As it prepares to rescue Credit Suisse Group AG (CSGN.S), UBS Group AG (UBSG.S) indicated in a presentation early on Wednesday that the buyout will cost it $17 billion.
Fair value adjustments of the combined group’s assets and liabilities cost UBS $13 billion. In addition, outflows might cost $4 billion in litigation and regulation.
UBS calculated it would register a $34.8 billion one-time gain on “negative goodwill” by buying Credit Suisse for a fraction of its book value.
If UBS completes the sale next month, the financial buffer might enhance the lender’s second-quarter profit.
UBS warned the predictions were preliminary and could change significantly.
After that, the bank may book restructuring provisions but did not provide numbers.
Jefferies analysts predicted $28 billion in restructuring, litigation, and non-core unit winddown expenses. UBS restricted Credit Suisse during the takeover.
According to a UBS filing, Credit Suisse cannot lend investment grade borrowers more than 100 million Swiss francs ($113 million) or non-investment grade debtors more than 50 million francs.
Credit Suisse cannot spend over 10 million francs on capital expenditure or sign contracts over 3 million francs yearly.
The document says Credit Suisse cannot impose “material amendments” to employee terms and conditions, including salary and pension benefits, until the deal close.
In a weekend shotgun merger arranged by Swiss authorities amid global financial instability, UBS agreed in March to buy Credit Suisse for 3 billion Swiss francs ($3.4 billion) in stock and to accept up to 5 billion francs in losses from winding down part of the business.
The first global bank bailout since the 2008 financial crisis will establish a wealth manager with $5 trillion in assets and 120,000 staff.
The Swiss government is funding the purchase with up to 250 billion francs.
Switzerland’s government guarantees up to 9 billion francs for further losses on a specific Credit Suisse portfolio component.
After years of scandals and losses, Credit Suisse, 167 years old, nearly collapsed amid the banking industry turbulence. UBS projected no snappy comeback.
It expects the Credit Suisse group and its investment bank to incur large pre-tax losses in the second quarter of this year.
Last Monday, UBS stated it would operate two parent companies, UBS AG and Credit Suisse AG, after the acquisition closes. It estimates three to four years for integration.
Each institution will maintain subsidiaries, branches, clients, and counterparties during that time.
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