Swiss Government Forces UBS to Merge With Credit Suisse, Shareholders Have 0% Say So - UBS Combined Assets to Around $5 Trillion
The merger was forced by the Swiss government and shareholders had no say
Full Original Audio Source: UBS audio website feed
TL;DR: Too Long Didn’t List of Main Points
The Swiss government has exercised its emergency powers to facilitate a swift consummation of this merger which will occur without the necessity of resolutions passed by the shareholders at a general meeting.
It's an all-stock transaction and an exchange rate of around 22 Credit Suisse shares for one UBS share.
UBS announces the acquisition from a position of strength and expects expedited approvals to close the deal as soon as possible.
The Credit Suisse merger will result in nearly 3.5 trillion of invested assets on a pro forma basis, with the asset management side being 1.5 trillion on a performance basis.
UBS has obtained at least 24 billion in protection to support marks, purchase price adjustments and restructuring costs. The protection includes FINMA's write-down of credit suite's 15 billion of 81-stray instruments and an additional 9 billion in loss protection from the Swiss authorities in case of potential losses beyond 5 billion, which would be incurred by UBS.
Any further potential P&L will be incurred equally by UBS and the Swiss authorities.
The combined entity will become the third largest European asset manager and will have a better spread across regions.
UBS will pause its share repurchase program and the transaction is strategic and delivers sustainable value for shareholders.
The cost-cutting plan is 8 billion by 2027, with 6 billion coming from FTEs and 2 billion from IT systems.
There are no material adverse condition clauses for the deal, and the use of badwill is not restricted in restarting the buyback.
The real challenge is the rundown of investment banking activities, and there is no particular run multiple for IT system costs.
There is no recovery for Credit Suisse's long-term debt, and a material discount on liabilities is possible when integrated into the balance sheet.
The restructuring charge is envisaged to be close to the 8 billion, and the protection from the Swiss authorities is a standard ELAB facility.
The transaction helps support UBS's original organic plans and accelerates some elements of their strategy.
The cost savings of 8 billion will come from FTEs and IT systems, and the labor laws in different countries will affect how much can be realized in the next few years.
The C81 ratio and LCR requirements will be higher given the larger size of the combined entity.
UBS Announces Credit Suisse Merger and Projections for Combined Entity's Assets and Growth
UBS has announced its acquisition of Credit Suisse, a move that will make Credit Suisse the third largest European asset manager if the merger is approved.
The combined entity will have a better spread across regions and is expected to deliver sustainable value for shareholders.
The announcement comes from a position of strength for UBS, as the inflows during the recent market turmoil demonstrate their status as a safe haven.
The deal is subject to approvals, but UBS expects them to be expedited to close the deal as soon as possible. The cost-cutting plan for the merger is set at 8 billion by 2027, and the pro forma core tier one is expected to be equitable before the restructuring costs are factored in.
The use of badwill is not restricted, and the target levels for the combined entity will apply.
The real challenge will be the rundown of investment banking activities, which was already a challenge for Credit Suisse and will also be for UBS. The default tax assets were thoroughly evaluated during the due diligence process.
The question of Credit Suisse's long-term debt fair value is a pertinent one. The current estimate of 8 billion is based on the stated cost rather than the adjusted cost. In the event of no recovery, a significant discount on these liabilities may be necessary when integrating them into the balance sheet.
The restructuring charge is expected to be close to the 8 billion mark, although it could be materially less. The protection provided by the Swiss authorities is a crucial factor to consider. Additionally, the benefit from RWA relief related to the protection is noteworthy.
The cost to achieve the 8 billion includes 6 billion in staff reductions and 2 billion in IT system upgrades.
The guarantees are structured in a standard ELAB facility, with a first loss tranche of 5 billion and a second loss tranche of 9 billion.
While the preference is that the facilities are not drawn, the inorganic move supports the original plans of the company's organic strategy.
The cost savings of 8 billion will be achieved through a reduction in FTEs, and the company operates in countries that flex labor laws. It is expected that the cost savings will be realized in the next two to three years.
As a larger entity, Credit Suisse's C81 ratio and LCR requirements will be higher, and the transition period will be extensive. Overall, the transaction presents different elements that need to be considered carefully.
The Actual Audio Transcriptions Summarized
UBS, the Swiss multinational investment bank, has announced its acquisition of Credit Suisse amidst global regulators' urging for the takeover to preserve financial stability. UBS's organic growth strategy had been its focus, but previous events led to this decision. The Swiss government's emergency powers enabled a swift consummation of the merger without the necessity of shareholders' general meeting resolutions. While the share repurchase program has been temporarily suspended, UBS's progressive dividend policy remains intact. The acquisition will strengthen UBS's position in asset gathering by adding scale in wealth and asset management, extending its position as the leading universal bank in Switzerland. UBS will de-risk and downsize Credit Suisse's trading operations, which will be managed in a separate non-core division. The transaction is financially attractive for UBS shareholders and protects them from additional downside while securing financial stability for all stakeholders.
UBS and Credit Suisse are joining forces to create a wealth management powerhouse. The combined company will be the largest wealth manager in the world, with CHF 3.2tn ($3.4tn) in assets under management, and will create a market leader in Switzerland's personal and corporate banking sectors. It will also make it the third-largest European asset manager. The deal is expected to generate around $8bn in cost savings by 2027. UBS has said it will be "extremely selective" in the trading and derivative assets it takes into its investment bank, which will account for around 25% of group risk-weighted assets on a pro forma day one basis. The transaction is set to complete in Q4 2023, subject to regulatory approval.
UBS executives held a conference call to discuss the recent Credit Suisse deal, during which they outlined the process of combining the two banks. They said they feel very good about the strength of their combined platforms, but are still unsure of the size of the revenue synergies. They hope to release earnings per share before the 2020 target, but the non-core rundown and restructuring costs could impact this. UBS executives plan to run off the non-core assets as quickly as possible, but some of the positions are extremely long-dated and embedded in the systems, which is why they are being realistic and transparent. UBS wants to free up management resources and concentrate on what they are good at, and have extra protection to execute this in a rational way. They plan to keep a segment so that it is not intermingled, but will be run separately and reported transparently.
During a conference call, the CEO of UBS discussed the acquisition of Credit Suisse's US wealth management business. The deal was aimed at securing as much certainty of the deal and creating stability. Credit Suisse's wealth business is complementary to UBS's strength in Asia, where it is focusing on growth, and where Credit Suisse is strong in Southeast Asia. However, the main challenge will be the rundown of Credit Suisse's investment banking activities. UBS has committed to working on it and will refocus its investment bank to develop capabilities to the wealth franchise. The deal was done after an extended weekend, during which due diligence was done, including looking at Credit Suisse's deferred tax assets. In terms of numbers, UBS is planning an $8 billion cost reduction, which is based on the expenses of Credit Suisse. UBS did a whole purchase price analysis and considered at a granular level all of the adjustments that they would need to do, including the gap to IFRS.
The Q&A session related to the restructuring of a financial organization, and the protection provided by Swiss authorities. The first question asks about the non-core assets, and whether they are defined or still being worked on. The second question is about the impact of the protection on the RWA relief. The following questions ask about the cost of achieving restructuring, the protection of non-core assets, and the expected returns. Another question is on liquidity support, whether it will be necessary, and the drivers for such a need. Lastly, there is a question on asset disposal plans, if it's completely within the organization's choice or if there are competition requirements that could impact such plans.
UBS Group AG, the Swiss multinational investment bank, will acquire Credit Suisse Group AG's wealth management assets for $3.6 billion, with an additional $1 billion to cover integration costs. The acquisition will enable UBS to increase its market share in Switzerland, the US, and Asia, and support its organic strategy in wealth management. UBS expects the deal to generate cost savings of around $8 billion by 2027, primarily through the reduction of workforce, systems, and real estate. The acquisition will also help UBS expand its banking and investment banking activities in the US and develop its family and institutional wealth space.