UBS Group AG expects to make a profit of about $34.8 billion following the emergency takeover of Credit Suisse Group AG.
Source: Pixabay.com
At the same time, a potential beneficiary in the current situation faces legal and regulatory costs of several billion dollars. This risk arose due to the fears of a former competitor of UBS, which is at the stage of transition to a new ownership structure.
The Swiss bank will benefit from the negative goodwill of the combined firms. This forecast, which has not yet become an objective financial reality, is based on data relevant as of the end of last year. UBS also believes that the costs associated with litigation, regulatory issues, and related circumstances may amount to up to $4 billion. The Bank suggests that it will have to pay this amount within 12 months.
At the same time, representatives of the financial institution stated that the forecast of financial costs associated with the circumstances of the takeover of a competitor in a difficult situation is based on the most positive scenario of the development of events, and with a high degree of probability may change in the future.
UBS agreed to acquire Credit Suisse this year as part of an emergency sale that was approved by the Swiss government. The authorities made a positive decision regarding the takeover, fearing the bankruptcy of the troubled lender.
Analysts suggest that Credit Suisse’s local business, Swiss Universal Bank, is very likely worth much more than the amount that UBS will pay in the purchase process.
Experts say that UBS’s profit from negative goodwill will be interpreted by investors as a quirk of accounting, and not as a sign of the strength of the underlying business. The management of the financial institution, realizing how much income can be perceived in Switzerland, hastened to declare the risks that the bank faces as part of the takeover.
UBS receives a $9 billion government guarantee. The financial institution will be able to spend these funds to cover a certain part of the losses associated with the purchase of Credit Suisse. Sergio Ermotti, Chief executive Officer of UBS, said last week that there was a minimal level of probability that the government would suffer financial losses.
The bank’s employees are currently actively involved in the due diligence process of the acquired competitor. UBS was unable to conduct a months-long audit of the lender’s accounting statements. Insiders report that a financial institution evaluates a competitor’s client lists and determines the level of efficiency of business lines.
Credit Suisse has had many legal processes, which can become a serious problem for UBS, entailing significant financial costs. These problems are related to many aspects of the bank’s activities, which appeared on the verge of bankruptcy, including a criminal conviction for facilitating the laundering of money belonging to a drug dealer from Bulgaria, and compensation in the amount of $ 500 million as a result of the corruption scandal in the fishing fleet in Mozambique.
As we have reported earlier, UBS expands cloud partnership with Microsoft.
