UBS Group AG (UBS) and Apollo conclude investment management and transition services agreements as final step in carve-out of former Credit Suisse Securitized Products business, Atlas SP
UBS and Apollo have entered into an agreement where Apollo will purchase USD 8 billion of senior secured financing facilities from UBS. This aligns with UBS's strategy to wind down its Non-Core and Legacy portfolio. UBS expects a net gain of around USD 0.3 billion, while Credit Suisse AG anticipates a net loss of around USD 0.9 billion. The agreement marks Atlas' evolution into an independent platform.
The transaction detailed in the announcement represents a strategic shift for UBS and Apollo, with implications for their financial health and operational focus. UBS's decision to sell off USD 8 billion of senior secured financing facilities to Apollo is a move to streamline its operations by divesting from its Non-Core and Legacy (NCL) portfolio. This action aligns with UBS's broader strategy to simplify its business model and reduce its risk-weighted assets, which is likely to be positively received by investors seeking stability and a clear focus from financial institutions.
From a financial perspective, the net gain of approximately USD 0.3 billion that UBS expects to recognize in the first quarter of 2024 is significant. It not only reflects the immediate financial benefit of the transaction but also suggests a savvy negotiation on the part of UBS, capitalizing on the value of these assets. However, the net loss of around USD 0.9 billion expected to be recognized by Credit Suisse AG indicates a stark contrast in financial outcomes between the two entities, likely stemming from different accounting treatments under IFRS and US GAAP. Investors should note these accounting discrepancies as they may influence the perceived performance and valuation of these companies.
Looking at the market implications, UBS's move to offload parts of its NCL portfolio to Apollo can be seen as part of a larger trend where banks are seeking to become more agile by shedding non-core assets. This trend is partly driven by regulatory pressures to maintain higher capital ratios and partly by a strategic shift towards more profitable core businesses. For Apollo, the acquisition of these financing facilities is a clear indicator of its ambition to grow its Atlas platform, showcasing a strategic pivot towards investment grade asset-backed origination. This could signal to the market Apollo's intention to become a more significant player in this space.
The announcement also highlights the success of Atlas in capital raising and origination, which may attract investor interest due to the platform's proven capability to generate substantial originations and secure capital for client assets. The record figures cited for Atlas's origination and capital raising activities suggest robust performance and growth potential, which may influence investor sentiment and the valuation of Apollo's shares in the market.
From a risk management perspective, this transaction is indicative of UBS's commitment to reducing its leverage ratio denominator and risk-weighted assets, which are critical measures of financial stability. By selling these senior secured financing facilities, UBS is effectively transferring the associated credit risk to Apollo. This move should improve UBS's capital efficiency and potentially its credit ratings, which could lead to lower borrowing costs and a more favorable risk profile. For Apollo, while the acquisition increases its exposure to the credit market, it also represents a calculated expansion into a field where it sees potential for growth. The management of these newly acquired assets will be a test of Apollo's risk assessment and mitigation strategies, which will be closely watched by stakeholders.
03/27/2024 - 01:45 AM
ZURICH & NEW YORK --(BUSINESS WIRE)--
Regulatory News:
Ad hoc announcement of Credit Suisse AG pursuant to Article 53 of the SIX Exchange Regulation Listing Rules
UBS (NYSE:UBS) (SWX:UBSN) and Apollo today announced that they have entered into an agreement pursuant to which ATLAS SP (Atlas) has concluded its Transition Services Agreement with UBS and UBS will close out its Investment Management Agreement with Atlas.
As part of this agreement, Apollo will purchase USD 8 billion of senior secured financing facilities from UBS.
This mutually beneficial agreement aligns with UBS’s strategy of winding down and simplifying its Non-Core and Legacy (NCL) portfolio and with Apollo’s continued momentum in growing Atlas as a standalone origination platform.
For UBS, these actions will allow the bank to further accelerate its plans to unwind and more efficiently simplify its NCL portfolio, while minimizing any disruption to clients, and reduce risk-weighted assets and leverage ratio denominator in NCL.
UBS Group expects to recognize a net gain in the first quarter of 2024 of around USD 0.3 billion from the conclusion of these agreements and the assignment of the senior secured financing facilities while Credit Suisse AG is expected to recognize a net loss of around USD 0.9 billion . The differences reflect adjustments UBS Group made under IFRS as part of the purchase price allocation at the closing of the acquisition of Credit Suisse Group, as well as provisions made by UBS Group in the second and third quarter of 2023 that are not recognised under Credit Suisse AG’s US GAAP accounting policies.
For Atlas and Apollo, the agreement marks Atlas’ evolution into a fully independent platform focused on investment grade asset-backed origination.
Commenting on the transaction, Sergio P. Ermotti, UBS Group CEO said: “We’re pleased with this mutual agreement with Apollo. As we execute on our integration plans, this is another example of our relentless focus on working with clients and counterparties to free up capital from Non-Core activities and reducing costs and complexity.”
Marc Rowan, CEO of Apollo, also commented: “We are pleased to finalize the Atlas transition in partnership with UBS, in an economically neutral manner for our firm. This caps off a quarter marked by record origination and capital raising for Atlas, where we have generated USD 24 billion originations since inception and have secured capital to support over USD 40 billion of client assets.”
Cautionary Statement Regarding Forward-Looking Statements
This media release contains statements that constitute “forward-looking statements,” including but not limited to management’s outlook for UBS’s financial performance, statements relating to the anticipated effect of transactions and strategic initiatives on UBS’s business and future development and goals or intentions to achieve climate, sustainability and other social objectives. While these forward-looking statements represent UBS’s judgments, expectations and objectives concerning the matters described, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from UBS’s expectations. For a discussion of the risks and uncertainties that may affect UBS's future results please refer to the "Risk Factors" and other sections of UBS’s most recent Annual Report on Form 20-F, quarterly reports and other information furnished to or filed with the US Securities and Exchange Commission on Form 6-K, and the cautionary statement on the last page of this presentation. UBS is not under any obligation to (and expressly disclaims any obligation to) update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
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Source: UBS Group AG
What agreement did UBS and Apollo enter into?
UBS and Apollo entered into an agreement where Apollo will purchase USD 8 billion of senior secured financing facilities from UBS.
What is the expected net gain for UBS from the agreement?
UBS expects to recognize a net gain of around USD 0.3 billion from the conclusion of the agreements and the assignment of the senior secured financing facilities.
What is the expected net loss for Credit Suisse AG from the agreement?
Credit Suisse AG is expected to recognize a net loss of around USD 0.9 billion from the agreement.
What does the agreement signify for Atlas?
The agreement marks Atlas' evolution into a fully independent platform focused on investment grade asset-backed origination.
Who is the CEO of UBS Group and what did they comment on the transaction?
Sergio P. Ermotti, UBS Group CEO, commented: 'We're pleased with this mutual agreement with Apollo. As we execute on our integration plans, this is another example of our relentless focus on working with clients and counterparties to free up capital from Non-Core activities and reducing costs and complexity.'
Who is the CEO of Apollo and what did they comment on the transaction?
Marc Rowan, CEO of Apollo, commented: 'We are pleased to finalize the Atlas transition in partnership with UBS, in an economically neutral manner for our firm.'
