May 22, 2023

Distressed Deals: UBS’s Credit Suisse Risk Factor Disclosure

As we all know by now, whenever there’s a financial crisis, healthy financial institutions often swoop in – either voluntarily or with some arm-twisting from regulators – to acquire distressed institutions. In light of the circumstances that give rise to these deals, it’s not surprising that they often give rise to some rather extraordinary disclosures or a lot of controversy over what isn’t disclosed.

UBS’s pending deal to acquire Credit Suisse is no exception. In fact, one of the risk factors identified in UBS’s recent F-4 filing for the deal can be fairly paraphrased as saying that “we were leaned on by the Swiss government to do this deal and didn’t have time for full due diligence.” Here’s the risk factor:

There is a risk that the short time frame and emergency circumstances of the due diligence UBS Group AG conducted of Credit Suisse limited UBS Group AG’s ability to thoroughly evaluate Credit Suisse and fully plan for its financial condition and associated liabilities. As described in more detail in the section entitled “The Merger—Background and Reasons for the Transaction” of this prospectus beginning on page 39, UBS Group AG was approached by Swiss governmental authorities on May 15, 2023 as the Swiss governmental authorities were considering whether to initiate resolution of Credit Suisse. To calm markets and avoid the possibility of contagion in the financial system, the Swiss government had determined that a decision would need to be made before the opening of markets following the weekend.

Therefore, UBS Group AG had until March 19, 2023 to conduct limited but intensive due diligence before deciding whether to enter into a merger agreement for the acquisition of Credit Suisse. Under the merger agreement, upon completion of the transaction, all liabilities of Credit Suisse will become liabilities of UBS Group AG. If the circumstances of the due diligence affected UBS Group AG’s ability to thoroughly consider Credit Suisse’s liabilities and weaknesses, it is possible that UBS Group AG will have agreed to a rescue that is 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.

This disclosure has caught the eye of the media, and it’s undoubtedly caught the eye of UBS’s stockholders as well. But that’s less of an issue for the deal itself than might otherwise be the case – because there’s another interesting disclosure in UBS’s Form F-4:

Pursuant to the Special Ordinance, the transaction will be implemented without the need for the approval of UBS Group AG shareholders or Credit Suisse shareholders. Therefore, there will be no Credit Suisse shareholders meeting or UBS Group AG shareholders meeting for purposes of voting on the approval of the merger agreement or the transaction and your vote is not required in connection with the transaction.

John Jenkins