UBS Group AG expects a $17 billion financial impact from its buyout of Credit Suisse Group AG, the bank said in an early Wednesday presentation as it prepared to finalise the rescue of its troubled Swiss rival.

UBS predicts that fair value adjustments to the combined group’s assets and liabilities will have a negative impact of $13 billion. UBS also anticipates $4 billion in potential litigation and regulatory costs as a result of withdrawals.

UBS, on the other hand, anticipated it would book a one-time gain of $34.8 billion from the so-called “negative goodwill” created by buying Credit Suisse for a fraction of its book value.

If UBS executes the purchase next month as expected, the financial buffer would assist absorb potential losses and possibly enhance the lender’s second-quarter profit.

UBS stated that the projections were preliminary and that the figures could vary significantly in the future.

The bank also stated that it may book restructuring provisions beyond that, but provided no figures.

Jefferies analysts anticipated that restructuring costs, litigation contingencies, and the planned wind-down of the non-core subsidiary might reach $28 billion.

Meanwhile, while the merger is ongoing, UBS has imposed a number of restrictions on Credit Suisse.

According to a UBS filing, in some situations, Credit Suisse cannot offer a new credit facility or credit line in excess of 100 million Swiss francs ($113 million) to investment grade borrowers or more than 50 million francs to non-investment grade debtors.

Credit Suisse is also prohibited from incurring capital expenditures in excess of ten million Swiss francs or entering into certain contracts in excess of three million Swiss francs per year.

According to the petition, Credit Suisse cannot order any “material amendments” to its employee terms and conditions, including salary and pension benefits, until the transaction is completed.

In a shotgun merger arranged by Swiss authorities over a weekend amid global financial turbulence, UBS agreed in March to buy Credit Suisse for 3 billion Swiss francs ($3.4 billion) in stock and to accept up to 5 billion francs in losses from winding down part of the business.

The transaction, the first global bank rescue since the 2008 financial crisis, will establish a wealth manager with more than $5 trillion in invested assets and more than 120,000 staff worldwide.

The Swiss government is supporting the agreement with up to 250 billion Swiss francs in public cash.

The Swiss government is offering a guarantee of up to 9 billion Swiss francs for additional possible losses on a clearly defined portion of Credit Suisse’s portfolio. 

UBS signalled no speedy recovery for the 167-year-old Credit Suisse, which was on the verge of bankruptcy during the recent banking industry turbulence following years of scandals and losses.

It stated that it expected the Credit Suisse group and its investment bank to incur significant pre-tax losses in the second quarter and for the entire year.

Following the transaction’s legal completion, UBS Group AG intends to run two independent parent companies, UBS AG and Credit Suisse AG, UBS announced last week. It has been estimated that the integration process will take three to four years.

During that time, each institution will continue to operate its own subsidiaries and branches, serve its clients, and conduct business with counterparties.

(Adapted from ChannelNewsAsia.com)