UBS Group AG said on Wednesday it expected a financial hit of about $17 billion from its acquisition of Credit Suisse Group AG as it prepares to complete its Swiss rival’s bailout.
UBS noted that it estimates a negative impact of $13 billion from fair value adjustments to the assets and liabilities of the combined group. It also sees $4 billion in regulatory costs stemming from potential litigation and exits.
However, the entity also estimated it would record a one-time gain from so-called “negative goodwill” of $34.8 billion by purchasing Credit Suisse for a fraction of its book value.
The financial cushion will help absorb potential losses and could boost the lender’s second-quarter profit if UBS closes the transaction next month as planned.
UBS said the estimates were preliminary and the figures could later change. The bank also noted that it may record restructuring provisions in future, but did not provide figures.
UBS agreed in March to buy Credit Suisse for 3 billion Swiss francs ($3.4 billion) in shares and take on losses of up to 5 billion francs that would result from the liquidation of part of the business in a merger accelerated by Swiss authorities. A weekend in the midst of global banking turmoil.
The operation, the first bank bailout since the 2008 financial crisis, will create a wealth manager with more than $5 trillion in invested assets and more than 120,000 employees worldwide.
The Swiss state is supporting the operation with up to 250 billion Swiss francs in public funds.
The Swiss government provides guarantees of up to 9 billion francs for potential further losses on a clearly defined portion of Credit Suisse’s portfolio.
Credit Suisse faces certain restrictions on its ability to trade until the acquisition by UBS is completed, according to a regulatory filing on Tuesday.
Following the legal closing of the transaction, UBS Group AG will form two separate parent companies: UBS AG and Credit Suisse AG, UBS said last week. The integration process could last between three and four years.
During that time, each institution will continue to have its own subsidiaries and branches, which will serve its customers and deal with counterparties.
