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UBS's $300M win vs Credit Suisse's $900M loss in Apollo mega-deal!


UBS's $300M win vs Credit Suisse's $900M loss, financial news

UBS Group AG has recently concluded a significant transaction involving the sale of $8 billion in less desirable assets to Apollo Global Management Inc. This move is an integral part of UBS's broader strategy to integrate the securitized products group previously belonging to Credit Suisse. Initially, the terms of this deal were agreed upon, but both parties felt the need to make revisions to ensure that the terms were more favorable and in line with their respective interests and financial goals.


The updated agreement signals the conclusion of a complex and multifaceted relationship between Apollo and Credit Suisse, which emerged shortly before Credit Suisse faced a crisis. Specifically, it ends both the investment management arrangement and the transition service agreement established by Credit Suisse. This marks a significant shift in the dynamics and relationships between these major financial entities, reflecting the changing landscape in the global financial sector and the need for adaptation and strategic realignment in light of emerging challenges and opportunities.



From a financial perspective, this deal has different implications for the involved parties. UBS is projecting a substantial net gain of about $300 million in the first quarter as a direct result of this transaction. On the other hand, Credit Suisse is expected to bear a significant net loss, estimated at around $900 million as reported by Bloomberg. Apollo Global Management Inc., a major player in this transaction, has stated that despite these financial shifts for UBS and Credit Suisse, the deal does not impact its economic position, suggesting that Apollo has strategically managed its involvement in this transaction to maintain its financial stability.


This transaction marks a crucial milestone in UBS's ongoing efforts to fully integrate its acquisition of Credit Suisse. It represents a strategic acceleration in UBS's disposal of assets that no longer align with its core business objectives. The renegotiation of the deal terms concerning the Securitized Products Group (SPG) was driven by concerns from UBS over the financial arrangements initially agreed upon by Credit Suisse, particularly regarding the management fees paid to Apollo for overseeing the remaining assets. This aspect of the deal had been a source of contention and strategic reevaluation, as highlighted in reports by Bloomberg, indicating the complexities and negotiations involved in high-stakes financial transactions.



Industry analysts have generally reacted positively to this agreement from UBS's perspective. Andreas Venditti, a well-respected analyst from Vontobel, has particularly noted that this agreement benefits UBS by speeding up the reduction of its non-core and legacy assets. The fact that UBS can report a financial gain from this transaction is seen as a testament to the conservative and strategic approach UBS has taken in valuing these assets within its portfolio earmarked for wind-down. This perspective underscores the strategic financial management and prudent decision-making at UBS, particularly in navigating complex asset reallocations and disposals.


In September, Credit Suisse had made a public statement forecasting approximately $600 million in losses for the third quarter, attributed to the decision to terminate its management arrangements. The financial figures that were announced more recently take into account various accounting adjustments and provisions that UBS made in the second and third quarters of the previous year. These adjustments reflect the ongoing financial recalibrations and strategic decisions made by UBS as it continues to integrate and streamline its operations following the acquisition of Credit Suisse.



In the stock market, UBS experienced a slight decrease, showing a 0.5% drop at a specific time during trading in Zurich. However, this minor fluctuation should be viewed in the broader context of the stock's overall performance, which has seen an increase of 7.7% over the year. This indicates that despite short-term variations, the general market sentiment towards UBS remains positive, reflecting investor confidence in the company's strategic direction and financial health.


The history of the Securitized Products Group (SPG) is deeply rooted in the dynamic mortgage-bond market of the 1980s on Wall Street. This unit played a significant role in the financial markets by engaging in the purchase and sale of securities backed by a diverse range of assets, including mortgages, car loans, and credit card debt. The historical significance and the financial impact of SPG's activities highlight its role in the evolution of financial markets and investment strategies over the past few decades.



When Credit Suisse first agreed to sell the SPG unit to Apollo, it entailed a significant financial commitment, including paying hundreds of millions of dollars in fees upfront to Apollo. This arrangement, however, was less than ideal for UBS when it inherited these terms following its acquisition of Credit Suisse. UBS's dissatisfaction with the terms prompted a thorough review of its options, not only because of the financial implications but also considering UBS's role in distributing Apollo's funds to its clientele. This situation highlights the intricate and sometimes challenging relationships and agreements that can arise in the context of large-scale mergers and acquisitions in the financial sector.


UBS's Chief Executive Officer, Sergio Ermotti, expressed his satisfaction with the finalized agreement with Apollo. He emphasized the benefits of this deal, particularly in terms of allowing UBS to reallocate capital away from its non-core businesses. This reallocation is part of a broader strategy to streamline UBS’s operations, reducing complexity within the organization. Ermotti's statement underscores the importance of this transaction in aligning UBS's resources and focus towards its core competencies and strategic goals. This shift is indicative of UBS’s larger vision and strategic planning, aimed at strengthening its position in the global financial market.



A significant portion of SPG’s assets, along with its employees, had previously been transferred to Atlas SP, a subsidiary of Apollo. This move is part of the broader restructuring and integration process. Jay Kim, a trader based in New York who previously led the business at Credit Suisse, also joined Atlas as part of the deal. The transfer of talent and resources like this is typical in such large-scale acquisitions and mergers, facilitating continuity in operations and expertise, which can be critical in maintaining the value and performance of the acquired entities.



Apollo's CEO, Marc Rowan, also expressed contentment with completing the Atlas transition in partnership with UBS. He highlighted this development as a significant achievement in a quarter marked by record origination and capital raising activities for Atlas. Rowan's remarks point to the strategic importance of the transition for Apollo, reflecting not just the successful conclusion of a complex negotiation but also a testament to Apollo's capabilities in managing large-scale financial transitions and in raising capital. This accomplishment marks a significant milestone for Apollo, showcasing its strength and versatility as a major player in the global financial industry.


27.03.2024



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