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Accounting for the acquisition of Credit Suisse Group | 6 Months Ended
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Jun. 30, 2023
Disclosure Of Business Combinations [Line items] |
Accounting for the acquisition of Credit Suisse Group | Note 2 Accounting for the acquisition of Credit Suisse Group Acquisition of the Credit Suisse Group For information about the acquisition of the Credit Suisse Group refer to the “Management report” sections of this report, including the disclosures in the “Acquisition of Credit Suisse Group” section. As set out in Note 1, the acquisition of the Credit Suisse Group constitutes a business combination under IFRS 3 and is required to be accounted for by applying the acquisition method of accounting. As part of the acquisition method of accounting, the assets and liabilities of the Credit Suisse Group have been converted from US GAAP to IFRS. The most material conversion impact arose from the different derivative netting rules, resulting in an increase in Total assets of USD 70 bn, with no impact on Equity. Other conversion adjustments arose from the removal of the Swiss pension surplus and the different methods used to calculate expected credit losses. In addition, the financial assets and liabilities of the Credit Suisse Group have been remeasured to fair value as of the acquisition date, resulting in the provisional fair values disclosed on the following page, with fair value adjustments of USD 2.3 bn recognized on financial instruments that are classified at fair value through profit or loss and fair value adjustments of USD 12.4 bn recognized on financial instruments at amortized cost and off-balance sheet commitments and guarantees. In particular, material fair value adjustments have been made regarding the Credit Suisse Group lending portfolio, including mortgages and corporate lending, to bring the financial instruments from amortized cost to fair value. The fair value adjustments applied to amortized-cost financial instruments will generally accrete to par over their expected lives through Total revenues in the income statement if the instruments are continued to be held. Adjustments have also been made to other asset and liability categories with new intangible assets of USD 0.9 bn and USD 4.5 bn of additional litigation provisions and contingent liabilities recognized as detailed below. Furthermore, Credit Suisse Group goodwill has been derecognized, the fair value of internally generated software has been marked down considering how other market participants would value acquired software, and real estate held and leased has been revalued. Intangible assets Included in Intangible assets is a fair value of USD 0.9 bn for core deposits and customer relationship intangibles, which were recognized as part of the acquisition of the Credit Suisse Group. These assets were not previously recognized in the financial statements of the Credit Suisse Group. The core deposit intangible asset was valued using the after-tax cost savings method under the income approach. After-tax cost savings were estimated by comparing the cost of the existing deposits (including the cost of maintaining them) to the cost of obtaining alternative funds from a mix of diversified funding sources available to market participants. The intangible asset represents the present value of the after-tax cost savings expected to be realized over the remaining useful life of the deposits. The customer relationship intangible asset was valued using the multi-period excess earnings method (an income-based valuation methodology), by discounting estimated after-tax excess earnings attributable to existing customer relationships over their remaining useful lives. Both intangible asset valuations include assumptions consistent with how a market participant would estimate fair values, such as growth and attrition rates and projected fee and interest income, as well as related costs to service the relationships and deposits, and discount rates. Also included in Intangible assets are mortgage servicing rights (MSRs) of USD 0.4 bn, which represent the right to perform specified mortgage servicing activities on behalf of third parties, generating income through servicing fees. The MSRs were valued using a discounted cash flow model. Additional provisions and contingent liabilities Included in Provisions and contingent liabilities is USD 4.5 bn for additional litigation provisions and contingent liabilities, which includes USD 1.5 bn for litigation provisions, in addition to the existing USD 1.3 bn provision previously recorded by the Credit Suisse Group, and USD 3 bn contingent liabilities for certain potential obligations in respect of litigation, regulatory and similar matters identified in the purchase price allocation. The timing and actual amount of outflows associated with litigation matters are uncertain. UBS continues to assess the development of these obligations and the amount and timing of potential outflows. In addition, UBS has also recognized USD 4.5 bn for fair value adjustments on acquired loan commitments and guarantees recognized under IFRS as a consequence of the acquisition, of which USD 4.3 bn is included in Provisions and contingent liabilities and USD 0.2 bn is included as fair value loan commitments within Derivative financial instruments liabilities. The following table summarizes the determination of the purchase price consideration. The acquisition of the Credit Suisse Group on 12 June 2023 resulted in provisional negative goodwill of USD 28.9 bn. The negative goodwill represents the difference between the fair values for the identifiable assets acquired and liabilities assumed, except for amounts related to leases and employee benefits, which have been determined by applying the requirements in IFRS 16 and IAS 19, respectively, and consideration transferred. The negative goodwill has been recognized as of the acquisition date in the income statement on a separate line, Negative goodwill , following the requirements in IFRS 3, Business Combinations . The pre-tax gain arising from negative goodwill on the acquisition of the Credit Suisse Group did not result in any tax expense. The provisional fair value measurement of identifiable assets acquired and liabilities assumed, as well as, among other things, the IFRS 9 classifications of the acquired assets and liabilities, may be adjusted following management’s finalization of its acquisition date fair value estimates, as allowed by IFRS 3 for a maximum of one year from the acquisition date. The fair values are considered provisional, given the short period of time available since the acquisition closed on 12 June 2023 and may change if new information about facts and circumstances existing on the date of the acquisition is obtained within the measurement period and if material, will be reported retrospectively. From the date of acquisition until 30 June 2023, the Credit Suisse Group contributed USD 1.2 bn of net revenues and an overall net loss of USD 1.2 bn to the net profit of the UBS Group. For illustration purposes, the pro forma net revenues and net loss for UBS Group if the business combination had taken place on 1 January 2023 are estimated as USD 24.0 bn and USD 0.9 bn, respectively, in the first half of 2023. This pro forma information is based on the actual six-month result of the consolidated UBS Group, as reported (including one month of Credit Suisse results), plus the Credit Suisse US GAAP result for the first five months of 2023, adjusted for the estimated effect of conversion to IFRS and reflection of effects from purchase price allocation adjustments under IFRS 3, Business Combinations . The pro forma net revenues and net loss additionally exclude the impact from negative goodwill recognized from the acquisition of the Credit Suisse Group of USD 28.9 bn, and certain items recognized by the Credit Suisse Group in 2023 prior to the acquisition date, including a gain from the write-down of additional tier 1 capital notes of USD 16.4 bn, a goodwill impairment charge, mostly related to Wealth Management (Credit Suisse), of USD 1.4 bn and a gain from the reversal of contingent compensation award accrual of USD 0.4 bn. These items are considered non-recurring and therefore not representative of the normal course of business. The pro forma net revenues and net loss do not purport to represent what UBS’s actual results of operations would have been had the transaction occurred on the date indicated, nor are they necessarily indicative of future results of operations. The pro forma net revenues and net loss also do not consider any potential impacts of current market conditions on revenues, assets or liabilities. Nor do they reflect expense efficiencies, asset dispositions or business reorganizations that are or may be contemplated, or any cost or revenue synergies, including further potential restructuring actions, associated with combining UBS and Credit Suisse. Segment reporting An overview of how UBS’s businesses are organized globally into business divisions and Group Functions is provided in “Note 2a Segment reporting” in the “Consolidated financial statements” section of the Annual Report 2022. Credit Suisse’s business is organized globally into five reporting segments (Wealth Management (Credit Suisse), Swiss Bank (Credit Suisse), Asset Management (Credit Suisse), the Investment Bank (Credit Suisse) and the Capital Release Unit (Credit Suisse)) and Corporate Center (Credit Suisse). The Group continues to assess to which segments certain products, portfolios and services associated with the acquisition of the Credit Suisse Group should be allocated. Consequently, classifications and segment allocations may change in the future, during the measurement period as defined in IFRS 3. Pre-existing relationships As of 12 June 2023, UBS had the following pre-existing relationships with the Credit Suisse Group. Such balances are eliminated in the consolidated financial statements. Retention awards of approximately USD 0.5 bn were offered to selected employees of the Credit Suisse Group prior to the acquisition date to support the completion of the transaction and the early phase of integration. These awards were contingent on the completion of the acquisition and are delivered 50 % in cash (in general vesting 60 days from the completion of the acquisition) and 50 % in shares (in general vesting on the first anniversary of the completion of the acquisition). Vesting periods are longer for certain regulated employees. Expenses associated with these awards are recognized between the date of acquisition and the applicable vesting dates and were USD 84 m in the second quarter of 2023. Measure The Credit Suisse Group ordinary shares outstanding, 12 June 2023 Number of shares (m) 3,949 Exchange ratio (1 to 22.48) Ratio 0.04 UBS ordinary shares Number of shares (m) 176 UBS ordinary share price CHF 18.35 Purchase price consideration, before consideration of share-based compensation awards CHF m 3,223 Purchase price consideration, before consideration of share-based compensation awards using exchange rate of 1.10 1 USD m 3,547 Impact of share-based compensation awards 2 USD m 162 Purchase price consideration, after consideration of share-based compensation awards USD m 3,710 Settlement of pre-existing relationships USD m 135 Provisional purchase price consideration, after consideration of pre-existing relationships USD m 3,845 Net cash and cash equivalents acquired with the Credit Suisse Group (included in cash flows from investing activities) USD m 108,510 of which: cash and balances at central banks USD m 93,012 of which: amounts due from banks USD m 12,601 of which: money market paper USD m 2,897 1 The purchase price consideration is reflected as a reduction to treasury shares of the Group at their weighted average cost, with the difference between the fair value of UBS shares on the closing date and the weighted average cost of treasury shares in the UBS Group balance sheet on closing date taken as an adjustment to share premium. As of 12 June 2023, this resulted in a total purchase price of approximately USD 3.7 bn, based on the UBS Group AG share price on 12 June 2023. 2 Represents the value of share-based compensation awards outstanding to Credit Suisse employees attributable to the service period completed on the date of acquisition. USD m Acquisition date value Purchase price consideration, after consideration of share-based compensation awards 3,710 The Credit Suisse Group net assets at fair value Assets Cash and balances at central banks 93,012 Amounts due from banks 13,590 Receivables from securities financing transactions 26,194 Cash collateral receivables on derivative instruments 20,878 Loans and advances to customers 261,839 Other financial assets measured at amortized cost 13,440 Total financial assets measured at amortized cost 1 428,954 Financial assets at fair value held for trading 35,046 Derivative financial instruments 62,162 Brokerage receivables 366 Financial assets at fair value not held for trading 61,305 Total financial assets measured at fair value through profit or loss 158,879 Financial assets measured at fair value through other comprehensive income 1 0 Investments in associates 1,657 Property, equipment and software 6,055 Intangible assets 1,287 Deferred tax assets 942 Other non-financial assets 6,892 Total assets 604,667 Liabilities Amounts due to banks 107,617 Payables from securities financing transactions 11,911 Cash collateral payables on derivative instruments 10,939 Customer deposits 183,119 Debt issued measured at amortized cost 110,491 Other financial liabilities measured at amortized cost 7,992 Total financial liabilities measured at amortized cost 432,070 Financial liabilities at fair value held for trading 5,711 Derivative financial instruments 66,091 Brokerage payables designated at fair value 316 Debt issued designated at fair value 44,909 Other financial liabilities designated at fair value 7,574 Total financial liabilities measured at fair value through profit or loss 124,601 Provisions and contingent liabilities 11,052 Other non-financial liabilities 3,888 Total liabilities 571,611 Non-controlling interests (285) Fair value of net assets acquired 32,771 Settlement of pre-existing relationships 135 Provisional negative goodwill resulting from the acquisition 28,925 1 Refer to Note 8 for information about credit quality of financial assets, including purchased credit-impaired (PCI) positions. USD m Cash collateral receivables on derivative instruments 7 Derivative financial instruments 1,476 Debt instruments issued by the Credit Suisse Group and held by UBS 98 Total assets 1,581 Cash collateral payables on derivative instruments 572 Derivative financial instruments 813 Total liabilities 1,385 Treasury shares (61) Total equity (61) Total net pre-existing relationships 135

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