Credit Suisse's considerable legal risks are being transferred to its new parent company UBS. The buyer inherits these as part of an overall package.
It isn't explicitly stated in notifications about the takeover of Credit Suisse by UBS. But according to reports surrounding the deal, the buyer is assuming a long list of legal risks from its fallen rival, as part of the deal announced by the Swiss government, the Swiss National Bank (SNB), and the Swiss Financial Market Supervisory Authority (Finma) yesterday evening.
As is the case with bank takeovers, much importance is attached to removing known skeletons from the closets of the target company from the transaction if possible. Well-known examples in Switzerland include the takeovers of Coutts International and Ticino-based private bank BSI, both of which were deeply involved in the corruption scandal surrounding the Malaysian state fund 1MDB.
There will be no such carve-out of legal risks in the forced union between Switzerland's two largest banks. UBS will fulfill its fiduciary duties with Credit Suisse on this issue as well.
Agenda of Fear
As finews.com wrote at the beginning of the year, several major legal issues are still pending at Credit Suisse, and various dates for lawsuits are already lined up for this year, the fraud victims of former Credit Suisse banker Patrice Lescaudron and the Mozambique scandal.
US class action plaintiffs have not missed any opportunity to make a case against the institution in recent months. The most recent cases look at statements made by the bank's Chairman Axel Lehmann in December about clients pulling their assets from the troubled bank. In the end, Finma decided not to enter supervisory proceedings against him or the bank, as finews.com reported.
In the takeover of Credit Suisse, which was finalized within days, UBS was given no choice but to include the assumed legal risks in the price. UBS is paying Credit Suisse shareholders around three billion Swiss francs, a nearly two-thirds discount from the bank's Friday closing price. Credit Suisse carried provisions of 1.17 billion francs on its books at the end of last year for its numerous legal cases.
Compared to what the bank has already paid for such risks, it is a pittance. The Swiss «Handelszeitung» recently calculated Credit Suisse's legal woes have cost 17 billion francs over the past 13 years.
Markus Diethelm Central to UBS
By contrast, the maximum nine billion francs loss guarantee UBS was awarded by the state on Sunday relates only to a specific derivatives portfolio it was only able to briefly examine before the deal. Moreover, the co-opting of shareholder rights through an emergency law in the takeover could prompt UBS shareholders to take action against it.
The legal cleanup at Credit Suisse is being handled by a man who knows UBS inside out. None other than Markus Diethelm, UBS's longtime general counsel.
He is once again a central figure in the drama.
