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Accounting for the acquisition of Credit Suisse Group
 6 Months Ended
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