UBS’s Credit Suisse Acquisition Makes for Massive Profit

UBS’s forced marriage with Credit Suisse has produced a shockingly large dowry.

Roughly five months after somewhat begrudgingly agreeing to acquire its rival Credit Suisse to slow the spread of banking’s liquidity crisis, Swiss banking giant UBS reported a $29 billion profit in its most recent quarter. That’s good for the largest quarterly net profit of any major bank, ever.

Negative Goodwill Hunting

Flashback to March: The banking sector teetered on the verge of a full-scale meltdown due to an initial liquidity crisis at Silicon Valley Bank, and analysts quickly identified Credit Suisse as another domino ready to topple. In 2022, the scandal-plagued Swiss bank was already witnessing a freefall in both deposits and total assets as wealthy clients fled. Its liquidity coverage ratio plummeted to a daily average around 140% in last year’s Q4 — perilously close to the legal minimum of 100%. As the liquidity crisis gained steam this spring, CS’s already-antsy client base began withdrawing roughly $10 billion a day, sources told The Wall Street Journal.

UBS was not exactly eager to bail out its troubled peer. But it eventually ponied up $3.4 billion for Credit Suisse — a price tag less than half its traded market value — after the Swiss government offered $9 billion to backstop some losses it may incur in the acquisition, and after the Swiss National Bank offered roughly $100 billion in liquidity to facilitate the takeover.

A fiscal quarter later, it’s clear the juice was worth the squeeze — even if UBS doesn’t exactly have big plans for little brother:

• The $29 billion windfall effectively represents the difference between the value of Credit Suisse’s assets and the discount value that UBS paid for it, or what’s known as negative goodwill. Some analysts, according to the Financial Times, actually expected an even bigger gain of $33 billion.
• In fact, Credit Suisse still recorded a $10.6 billion quarterly loss in the most recent quarter for UBS, though that was offset some by $16 billion in net new assets for UBS stemming from its core wealth management business.

Future Focused: UBS says a full integration of the two banks won’t be completed until the end of 2026, and it remains unclear if Credit Suisse will continue as a global brand after that. The beefed-up bank — with total assets now over $5 trillion — is gearing up for a slimdown. UBS is planning to slash its 120,000-person global workforce by as much as 30%, Bloomberg reported. You know, marriage isn’t for everyone.