operating its subsidiaries independently during that time period.