Acquisition: Case Study UBS - Credit Suisse

Question 1

What were the key financial terms of the UBS - Credit Suisse transaction?

Answer 1

1. All-share merger, without shareholders vot, with UBS as surviving entity
2. CHF 3 BN consideration, equal to CHF 0.76 for each Creidt Suisse share
3. 22.48x exchange ratio equal to 1 registered share of UBS for each 22.48 registered shares of Credit Suisse
   Total consideration: CHF 3Bln vs Market cap of CHF 19.5Bln as of march 19 2022

Question 2

What were the key terms that made the UBS purchase of Credit Suisse a de-risked transaction?

Answer 2

1. Loss protection:
   * CHF 25 Bln to support marks, purchase price adjustments and restructuring costs
   - CHF 15.8 Bln of Credit Suisse AT1 instruments witten-off by FINMA
   - For non-core assets, CHF 9Bln protection fomr the Swiss authorities in case of losses beyond CHF 5Bln which would be incurred by UBS
2. Liquidity support:
   * SNB can grant Credit Suisse a Liquidity assistance up to CHF 100Bln
3. Closing:
   * No shareholder approval required
   * Expected closing in 2Q2023

Question 3

What made the acquisition of Credit Suisse a compelling financial opportunity for UBS?

Answer 3

1. TBVPS +74% day-1 increase
2. EPS Accretive by 2027
3. RoCET1 Near-and-medium term impact from integration
4. CET1 Ratio Well above 13% CET1 Ratio target
5. Cost savings Run-rate annual cost reduction of >USD 8Bln by 2027
6. No guidance provided for revenue synergies given the potential wide range of outcomes

Question 4

What are some key features of the UBS - Credit Suisse deal?

Answer 4

1. Additional Tier 1 instruments write-off and purchase price allocaton
2. Loss protection agreement (up to 14 Bln with no parliamentary approval)
3. Swiss National Bank provided liquidity assistance up to CHF 100Bln
4. Combined entity serves more than 90% of 200 largest swiss companies and over 1/3 of all households in switzerland

Question 5

What were some specificities of the AT1 instrument writeoffs in the UBS-Credit Suisse deals?

Answer 5

1. Overall negative reactions: “WIping out AT1 holders while paying substantial amounts to shareholders goes against all resolution principles and rules that were agree internetionally after 2008”
2. Specifities of the Swiss Framework: “FINMA [regulator] has complete discretion with regard to AT1s, pure and simple”
3. Risk of contagion to rest of Europe and Regulators’ Reaction: ECB regulations different from Swiss, Equity subordinated to AT1 debt
4. What’s next for the AT1 sector?: a lot of uncertainty