UBS increased its provisions for Credit Suisse's legal disputes significantly, sending a strong signal to those who still have a score to settle with the acquired bank.

While UBS's $29 billion profit and details around planned redundancies grabbed the most attention at the bank's quarterly results last week, lawyers worldwide were looking at something different. The bank increased litigation provisions related to its new subsidiary Credit Suisse, by 1.3 billion francs.

UBS booked provisions for legal and regulatory risks at its subsidiary bank of around $2.8 billion. In total, the two new items come close to the approximately 4 billion dollars that UBS had already «provisionally» declared to the US Securities and Exchange Commission (SEC) last May for the takeover of Credit Suisse.

Now Officially on UBS’s Books

More than $4 billion in provisions are now officially on UBS’s books. Although payouts to plaintiffs might not materialize, the increase indicates what UBS expects its subsidiary to be hit by. It also serves as an invitation to clients claiming damages, as well as to investors, lawyers and litigation funders to step up their efforts against the Swiss banking giant.

«The increased provisions will hopefully give UBS's group lawyers more leeway to settle lawsuits against Credit Suisse quickly,» a source told finews.asia.

UBS declined to comment on the provisions upon request. With shareholders in mind, Group General Counsel Barbara Levi, will likely be wanting to put an end to litigation sooner rather than later.

No Small Amount

UBS will take over the $388 million fine handed to Credit Suisse by American and British authorities last July in connection to the Archegos Capital.

In mid-August, UBS settled a dispute over loan securities that had become toxic (RMBS) with the US Department of Justice (DoJ).

Although $1.4 billion dollars is no small amount, it is considerably less than the $13 billion that J.P. Morgan or the $5.3 billion Credit Suisse had to fork out for the same issue previously.

New Legal Risks

Taking over Credit Suisse has also brought new legal risks for UBS, starting with the price paid. Three shareholder lawsuits were filed with the Zurich Commercial Court last August in connection to this.

Furthermore, investors who lost billions on Credit Suisse’s mandatory convertible bonds (AT-1 bonds), which were written down to zero, filed a complaint with the Federal Administrative Court as early as May.

Dissolving Quickly

Although the complaint is directed against the Swiss Financial Market Supervisory Authority (Finma), which issued the order to write off the bonds, if the Federal Administrative Court were to uphold the investors' complaint, the AT1 bonds would have to be capitalized again, directly from UBS's books.

Suddenly last week’s billion-dollar profit seems to be dissolving quickly.