Purchase of Swiss bank to cost UBS $17b more

The $3.25-billion takeover of Credit Suisse by UBS on March 19 will end up costing UBS an additional $17 billion, the lender claimed in a filing with the United States Securities and Exchange Commission, or SEC.

The takeover, which was agreed during a frantic weekend of negotiations involving the Swiss government, was completed too fast, UBS said, with the purchase price far from the end of the story.

UBS said $13 billion of the additional costs will be down to fair-value adjustments, and $4 billion will be because of potential litigation and regulatory costs.

The multinational investment bank and financial services company, which had been considering a merger with Credit Suisse in the months before its sudden takeover, claimed it ended up being rushed into a decision on taking over its rival, which was also founded and based in Switzerland.

The business-focused newspaper City A.M. said UBS executives warned prior to the deal it would impose significant costs. Managers presented an assessment of the idea in December, after social media rumors about Credit Suisse being in trouble triggered a withdrawal of assets. But UBS's strategy committee concluded in February a takeover was "not desirable".

UBS told the SEC on Wednesday it ended up having less than four days to reconsider and conduct due diligence because of the "emergency circumstances" of Credit Suisse's collapse.

However, despite the deal's downside, UBS told the SEC it will likely book a significant theoretical one-off gain of almost $35 billion in the second quarter, because of the difference between the purchase price and the book value of Credit Suisse's assets. The paper said the $3.25 billion UBS paid for Credit Suisse was less than half its already significantly diminished market value.

The Guardian newspaper said the theoretical gain would be one of the largest ever by a bank in a single quarter.

Susannah Streeter, the head of money and markets at financial services company Hargreaves Lansdown, told the paper: "The extent to which UBS was a reluctant partner in the deal to buy Credit Suisse has become clear. The Swiss bank has had to absorb a painful loss after being rushed into taking over its beleaguered rival. It is a heavy cost to bear, and has been partly put down to the lack of time it was able to complete due diligence and assess the web of problems at Credit Suisse."

Shares in UBS remained flat in trading after the filing with the SEC.

The Financial Times noted UBS investors have urged the lender to avoid making sweeping job cuts because of the takeover, and to resist inflating executive pay.

The FT said the complexity of the takeover means it will likely take four years to complete.