Credit Suisse Takeover Could Results in $35 Billion Gain for UBS
Following an investigation by UBS Group AG into the financials of Credit Suisse Group AG, positive results were discovered, thereby easing concerns about the possibility of incurring losses. UBS expects a $35 billion day-one profit from the rescue takeover, and its core capital ratio is healthy.
Swiss regulators will also decide if UBS needs more capital for the risky integration. The Swiss government and regulators influenced UBS’s acquisition of Credit Suisse, so they may be more lenient in assessing these risks than in a typical takeover.
Moreover, a potential beneficiary in the current circumstances faces legal and regulatory expenses amounting to multiple billion dollars. This risk is the result of the concerns expressed by a former competitor of UBS, which is currently in the process of shifting to a new ownership structure.
The Swiss bank stands to gain from the combined firms’ negative goodwill. Although the information on which this forecast is based is current as of the end of 2022, it has not yet materialized into an objective financial reality. UBS estimates that the total amount spent on lawsuits, government investigations, and other related matters could reach $4 billion. The bank estimates that it will be obligated to make this payment in the next calendar year.
UBS assumed “negative goodwill” from the acquisition
UBS has acquired Credit Suisse for approximately $3.3 billion, despite Credit Suisse’s value being nearly $50 billion as of the end of 2022. The equity value is only $11 billion lower after taking into account losses on Credit Suisse assets, litigation provisions, and other items, as well as the gain from writing off the junior bonds.
UBS reported the acquisition would result in “negative goodwill” in a filing with the US Securities and Exchange Commission, which indicates a gain for the buyer due to the purchase price being significantly lower than the company’s fair market value.
UBS came to an agreement in March to purchase Credit Suisse for $3.25 billion in a deal that had been hastily arranged. This agreement came as a result of pressure from Swiss authorities, who were concerned about the possibility of Credit Suisse going bankrupt.
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