UBS Sees Multibillion Gain on CS Deal, Warns of Legal Costs

UBS Group AG, offering more clues to investors on how its emergency takeover of Credit Suisse Group AG will translate into near-term profits, projected a massive accounting gain from the merger — as well as billions in potential legal and regulatory costs.

(Bloomberg) — UBS Group AG, offering more clues to investors on how its emergency takeover of Credit Suisse Group AG will translate into near-term profits, projected a massive accounting gain from the merger — as well as billions in potential legal and regulatory costs.

The acquirer estimates that the combined firms’ “negative goodwill” — an accounting quirk that’s expected to boost UBS’s reported profit this quarter — amounted to $34.8 billion as of the end of 2022, according to a regulatory filing posted overnight in Switzerland. The figure is preliminary and could change.

Read more: UBS gears up for record-breaking gain once Credit Suisse closes

But the merger will also raise UBS’s legal expenses, the Zurich-based company said. It estimates litigation, regulatory matters and related liabilities may take a bite of as much as $4 billion out of capital over 12 months.

UBS agreed to take over Credit Suisse this year in an emergency sale backed by the Swiss government, amid fears that the smaller troubled competitor was hurtling toward bankruptcy. Analysts have pointed out that Credit Suisse’s local business, the Swiss Universal Bank, is probably worth multiple times what UBS paid for the company.

Still, if UBS reports a windfall from negative goodwill in the second quarter, many investors will view it as an accounting quirk rather than a sign of strength of the underlying business. And executives, aware that a paper windfall could prove unpopular in Switzerland, have been quick to point out the risks they’re taking on in an integration that may take several years.

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