UBS Says Deal to Take Over Crisis-Hit Credit Suisse Leaves it With a Financial Hit of $17 Billion

By Jacob J
May 17, 2023 18:44 +08

UBS Group, which took over crisis-hit bank Credit Suisse in a deal backed by Switzerland's government in March this year, has said it has taken a financial hit of $17 billion due to the takeover.

The financial loss includes $13 billion from fair value adjustments of assets and liabilities and $4 billion spent on litigation and regulatory costs. UBS also said in regulatory filing that it is nearing the completion of the rescue deal for Credit Suisse.

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At the same time, UBS also said it would gain as much as $34.8 billion as it bought Credit Suisse for a fraction of its book value.

Swiss Government-Brokered Deal

The Swiss government brokered the deal in March after having come to the realization that it was not possible to restore confidence in the aftermath of unprecedented liquidity outflows and market volatility caused by the Credit Suisse crisis.

As per the deal, the 167-year-old Credit Suisse was acquired by UBS for 3 billion Swiss francs ($3.23 billion). UBS would also take over as much as $5.4 billion losses run up by the failed bank. Credit Suisse shareholders would get 1 UBS share for every 22.48 Credit Suisse shares under the deal. The deal will be completed by the end of the year.

Liquidity Assistance

The Swiss National Bank (SNB) offered to give liquidity assistance to UBS to complete the transaction. According to the Swiss central bank, the takeover deal includes $108 billion (100 billion Swiss francs) in liquidity assistance for UBS and Credit Suisse.

On Wednesday, UBS said the estimates of the financial impact from the acquisition of Credit Suisse was preliminary. "The financial information lacks an estimate of restructuring provisions as these will be booked after the transaction closes," analyst Andreas Venditti said, according to Reuters.

Overall, the costs of the takeover, including restructuring costs, litigation costs and impact from the closing of non-core units could amount to $28 billion, according to Jeffrey's analysts.

Timeline of Credit Suisse Crisis

The first major shock for Credit Suisse was the bankruptcy of Greensill, a British supply chain company to which the Swiss banking major was heavily exposed. When Greensill filed for bankruptcy in 2021, Credit Suisse lost a whopping $10 billion of its investor money.

The second crisis to hit Credit Suisse later in the same year was the unraveling of Archegos Capital Management, which was promoted by Bill Hwang. While Hwang managed $10 billion, he convinced Credit Suisse and other banks to approve a $30 billion investment.

Credit Suisse Wikimedia Commons

The crisis unfolded when Archegos engaged in the fire sale of about $20 billion of assets after it defaulted on a margin call by Credit Suisse and others. Shares of Nomura and Credit Suisse plunged, erasing a combined $9 billion in market value on the back of the market chaos following the collapse of Archegos Capital Management. Major investment banks like Deutsche Bank, UBS, Morgan Stanley, Goldman Sachs etc were also hit by the liquidation of Archegos.