To dispose of unwanted Credit Suisse non-core assets, UBS will bear the potential losses of the first batch of CHF 5 billion, and the Swiss government will provide a safety net for up to an additional CHF 9 billion (nearly USD 10 billion) in losses to pave the way for the completion of the acquisition. The newly created banking giant's balance sheet is worth USD 1.6 trillion, twice the size of the Swiss economy. The UBS chairman refused to disclose the scale of layoffs after the acquisition is completed, only saying that painful decisions will be made in the coming months.
On Friday, June 9th, Sergio Ermotti, CEO of UBS, Switzerland's largest bank, hinted at the Swiss Economic Forum that the acquisition of competitor Credit Suisse Grp will be finalized on Monday, June 12th, making it the largest banking transaction since the 2008 global financial crisis.
This also aligns with UBS's earliest timetable given earlier this week. Ermotti said, "Starting next Monday, we will be new colleagues, working together to define the right corporate culture for the company and each employee."
The event that cleared the "main roadblock" for the acquisition was the signing of a guarantee agreement between UBS and the Swiss government on Friday to handle unwanted Credit Suisse assets that may result in losses.
The agreement stipulates that UBS will bear the first CHF 5 billion in losses when selling and gradually closing specific Credit Suisse assets, and the Swiss government will bear up to CHF 9 billion (approximately USD 9.98 billion) in subsequent losses.
The assets covered by the agreement mainly include loans, derivatives, legacy assets, and structured products in Credit Suisse's non-core departments, with an asset size of approximately CHF 44 billion, equivalent to about 3% of the total assets of the merged group.
The Swiss government stated that the net amount method will be used to calculate the relevant losses, which will also consider any profits from the above special investment portfolio. The "primary task" of the government and UBS is to minimize losses when handling assets and avoid using the above loss guarantees as much as possible. UBS management has also stated that it will do everything possible to avoid Swiss taxpayers bearing the cost of acquiring Credit Suisse.
Andreas Venditti, an analyst at asset management institution Vontobel, estimates that the final asset disposal loss may be at the low end of the CHF 5 billion to CHF 10 billion range, which may indicate that UBS does not need to use the government guarantee agreement and can bear the loss on its own without using taxpayers' money. There are also insiders who said that UBS was able to carefully review Credit Suisse's accounts and was confident that the guaranteed amount agreed with the government was sufficient.
The Swiss government stated that the above loss guarantee agreement will remain in effect after UBS completes the acquisition of Credit Suisse until all relevant Credit Suisse assets are fully realized or closed. As a condition, Credit Suisse must keep its headquarters in Switzerland, pay an initial setup fee of CHF 40 million for government guarantee tools, and pay an annual fee of 0.4% for CHF 9 billion. The government will have a certain say in the management of the assets.
At the same time, UBS has about three months to provide a business plan proposal to the government, explaining how to reduce the asset portfolio covered by the guarantee agreement and the expected net loss amount, including financial forecasts, capital plans with risk-weighted assets, and other content.
Both parties also have 90 days to evaluate whether to add or remove certain asset items. After that, if UBS believes that retaining certain assets will create more value, it can also apply to remove these assets from the guarantee agreement, and the Swiss government must agree.
UBS will also receive some regulatory benefits, such as being temporarily allowed to use some of the regulatory provisions originally applicable to Credit Suisse, and retaining its existing liquidity rules. It will be able to continue using the current method of calculating risk-weighted assets until the Swiss government proposes higher capital requirements for the enlarged bank after the acquisition, giving UBS a grace period of more than two years until early 2026. After the completion of the merger, the newly created Swiss financial giant's balance sheet will reach $1.6 trillion, about twice the size of the Swiss economy, with assets totaling $5 trillion. UBS has acquired Credit Suisse's retail banking business, known as the "crown jewel," saving a lot of duplicate construction costs and strengthening UBS's position as a global wealth management institution. The Swiss government said that the estimated loss figure will be announced in the third quarter of this year, and the scale of the loss "largely depends on the actual reduction of relevant assets and market development." Therefore, it is currently impossible to estimate the possibility of using the guarantee agreement and the amount involved.
UBS CEO Elmoti said on Friday that the next few months will be "bumpy" as the integration of Credit Suisse's business begins, and painful decisions may be made. "We must be clear that this is an acquisition, not a merger." But he refused to comment on the potential scale of layoffs, and the global employees of the new group may be as high as 120,000.
After the acquisition is completed, Credit Suisse Grp's European and American depositary receipts (ADS) will be delisted from the Swiss Stock Exchange and the New York Stock Exchange. According to the full stock acquisition agreement, Credit Suisse shareholders will receive one UBS share for every 22.48 shares held.
Earlier, there were reports that UBS was considering postponing its quarterly financial report until the end of August to deal with the complex situation brought about by the acquisition of Credit Suisse. Some people also called on UBS to keep Credit Suisse's Swiss local business as an independent entity, while ensuring a competitive atmosphere and preserving the latter's 167-year history.
However, UBS management said last week that the bank is still analyzing the situation, and the "basic assumption scenario" is still to fully integrate Credit Suisse with UBS, and decisions will not be influenced by "nostalgia." In May, UBS reorganized its management team, and Credit Suisse's CEO will join the executive board. UBS's US stocks fell the most on Friday, down 0.5%, and then halved, while European stocks fell 0.3%. Credit Suisse's European stocks fell 0.4%, and US stocks rose nearly 1%.