UBS Group agreed to sell US$8 billion in unwanted assets to Apollo Global Management as part of the carve-out of Credit Suisse’s securitised products group, after renegotiating key parts of the accord.
The revised deal will end a contentious investment management arrangement with Apollo as well as a transition service agreement that Credit Suisse had entered into shortly before it collapsed into the arms of its larger rival.
The deal allows UBS to close another chapter in its acquisition of Credit Suisse and accelerate the disposal of unwanted assets. It had been renegotiating the terms of the SPG deal since last year, in part because its executives were unhappy with the fees Credit Suisse had agreed to pay Apollo to manage assets that remained on its books, Bloomberg reported previously.
“This agreement clearly looks positive for UBS,” said Andreas Venditti, an analyst at Vontobel. “It accelerates the bank’s wind down of the non-core and legacy portfolio, and the fact that UBS can book a gain confirms that it has conservatively marked the positions in the wind-down unit.”
UBS will book a net gain of about US$300 million in the first quarter related to the matter while Credit Suisse is expected to recognise a net loss of US$900 million.
Apollo said the revised deal had no economic impact on it. Analysts at Autonomous said “it looks like UBS threw Apollo a little offsetting carrot” by selling assets currently held in its non-core unit.
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“We are pleased to finalise the Atlas transition in partnership with UBS, in an economically neutral manner for our firm,” Apollo chief executive officer Marc Rowan said. “This caps off a quarter marked by record origination and capital raising for Atlas.”
Credit Suisse flagged in September that it expected about US$600 million in losses in the third quarter from the decision to end management arrangements. The figures announced on Wednesday (Mar 27) reflect accounting adjustments and provisions made in the second and third quarter of last year, UBS said.
UBS rose 0.2 per cent at 4.38 pm in Zurich, bringing gains this year to 8.5 per cent.
SPG traced its roots back to Wall Street’s raucous mortgage bond scene in the 1980s. The unit bought and sold securities backed by pools of mortgages and other assets, such as car loans and credit card debt.
When Credit Suisse agreed to sell it to Apollo, it paid the private equity firm hundreds of millions of US dollars in fees upfront. UBS was not happy about the terms when it inherited it, sources familiar with the matter have said. It assessed its options carefully, in part because it also distributes Apollo funds to its clients, they said.
“We are pleased with this mutual agreement with Apollo,” UBS CEO Sergio Ermotti said. The deal allows his firm to free up capital from non-core businesses and reduce complexity, he added.
A large part of SPG’s assets and employees had been transferred already to an Apollo subsidiary called Atlas SP. New York-based trader Jay Kim, who led the business at Credit Suisse, joined Atlas as part of the deal. BLOOMBERG
