Credit Suisse delivered its first quarter earnings report on Monday, giving some insight into its situation before rival UBS Group agreed to acquire the bank for $3.25 billion in March.
The Swiss bank reported losses of $2 billion but posted a net profit of $13.9 billion, the largest in the bank’s history, after writing off $17 billion in bonds, according to The Wall Street Journal.
The write-off raised the ire of bondholders, who are suing the Swiss financial regulator, as shareholders typically take losses before bondholders, according to CNN.
However, the Swiss Financial Market Supervisory Authority (FINMA), which ordered the write-off of the AT1 bonds, claims the decision to do so was legally valid because this particular type of government bond was designed to place the burden on the investor, not the taxpayer, in case of a “viability event.”
UBS Chairman Colm Kelleher acknowledged shareholders’ frustration with being unable to vote on the deal. He said there was “no time” to consult them during the frenetic pace to rescue Credit Suisse.
“I understand that not all stakeholders of UBS and Credit Suisse are pleased with this approach,” Kelleher said, according to Bloomberg. “However, all parties, and in particular the Swiss authorities, considered this solution the best of all available options.”
UBS will take over Credit Suisse without having to subsume the bond losses.
Amid the banking crisis across the industry, Credit Suisse customers withdrew $75 billion in deposits in the first quarter.
UBS announced its plan to acquire Credit Suisse on March 19, and the Swiss government provided $9 billion to cover any UBS losses. Switzerland’s central bank also provided $200 billion in liquidity to ensure the deal’s success, according to Quartz, an international business news publication.
Credit Suisse said it had borrowed $120 billion from Switzerland’s central bank as of March 31, per The Wall Street Journal.
Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, according to Forbes.
The merger will make UBS the second-largest wealth manager in the world, with $5 trillion in combined invested assets, according to The Guardian.
The company will also be the fourth-largest bank in the world, but the merger is creating fears that massive job cuts will follow.
“Those synergies you were referring to would potentially cost more than 30,000 jobs worldwide,” one shareholder said, per The Guardian.
UBS Vice Chair Lukas Gähwiler said the takeover was “a Herculean task,” but noted that, in the short term, the bank would need more staff, per The Guardian.
Earlier in April, UBS Group Chairman Colm Kelleher said the Credit Suisse brand would continue in Switzerland, adding that there is a tremendous amount of risk involved in integrating both banks.
Kelleher said the deal could close anywhere from within a few weeks to a few months.
Credit Suisse shares were up 2.11% on Monday, closing at 0.91. UBS shares were up 1.33%, closing at 20.56.
