UBS details less than estimated $35bn profit from Credit Suisse rescue

UBS said it expected an accounting gain of $35 billion as a result of the state-brokered rescue of Credit Suisse, which was below some forecasts, and separately disclosed $17 billion in asset writedown and litigation provisions.

In a US regulatory filing on Wednesday, the Swiss lender, for the first time, detailed its initial estimates for the financial impact of the merger – the biggest bank deal since the financial crisis that is expected to take up to four years to finalize . for its complexity.

UBS said it should make an accounting gain of $34.8 billion on the transaction, as it acquired its rival for a fraction of the book value of its assets. The so-called “negative goodwill” is calculated by subtracting the $3.5bn acquisition price from the approximately $38bn fair value of net assets.

This is less than the theoretical $57bn gain that could have been booked due to a number of factors including changes in the fair market value of assets, pension liabilities and adjustments made as the two lenders used different accounting standards.

KBW analyst Thomas Hallett said lower-than-expected equity and capital gains “canceled out elements of the bull case in our view and further supports our more cautious stance on UBS”. “With the many unknowns and potential risks to work through, we believe investors are better off sitting on the sidelines until visibility improves.”

“The release is a reminder of how much accounting noise will be present at UBS for most of the next decade — the mess will last for many years,” he said.

Nevertheless, the negative goodwill will provide a paper profit for UBS that can be used to offset various transaction losses and integration costs. Controversially, the Swiss government and regulator FINMA have also paved the way for the bank to write down an additional $17.1bn in tier one bonds – debt instruments that can be converted into equity – which has provoked investor lawsuits.

In the filing, UBS said it would reduce Credit Suisse’s assets by $13bn, set aside $4bn to cover regulatory and litigation matters and flagged that an additional There will be a restructuring charge.

The main assets to be written off are Swiss mortgages and business assets, particularly those from investment banking businesses that UBS plans to exit.

Anke Renzen, an analyst with RBC Capital Markets, said her calculations projected a higher common equity Tier 1 level of 15.4 percent, compared with the 14.2 percent disclosed by UBS on Wednesday.

The stock was little changed after release.

After years of scandals and losses, the Swiss establishment stepped in to save its ailing rival UBS in March after hundreds of billions of customer withdrawals threatened to topple Credit Suisse. The state provided more than SFr250bn ($278bn) of public money and a SFr5bn loss guarantee to sweeten the deal for UBS.

The filing revealed other details about the merger. UBS saved roughly $400mn by canceling the Credit Suisse staff bonus plan which was linked to AT1 bonds. It has also banned Credit Suisse from issuing new credit lines of more than SFr100mn to investment grade companies and SFr50mn to junk borrowers.

UBS expects a $1 billion gain on Credit Suisse’s global real estate portfolio, but this will be more than offset by a $2 billion loss on its capitalized software assets.