UBS, the Swiss banking giant, revealed that it expects to take a financial hit of around $17 billion due to its emergency acquisition of Credit Suisse over the course of a weekend in March. The bank stated that the rushed deal may have affected its due diligence process. However, UBS also anticipates offsetting this impact by booking a one-off gain of $34.8 billion from "negative goodwill," which refers to acquiring assets at significantly lower costs than their true worth.
Swiss authorities approached UBS on March 15 with an offer to purchase its struggling domestic competitor for 3 billion Swiss francs ($3.4 billion) as an effort to stabilize markets and prevent potential contagion within the financial system. UBS had until March 19 to conduct due diligence and make its decision.
To protect UBS from some risks associated with acquiring Credit Suisse, Swiss authorities provided backstops for the deal. Consequently, UBS has allocated $4 billion toward potential legal and regulatory expenses related to this acquisition - including covering negative goodwill costs totaling $34.8 billion and liabilities amounting to $3.1 billion.
UBS will also undergo various fair-value changes in accounting as it incorporates credit Suiss's assets and liabilities into its own bookkeeping records.
The merger agreement between both banks was announced on March 19 following a steep decline in value for Credit SuISS before being taken over by UBS; net asset outflows reached up to $123 billion following massive customer withdrawals.
Despite facing a cost burden estimated at nearly$17bn resulting from this rescue takeover, UBS remains optimistic about gaining almost £28bn ($35bn) after merging with Credit Suisse; however, additional expenses could reach close to $4bn concerning litigation cases plus other regulatory matters surrounding acquired liabilities post-takeover. Since the merger, UBS's shares have experienced pressure. Concerned investors urged the Swiss lender last month to avoid implementing drastic job cuts and inflating executive pay.
UBS acknowledged that it was pressured into purchasing its ailing rival Credit Suisse for more than initially bargained due to "emergency circumstances" surrounding the merger. As a result, the bank warned investors about potentially losing billions in legal and regulatory expenses from this rushed deal.
The Swiss bank released new details regarding the likely impact of this merger on its accounting books while emphasizing that these figures are only estimates subject to change as things settle down post-merger. It has set aside approximately $4 billion against possible legal risks and regulatory costs linked with acquiring Credit Suiss; losses are estimated at around $13 billion when writing down assets.
This emergency acquisition was announced in March amidst growing concerns over Credit SuISS (a 167-year-old institution) verging towards failure and being considered by many as too big to fail.