Investing.com -- UBS Group AG (SIX:UBSG) has said it could stand to lose around $17 billion from its planned merger with smaller rival Credit Suisse (SIX:CSGN), but noted that the tie-up will provide other benefits.
In a regulatory filing, the Swiss bank, which agreed to absorb Credit Suisse following a hastily-arranged round of government-sponsored negotiations in March, said it would incur a hit of $13B from fair value adjustments on financial assets and liabilities. Litigation and regulatory matters would also lead to an additional $4B charge, UBS added.
However, these losses would be offset by a one-time $34.8B gain from pro forma negative goodwill, which occurs when the price paid for an asset is lower than its actual market value.
UBS would also receive a boost worth $17.1B from other factors, including a write-down of Credit Suisse's so-called Additional Tier 1 bonds, or a form of junior debt that holds relatively elevated risk.
The $3.4B emergency acquisition, which UBS plans to close in the second quarter, is expected to present the bank with a series of challenges as it attempts to fold Credit Suisse's ailing business into its operations.
UBS filed an amended F-4 filing with the U.S. Securities and Exchange Commission this week which noted that, due to the rushed nature of the transaction, there was risk that it had limited time to "thoroughly evaluate Credit Suisse and fully plan for its financial condition and associated liabilities." As a result, UBS warned that the rescue could prove to be "considerably more difficult and risky than it had contemplated."
"This could affect the future performance of UBS Group AG, its share price, and its value as an enterprise," it flagged.
Swiss-listed shares in UBS were slightly higher in midday trading on Wednesday.