UBS Group AG expects a financial hit of about $17 billion from the takeover of Credit Suisse Group AG, the bank said in a regulatory presentation as it prepares to complete the rescue of its struggling Swiss rival.
UBS estimates a negative impact of $13 billion from fair value adjustments of the combined group’s assets and liabilities.
It also sees $4 billion in potential litigation and regulatory costs stemming from outflows.
UBS, however, also estimated it would book a one-off gain stemming from the so-called “negative goodwill” of $34.8 billion by buying Credit Suisse for a fraction of its book value.
The financial cushion will help absorb potential losses and could result in a boost to the lender’s second-quarter profit if UBS closes the transaction next month as planned.
UBS said the estimates were preliminary and the numbers could change materially later on.
It also said it might book restructuring provisions after that, but offered no numbers. Union Bank of Switzerland said it estimates a negative impact of $13 billion from fair value adjustments of the combined group’s assets and liabilities. AFP via Getty Images
“The financial information lacks an estimate of restructuring provisions as these will be booked after the transaction closes,” Vontobel analyst Andreas Venditti said in a note.
Analysts at Jefferies have estimated restructuring costs, litigation provisions and the planned winding down of the non-core unit could total $28 billion.
Meanwhile, UBS has implemented a number of restrictions on Credit Suisse while the takeover is underway.
In certain cases, Credit Suisse cannot grant a new credit facility or credit line exceeding $113 million to investment-grade borrowers or more than 50 million francs to non-investment-grade borrowers, a UBS filing showed. Union Bank of Switzerland implemented a number of restrictions on Credit Suisse while the takeover is underway.Getty Images
“Credit Suisse obviously found itself in a problem because of lapses in its risk controls and I think just setting these parameters on the ability or standards to lend out is not very unreasonable,” said Benjamin Quinlan, Hong Kong-based chief executive of financial consultancy firm Quinlan & Associates
“Ultimately, from UBS’ perspective, they will have to wear these risks on their books.”
Credit Suisse also cannot undertake capital expenses of more than 10 million francs as part of the restrictions or enter into certain contracts worth more than 3 million francs per year.
The filing shows Credit Suisse cannot order any “material amendments” to its employee terms and conditions, including remuneration and pension entitlements, till deal closure.
The restrictions “will cause certain clients to leave Credit Suisse” but may not accelerate the pace of outflows already seen, said Quinlan, following UBS’ statement last week that Credit Suisse had already stemmed asset outflows. RUSHED INTO DEAL
UBS said it was rushed into the deal and had less than four days to complete due diligence given the ’emergency circumstances’ as Credit Suisse’s financial health worsened. The filing shows Credit Suisse cannot order any “material amendments” to its employee terms and conditions. AFP via Getty Images
UBS agreed in March to buy Credit Suisse for $3.4 billion in stock and to assume up to 5 billion francs in losses that would stem from winding down part of the business, in a shotgun merger engineered by Swiss authorities over a weekend amid a global banking turmoil. Start your day with all you need to know
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The deal, the first rescue of a global bank since the 2008 financial crisis, will create a wealth manager with more than $5 trillion in invested assets and over 120,000 employees globally.
The Swiss state is backing the deal with up to 250 billion Swiss francs in public funds.
Switzerland’s government is providing a guarantee of up to 9 billion francs for further potential losses on a clearly defined part of Credit Suisse portfolio.
UBS signaled no quick turnaround for the 167-year-old Credit Suisse, which came to the brink of collapse during the recent banking sector turmoil after years of scandals and losses.
It said it expected both the Credit Suisse group and its investment bank to report substantial pre-tax losses in the second quarter and the whole of this year.
Following the legal closing of the transaction, UBS Group AG plans to manage two separate parent companies UBS AG and Credit Suisse AG, UBS said last week.
It has said the integration process could take three to four years.
During that time, each institution will continue to have its own subsidiaries and branches, serve its clients and deal with counter-parties.
Alibaba announced plans to release a pair of smart glasses powered by its AI models. The Quark AI Glasses are Alibaba’s first foray into the smart glasses product category.
Alibaba
Alibaba on Monday unveiled a pair of smart glasses powered by its artificial intelligence models, marking the Chinese firm’s first foray into the product category.
The e-commerce giant said the Quark AI Glasses will be launched in China by the end of 2025 with hardware powered by the firm’s Qwen large language model and its advanced AI assistant called Quark.
The Hangzhou, headquartered company is one of the leaders in China’s AI space, aggressively launching new models with capabilities that compete with Western counterparts like OpenAI.
Many tech companies see wearables, specifically glasses, as the next frontier in computing alongside the smartphone. Quark, which was updated this year, is currently available as an app in China. Alibaba is stepping into the hardware game as a way to distribute the app more widely.
The Quark AI Glasses are Alibaba’s answer to Meta’s smart glasses that were designed in collaboration with Ray-Ban. The Chinese tech giant will also now compete with Chinese consumer electronics player Xiaomi who this year released its own AI glasses.
Alibaba said its glasses will support hands-free calling, music streaming, real-time language translation, and meeting transcription. The glasses also feature a built-in camera.
Alibaba owns a range of different services in China from mapping to an online travel agent. Its affiliate company Ant Group also runs the widely-used Alipay mobile service. Alibaba said users will be able to use a navigation service via the glasses, pay with Alipay and compare prices on Taobao, its China e-commerce platform.
The firm has yet to release other details such as the price and technical specifications.
Tesla will use Samsung for as a supplier for its self-driving computer’s next-gen hardware in a $16.5 billion deal, according to Tesla CEO Elon Musk.
But despite planning two generations ahead, the company still doesn’t have a solution to bring the promised full autonomy to hardware that it’s been promising that capability to since 2016.
Earlier today, Samsung announced a 22.8 trillion won ($16.5 billion) deal that would run through 2033. In that filing, Samsung did not name the customer, only that it is a “large global company”. Later, Bloomberg reported that the customer is Tesla, and Musk confirmed this on twitter. Then in his usual bravado, he stated that the deal is “likely much more than that.”
Samsung makes the chips for the self-driving computers in Tesla’s current vehicles, but the next generation will be made by TSMC, first in Taiwan and then later in Arizona. Then the next-next generation will be covered by this new Samsung deal.
The new deal is significant due to TSMC’s global dominance of chipmaking. Samsung has had significant unused capacity, so the Tesla deal is a big boost for the company’s chip foundry business.
Tesla has gone through several generations of chips, previous referred to as “HW,” standing for “hardware,” with a number indicating their generation. More recently, Tesla started referring to its chips with “AI” instead of “HW,” in order to incorporate the tech buzzword du jour.
Currently Tesla is on HW4/AI4, and TSMC will make HW5, then Samsung will make HW6 again.
These generations of hardware each get successively more capable, and can handle more data and thus theoretically become better at self-driving tasks.
Current Tesla HW4 vehicles cannot drive themselves, and are only capable of SAE level 2 operation, which requires an attentive driver behind the steering wheel (though Tesla’s solution does work better than most others). Tesla’s ‘Robotaxi’ system is currently operating in Austin without anyone in the driver’s seat, but has a “safety rider” who can take control of the vehicle, blurring the line somewhat on which SAE level it is operating at.
But what about HW3?
There’s a problem with the differentiation between these generations of hardware: ever since 2016, when Tesla was on version 2 of its hardware, it has promised full self-driving capability on all of its vehicles.
Tesla stated, at the time, that every single Tesla vehicle produced after that date had the hardware that would allow for full self-driving.
It eventually became apparent that HW2 would not be capable of full self-driving tasks, and Tesla upgraded to HW3, promising all HW2 customers that they would get a free upgrade to HW3 if they bought Tesla’s Full Self-Driving system, which has varied in price over time but once cost $15,000.
Now, with the change from HW3 to HW4, we’re seeing indications of a similar run-around.
We’ve already seen differing FSD software versions based on which hardware level vehicles have, with HW3 vehicles getting updates later than HW4 vehicles do. On last week’s Q2 earnings call, Tesla CFO Vaibhav Taneja said:
What we want to do is get unsupervised done on hardware four first. Once it’s done, then we’ll go back and look at what we need to do with the hardware three cars. Like I said, the focus is first to get unsupervised out and then we’ll go back and see what more work we need to do.
“Unsupervised” is Tesla’s new name for actual full self-driving, which would allow a vehicle to drive without the supervision of someone in the driver’s seat. This as opposed to “supervised FSD,” a phrase Tesla started using after about a decade of promising full self-driving without delivering it.
Here, Taneja said that HW3 cars will eventually get FSD, but Tesla hasn’t really figured out the path to that, and it’s focusing on new cars first, then will go back around to see what needs to happen.
Previously, Musk had stated that Tesla “will have to upgrade people’s hardware 3 computer,” but more recently it has become apparent that Tesla really doesn’t have a plan for that upgrade. And Taneja’s comments suggest that Tesla will still try to wedge FSD onto HW3, despite previously admitting that the system is not capable of it.
The existence of future HW5 and even HW6 chips also suggest that current systems are not capable of full self-driving. If HW4 is FSD-capable, then why would Tesla need two more generations of chip in the next two years in order to do the tasks that it promised all of its cars could do a full decade prior?
So, much more than having no solution for HW3 cars (or even HW2 cars, some of which have gotten free upgrades, but others who have been charged $1,000 to upgrade to a computer they already paid for), does this mean that Tesla is going to kick the can further down the road, and eventually have no solution for HW4 and HW5 either?
And, when will we know about these solutions? Tesla has sold millions of vehicles with the promise of self-driving which will seemingly need an upgrade at some point. And many of those vehicles are old enough, at this point, to be retired, despite spending up to $15,000 on a piece of software that has never been delivered to them.
An HW6/AI6 computer will surely have all sorts of new whizbang capabilities, but we were promised those capabilities years ago, and they’re still not delivered yet.
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A group of Senate Democrats has probed Federal Housing Finance Agency director William Pulte over his order to propose how to consider crypto in mortgage applications.