UBS rushed to rescue Credit Suisse with unclear risks.

UBS Takes on Credit Suisse in a Rushed Rescue

What Happened?

Switzerland’s largest bank, UBS, was pushed by regulators to take over its struggling rival, Credit Suisse, in a rushed rescue to prevent a systemic meltdown. UBS had just four days to conduct a limited but “intensive” due diligence before agreeing to purchase the collapsing bank in March. The rushed due diligence means that the picture of the impact of the rescue deal on UBS, including its value and share price, is encumbered by an added layer of risk.

The Risks Involved

The “emergency circumstances” under which UBS carried out its rushed due diligence may have impacted its ability to fully evaluate Credit Suisse’s assets and liabilities. “It is possible that UBS Group AG will have agreed to a rescue that is considerably more difficult and risky than it had contemplated,” it said. However, a deeper dive into the numbers disclosed by UBS in the filing suggests that the deal may end up being sweeter than rushed due diligence might suggest.

A Sweet Deal?

As can be expected in a complex resolution of a big financial institution like Credit Suisse, there is a mix of costs and benefits to the party that purchases its assets and assumes its liabilities. UBS currently expects that the transaction will result in a number of benefits, including that it will ultimately be accretive to UBS Group AG’s earnings per share. However, it cautioned that “this projection is based on limited information and is subject to significant uncertainty and risk.”

The Bottom Line

While the rushed rescue of Credit Suisse may have added an extra layer of risk to UBS, the benefits of the deal may outweigh the costs. Only time will tell if UBS made the right decision in taking on its beleaguered rival.

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