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UBS Group (UBS) Notes Likely Losses, Gains From Credit Suisse Deal
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As UBS Group AG (UBS - Free Report) prepares to complete its shotgun takeover of Credit Suisse this month, the company has hinted at potential costs and benefits amounting to billions of dollars in a regulatory presentation.
Particularly, UBS projects a negative impact of $13 billion on its shareholders’ equity from fair value adjustments of the combined group's financial assets and liabilities. Further, it has kept aside $4 billion for potential litigation and regulatory costs stemming from outflows. Credit Suisse’s $17 billion AT1 bonds were written down as part of emergency liquidity assistance. This may result in significant litigation against Credit Suisse and UBS. Hence, the provision for litigation expenses seems apt.
This, along with other asset write-downs, switch in accounting standards and other factors, will bring an impact of $28.3 billion to its shareholders’ equity.
This will be offset by a $17.1-billion benefit from the AT1 bond write-downs and other factors.
Negative goodwill is recorded when a company acquires assets for less than its worth. Since UBS acquired Credit Suisse for a fraction of its book value, UBS estimates booking a one-time gain for negative goodwill of $34.8 billion.
UBS also imposed numerous restrictions on Credit Suisse, including lending and spending limits, and restrictions on the size of certain contracts the latter can enter into.
UBS announced an all-share deal to acquire its troubled rival Credit Suisse in government-backed efforts to fend off panic in the global banking system in March 2023. With the buyout, the combined entity will have more than $5 trillion in total invested assets. The acquisition also fortifies UBS Group AG’s position as a preeminent global wealth manager with more than $3.4 billion in wealth management assets. The combined entity will have invested asset management assets of more than $1.5 trillion.
Under the terms of the transaction, Credit Suisse shareholders will receive 1 UBS Group AG share for every 22.48 Credit Suisse shares held, with the exchange ratio indicating a total price consideration of CHF 3 billion (or $3.2 billion).
When the deal was announced. It was expected to generate an annual run-rate of cost reductions of more than $8 billion by 2027. UBS Group AG also expects the transaction to be accretive to EPS by 2027 and the bank to remain well-capitalized above its 13% target.
UBS Group’s shares have gained 14.5% on the NYSE over the past six months compared with the industry’s rise of 0.2%.
Image Source: Zacks Investment Research
UBS carries a Zacks Rank #5 (Strong Sell) at present.
Earlier this month, shareholders of Washington Federal, Inc. (WAFD - Free Report) and Luther Burbank Corporation approved the merger agreement between the two. The all-stock deal, announced in November 2022, is subject to regulatory approvals and customary closing conditions.
Under the terms of the transaction, Luther Burbank shareholders will receive 0.3353 shares of Washington Federal common stock for each share of LBC common stock they hold.
At the time of announcing the transaction, Washington Federal had noted that the deal would likely be 7.9% accretive to its earnings per share in fiscal 2024. Also, capital ratios, including the leverage ratio and CET 1 ratio, will continue to be at a robust level on a pro-forma basis at closure.
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UBS Group (UBS) Notes Likely Losses, Gains From Credit Suisse Deal
As UBS Group AG (UBS - Free Report) prepares to complete its shotgun takeover of Credit Suisse this month, the company has hinted at potential costs and benefits amounting to billions of dollars in a regulatory presentation.
Particularly, UBS projects a negative impact of $13 billion on its shareholders’ equity from fair value adjustments of the combined group's financial assets and liabilities. Further, it has kept aside $4 billion for potential litigation and regulatory costs stemming from outflows. Credit Suisse’s $17 billion AT1 bonds were written down as part of emergency liquidity assistance. This may result in significant litigation against Credit Suisse and UBS. Hence, the provision for litigation expenses seems apt.
This, along with other asset write-downs, switch in accounting standards and other factors, will bring an impact of $28.3 billion to its shareholders’ equity.
This will be offset by a $17.1-billion benefit from the AT1 bond write-downs and other factors.
Negative goodwill is recorded when a company acquires assets for less than its worth. Since UBS acquired Credit Suisse for a fraction of its book value, UBS estimates booking a one-time gain for negative goodwill of $34.8 billion.
UBS also imposed numerous restrictions on Credit Suisse, including lending and spending limits, and restrictions on the size of certain contracts the latter can enter into.
UBS announced an all-share deal to acquire its troubled rival Credit Suisse in government-backed efforts to fend off panic in the global banking system in March 2023. With the buyout, the combined entity will have more than $5 trillion in total invested assets. The acquisition also fortifies UBS Group AG’s position as a preeminent global wealth manager with more than $3.4 billion in wealth management assets. The combined entity will have invested asset management assets of more than $1.5 trillion.
Under the terms of the transaction, Credit Suisse shareholders will receive 1 UBS Group AG share for every 22.48 Credit Suisse shares held, with the exchange ratio indicating a total price consideration of CHF 3 billion (or $3.2 billion).
When the deal was announced. It was expected to generate an annual run-rate of cost reductions of more than $8 billion by 2027. UBS Group AG also expects the transaction to be accretive to EPS by 2027 and the bank to remain well-capitalized above its 13% target.
UBS Group’s shares have gained 14.5% on the NYSE over the past six months compared with the industry’s rise of 0.2%.
Image Source: Zacks Investment Research
UBS carries a Zacks Rank #5 (Strong Sell) at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Inorganic Moves by Other Banks
Earlier this month, shareholders of Washington Federal, Inc. (WAFD - Free Report) and Luther Burbank Corporation approved the merger agreement between the two. The all-stock deal, announced in November 2022, is subject to regulatory approvals and customary closing conditions.
Under the terms of the transaction, Luther Burbank shareholders will receive 0.3353 shares of Washington Federal common stock for each share of LBC common stock they hold.
At the time of announcing the transaction, Washington Federal had noted that the deal would likely be 7.9% accretive to its earnings per share in fiscal 2024. Also, capital ratios, including the leverage ratio and CET 1 ratio, will continue to be at a robust level on a pro-forma basis at closure.