UBS Group AG (UBS) UBS Acquisition of Credit Suisse Conference Call (Transcript)

UBS Group AG (NYSE:UBS) UBS Acquisition of Credit Suisse Conference Call March 19, 2023 5:00 PM ET

Company Participants

Sarah Mackey - Head of IR

Colm Kelleher - Chairman of the Board

Ralph Hamers - CEO

Sarah Youngwood - CFO

Conference Call Participants

Flora Bocahut - Jefferies

Andrew Coombs - Citi

Alastair Ryan - Bank of America

Jeremy Sigee - BNP Paribas

Chris Hallam - Goldman Sachs

Tom Hallett - KBW

Kian Abouhossein - JPMorgan

Stefan Stalmann - Autonomous Research

Amit Goel - Barclays

Andrew Lim - Societe Generale

Nicolas Payen - Kepler Cheuvreux

Piers Brown - HSBC

Anke Reingen - Royal Bank of Canada

Jackie Ineke - Morgan Stanley

Benjamin Goy - Deutsche Bank

Sarah Mackey

Good evening, and welcome, everyone. Before we start, I would like to draw your attention to our cautionary statement slide at the back of today's presentation. Please also refer to the risk factors in our annual report together with additional disclosures in our SEC filings. With you this evening are our Chairman of the Board, Colm Kelleher; our CEO, Ralph Hamers, and our CFO, Sarah Youngwood.

With that, let me hand over to Colm for opening remarks.

Colm Kelleher

Thank you, Sarah. It's a historic day in Switzerland and a day, frankly, we hoped would not come. Thank you, everyone, for making the time to join us late on a Sunday evening. We wanted to be able to update our shareholders across the globe on our acquisition of Credit Suisse and the protections we have obtained for our shareholders.

Let me start by saying that UBS has been firmly committed to our organic growth strategy. Various events over the last few weeks resulted in regulators across the world urging UBS to consider a takeover of Credit Suisse to preserve global financial stability. Unfortunately, for our shareholders in the near term, this will result in the temporary suspension of our share repurchase program although our progressive dividend policy remains intact. Reflecting the situation, the Swiss Government has exercised its emergency powers to facilitate a swift consummation of this merger, which will occur without the necessity of resolutions passed by the shareholders at a general meeting.

I would like to make it clear that while we did not initiate discussions, we believe that this transaction is financially attractive for UBS shareholders, protects UBS from additional downside and should support earnings growth over time. The terms of the transaction have the full support of the relevant regulators and secures financial stability for all our stakeholders. This includes very significant liquidity support provided by the Swiss National Bank.

Now we remain fully committed to our existing strategic objectives, including the U.S. and APAC. We believe that the strategic rationale of combining our businesses is compelling and will enhance UBS' leading client franchises while offering security for Credit Suisse's clients. The acquisition strengthens our position in our asset gathering business by adding further scale in Wealth and Asset Management, increasing our combined assets to around $5 trillion across the most attractive growth markets. We are also extending our position as the leading universal bank in Switzerland, operating under both brands to best serve our clients.

Our Investment Bank, as we announced in our press release, we remain rightsized and focused on areas most relevant to our institutional Corporate and Wealth Management clients. We intend to derisk and downsize Credit Suisse's trading operations, and we'll manage the majority of this in a separate noncore division. We have received key downside protections and we'll share the risks associated with the rundown with the Swiss National Bank.

On a pro forma day 1 basis, our investment bank will account over time for around 25% of group RWA. Ralph will take you through our execution plans, but let me say that we are confident in our ability to successfully manage this. For over 10 years, we have made significant investments to strengthen our risk management framework and establish our disciplined culture. Maintaining the trust of our clients and protecting our investors has been and will always continue to be the ultimate priority of the Board of Directors and the Group Executive Board of UBS.

With that, let me hand you over to Ralph to go into the details of the transaction in more detail.

Ralph Hamers

Thank you, Colm. Good evening, everyone. Yes, and also thanks on my behalf that you all made yourself available. We're going to update you as to where we are and what we are planning to clearly, it's not in full detail. So you have to excuse us on that one. But we think we really have a good plan here.

So after days of discussions and due diligence, we did reach today an agreement, and we are acquiring Credit Suisse. But I think what is important is that we are announcing this acquisition from a position of strength. The inflows that we saw during the days of the terminal last week, they really demonstrate our status as a safe haven, and this allow and will allow us to protect all of our clients, including those of the combined bank. Now we understand that it is not an easy situation for the CS employees, but I would like to stress that we look forward to welcoming our new colleagues.

So let me run briefly through the transactions on Slide 3. It's an all-stock transaction and an exchange rate of around 22 Credit Suisse shares for 1 UBS share. So that, if you make the calculation, represent CHF 3 billion in value. The significant discounts to the Credit Suisse market cap as of Friday's close, and that reflects the outcome of our initial due diligence and to leave additional headroom for UBS existing shareholders.

We expect approvals to be expedited to close the deal as soon as possible. The acquisition has the full backing of FINMA, the full backing of the SMB, the full backing of the Swiss Federal Department of Finance as well. We've also received competition clearance in Switzerland, and we do still require regulatory approvals in other jurisdictions and expect an expedited time line here as well because with the most relevant ones we have been working over the weekend as well.

So throughout these merger discussions, it was always important for us to protect our shareholders from downside risk. UBS has obtained at least CHF 24 billion in protection to support MACS, purchase price adjustments and restructuring costs. The production includes FINMA's write-down of Credit Suisse CHF 15 billion of AT1 through instruments and an additional CHF 9 billion in loss protection from the Swiss authorities in case of potential losses beyond CHF 5 billion, which would be incurred by UBS. Any further potential P&L will be incurred equally by UBS and the Swiss authorities. On the liquidity side, both Credit Suisse and the combined entity will have access to a long-term secured liquidity facility at the SMB, and that's very significant in size.

Now let's look at the financial impact, Slide 5. Given the short time frame in which the acquisition came together, I hope you'll understand we don't have the full financial plan to present yet. As the acquisition price is at a discount to Credit Suisse tangible book value, there's an intermediate 74% increase in UBS tangible book value per share. We expect to realize more than $8 billion in run rate cost reductions by 2027, and we've also assumed revenue dissynergies in the transaction and expect the transaction to be EPS accretive by 2027.

In the near to medium term, the Credit Suisse turnaround and integration expenses will likely be -- will likely cause our returns to dip below 15% to 18% target. The integration, the way we currently see it of the businesses is expected to take 3 to 4 years and excluding the noncore rundown. About CHF 56 billion in badwill will be fully recognized towards CET1 capital is the combination and after the transaction, we will be very well capitalized and will be significantly above our current capital targets. We remain committed to a progressive cash dividend, including the 2022 dividend, which is subject to shareholders' approval at the 2023 AGM. And as Colm mentioned, we will pause our share repurchase program.

Now on the strategic rationale on Slide 6, I will run through on to the strategic rationale. I'm looking at the slide as we speak as well. So that's 6. And then I have the -- so we'll start with the asset gathering business, as you can see. We're combining forces with Credit Suisse. As a consequence of that, we will be able to drive scale and boost capabilities across our asset gathering platform. You know that we've always kind of -- that's the core of our strategy. which is the platform for investing. That's what we're trying to build.

When we had our Capital Day or our investor update just over a year ago, we indicated that we had an aspiration to get to $6 trillion and this will actually get us $1 trillion into that direction. So that's important. The way it is divided on the leading -- on the Wealth Management side, we will have nearly $3.4 trillion of invested assets on a pro forma basis. Then on the Asset Management side, it's $1.5 trillion on a pro forma basis. We're strengthening our geographic diversification as well through this. The leadership in position -- we'll create leadership positions in Switzerland, EMEA, Asia Pacific and Latin America.

Now in Asia Pacific, specifically, with our strength in Hong Kong, Singapore and China. That will now be complemented by Credit Suisse leading position in Southeast Asia, which part of our strategy was focused on and basically we can accelerate our organic strategy here with an inorganic opportunity because that's the strength of Credit Suisse. As I already referred to Asset Management, if you combine it, that will make the third largest European asset manager. And it will be an Asset Management in an attractive and balanced product portfolio across alternatives, but also more traditional capabilities as well as it will have a better spread across the regions as well.

Turning to Switzerland. Switzerland has always been a source of stability for our clients, also for our shareholders and we're strengthening that by joining forces with Credit Suisse. And that creates the undisputed leader across personal corporate banking and will specifically enhance our position in the corporate market, where Credit Suisse has traditionally been strong.

Turning to the Investment Bank. We've always said that we think of our investment bank and a set of capabilities that supports our role as an investing platform in Wealth Management and Asset Management. And the way we have sized it in order to have those capabilities, we always feel was right. With that, we can serve our Institutional and Wealth Management clients. Now that position has not changed. So we're extremely selective in the trading and derivative assets that will take into our investment bank. That portion will also include trades with Wealth Management clients.

On the banking side, the global banking side, as we referred, we see value in the combined entity. Credit Suisse's strength, particularly in the U.S. and the technology sector makes a very good fit to our strategy, where we know that technology entrepreneurs are the wealth creators of the future. So they provide quite some capabilities that are very strategic to us in terms of supporting technology entrepreneurs and wealth creation on that side. Now as Colm mentioned, on a pro forma day 1 basis, our Investment Bank will account for around 25% of group risk-weighted assets.

Now to close, I'd like to reiterate the way also Colm started. It's an outcome that we may not have hoped for, but the transaction is strategic. It really fulfilled a couple of our strategic points. It comes with attractive financial terms, and it delivers sustainable value for our shareholders. And that is because we also have quite some additional downside risk protected and shared.

And with that, we're happy to open for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Flora Bocahut from Jefferies.

Flora Bocahut

Yes. Two questions on my side, please. The first one is coming back. I mean, I don't know if I should ask you this question, but coming back on the wipeout of the AT1s on the CS side. I'm just surprised around the decision, given the shareholders of CS are not completely wiped out in this deal, and they are normally more junior to the AT1.

So I just wanted to ask you here, what triggered that decision from the FINMA, whether you think this could translate into a litigation risk for you as you embark on CS in this transaction and any consequence here that you want to discuss?

The second element I wanted to ask you, thank you for providing us with an estimate of the cost cutting that you can achieve from this transaction. How should we think about the revenues here? I suppose given the significant overlap that we have to think about potentially significant revenue dis-synergies as well from this deal.

Ralph Hamers

Yes. Thank you. The first one, we understand that is just an order in which things work. So FINMA has taken that decision. So it does not create a liability for us. It is their decision at a certain moment in time to do so. For us, it was looking at, okay, so with that as a given -- what is it that we can -- how can we make the deal work. So -- but this is -- this was Finland's decision on that one. On question 2, I'll give the floor to Sarah.

Sarah Youngwood

Thank you, Flora. So on the cost cutting, we have, as we said, the $8 billion by 2027 in terms of like reductions. In terms of like the revenues it's really a range of synergies and dis-synergies. And we are very excited to onboard on the platform, the CS clients, and we think it will be very attractive, but we've been conservative in the modeling.

Operator

The next question is from Andrew Coombs from Citi.

Andrew Coombs

Obviously some forward-ranging implications from today. But if I could just give it to the financials for now. Firstly, can you help us with the pro forma core Tier 1 capital calculation on day 1, that's post the AT1 bad -- and post the badwill recognition, where do you see your pro forma core Tier 1 prior to MACS' PPA, non-core losses, et cetera? So that would be question 1.

Question 2 is where do you see your G-SIB requirement moving to? Would you expect to get to go from 1% to 2%? And therefore, do you see your long-term core Tier 1 ratio at 14% rather than 13% is the target? And then finally, just coming back to this point around revenue dis-synergies, I appreciate you don't want to put an exact number on it, but can you help us think how much client overlap that is in the $3.4 trillion of private banking assets?

Ralph Hamers

Sarah?

Sarah Youngwood

So in terms of, like, first of all, the way to think about the pro forma for Tier 1 is you start with the fact that we actually have $14.2 billion and they have $14.1 billion and you combine those 2 since the entire badwill was recognized, if you want to think about it that way. So you can think of their full badwill recognition pre the AT1 as fully supporting maintaining the capital ratio with the full absorption of the RWA before anything happens. So that basically gives you as a combined portion to think about it that way.

Then you've got $15 billion of additional badwill recognized that is now available to cover your initial MACS and your restructuring costs. And to the extent that you have some MACS on some of the portfolios, we also had this $9 billion additional protection, which would possibly for upfront and partially could be thereafter. And so we feel very good that with that amount, $24 billion of protection, you're going to be basically at an extremely strong position to start with the combined.

In terms of G-SIB, it's actually not going to be the relevant factor for us. And so when you think about where we are, we did get the ability to have a consistent treatment with FINMA for the medium term. And so this is important to us and will be important to you. And that means that we don't have G-SIB that becomes a constraint.

And then in terms of revenue and synergies, really, it's about the choice of our clients. The overlap exist to a degree, but that wouldn't be very much. And it's going to be a little bit about some of the risk appetite and a little bit about really making sure that we have all of the dialogues, but we feel very good about the strength of our combined platform.

Ralph Hamers

Yes. I think on the revenue dis-synergies, I think we will very quickly get a feel for the size there in terms of the overlap. At this moment, we just can't say. Clearly, we have taken some assumptions. But that's one that will probably show itself quite quickly as to what the real size is of it. So that's why we're a bit conservative for the moment. Okay, next?

Operator

The next question is from Alastair Ryan from Bank of America.

Alastair Ryan

Just on EPS accretion in 2020. Is there anything specific that would stop it being sooner than that? Or that's just had to work or is out in 48 hours? So you're confident it can't be worse than that. Yes, that was it.

Sarah Youngwood

Yes. So we definitely hope to make it before that. It's really just about the noncore rundown and the fact that you can't take upfront some of the restructuring costs. And so therefore, some of them will run through the P&L and therefore affect the EPS. If you took that out, then we would be accretive way before.

Operator

The next question is from Jeremy Sigee from BNP Paribas.

Jeremy Sigee

Two questions, please. Firstly, how quickly will you plan to run off the noncore assets? Credit Suisse's plan was relatively slow to run the half. I wonder whether you're going to be in a much more of a hurry to get that out and clean and done? First question.

Second question is I don't think I've been mentioning here of the litigation exposures of Credit Suisse. I assume you inherit all of their litigation exposures. Do you have any risk shelter relating to those or they're all for you? And do you think you'd have a different attitude to settling some of those more rapidly?

Ralph Hamers

Yes. So I'll start with the last one. So we did review the portfolio. And we have taken some MACS as to what we feel a settlement amounts could be and that is all in the assumptions that we're working with. So we've built in some reserves there for us that we feel comfortable with after the short duties that we had. But I mean the cases are not unfamiliar, right? So it's -- and they have already provided -- they already publicly also provided information about it. So yes, we took some reserves against that as well in our calculations, let me put it that way.

Sarah Youngwood

Yes. And in terms of like the rundown, we will definitely be very decisive and very fast. It is definitely our desire to find solutions. But at the same time, some of the positions are extremely long-dated and embedded in the system, which is why we wanted to also be realistic and transparent. And this is not the type of portfolio which you can simply offload tomorrow morning. And so we will preserve value. So when we say in a hurry, it's not at all that we have to do it. It is just that we would like to put it behind, but we will be very rational about how we execute.

Ralph Hamers

Yes. And I mean, I think we have to also look at kind of the extra protection that we have here, right? So that's also why we ask the protection because we want to do that in a rational way as well. But for us, the sooner the better in the end. Because in the end, we want to also free up the management resources, right, make sure that we concentrate on what we're good at.

Operator

Your next question is from Chris Hallam from Goldman Sachs.

Chris Hallam

Just two questions. So first on Slide 9, I think you said 25% of IB RWA as a percentage of the group, and that's excluding noncore assets. I just wondered what that number would be if you were to include those assets? And then secondly, in Wealth is a bit of a follow-up to Andrew's earlier question. I understand Slide 7 is essentially a pro forma combination of the 2 businesses as at Q4. But given the recent headlines on the outflows at CS, are you able to give us a sense of what the rough level of acquired wealth AUMs on day 1 would be?

Sarah Youngwood

So if you take the 25% and you did it on the total, that would be 23% because we had -- the way we are going to want to think about it, just so that you get a doubt in our head is what is the noncore we're going to want to keep really a segment, so that it's not intermingled. It's run separately, it's run differently. And we will report it so that you can see it. It's in full transparency, but so that you also can see the UBS you know, in its other segments. But the UBS you know, now will improve the GWM platform of CS and the AM platform of CS and the P&C platform of CS and the parts of the ID particularly the banking that will match well with our capabilities. And so that is why we presented a number that way just to get started in the way we will want to present the numbers.

Operator

The next question is from Tom Hallett from KBW.

Tom Hallett

So a small handful for me. I suppose are there any material adverse condition causes for the deal? Secondly, whether you indemnified in case of any legal challenges from your own shareholders? Thirdly, what needs to happen to restart the buyback? And finally, is the first often spin-off now shelf?

Ralph Hamers

So what was the last question, sorry?

Tom Hallett

Is the first often some spin-off in shelf?

Ralph Hamers

Okay. Okay. Yes. Well, so I can't give you answers on everything yet, honestly. But on the MAC, there's a customary MAC is one that we feel comfortable with as a MAC. So -- and it should be seen as a MAC. So I think that's important that one. Then Sarah?

Sorry, you want very fast through 4 questions. So I think -- so the one was litigation exposure from shareholders. And it was the MAC. And then it was the last one that it was the first often...

Sarah Youngwood

Yes.

Ralph Hamers

I mean that is what we will work -- yes. So -- and then there's one that we're missing, no?

Tom Hallett

Yes. So what needs to happen to restart the buyback?

Sarah Youngwood

Right. So technically, we haven't actually passed yet, but we intend on pausing at some point. So of course, that will be part of the deal on. It is going to become really part of making all of the assessments and making sure that we integrate. And so right now, we are looking at taking a pause and there is no restrictions, though in the use of the bad will, for example, for the restarting of the buyback. So for us, it's all about maintaining the target levels that you know about for us, which now applies for the combined. And right now, we are overage, but we want to make sure that we wait until we have totally integrated some of the losses in nature that we are fully dimensioning.

But because we have the downside protection that enables us to be rather faster on it, but we want to also support all of the restructuring costs if we gave you the $8 billion and you apply any traditional cost to achieve on those restructuring costs those are large numbers that can be very well covered with all of the excess capitalization that we have. But yes, we want to be cautious as we go into it and make sure that we at all times remain above the target levels that we have.

Ralph Hamers

And maybe on the litigation, everybody can always litigate, right? So that's not what we can stop at the way we have run this process we have done with strong legal advice, but also as you know, with specific emergency ordinances. So -- and that is actually the way that we had to go in order to be able to do this in a weekend and secure as much certainty of the deal and with that also creating the stability that we needed to create over this weekend as a signal to the financial world. So yes, that's the way we went so step-by-step in a very coordinated way also with the government here. Okay, next question?

Operator

Your next question is from Kian Abouhossein from JPMorgan.

Kian Abouhossein

I wanted to ask a more maybe general question about looking at this transaction, how do you think about clearly the opportunities where you really think, okay, I want to hit the gas pedal. I see a lot of opportunities to not just integrate but also further expand our footprint, but also clearly, where you see potential headwinds that worry you that you have your Executive Board meetings?

The second question I have is regarding deferred tax assets were written down by Credit Suisse in its U.S. legal entity. And I was wondering if you could share your view if it's maybe possible to use those going forward on a combined basis?

Ralph Hamers

Okay. So on the first one, so clearly, what perhaps this brings is actually on the Wealth side, quite complementary to our strength. So if you look at Asia, where we, as you know, are focusing on growth, basically, where we are -- where we were less present where they're really strong in Southeast Asia. And this is really helpful for us that we will have that franchise, but also the skills to deal with the particular client days as well. And if we feel we can grow faster, we will look to grow faster there as well.

It also brings a very good franchise in Latin America for us as well. And so which one -- which was one that we were looking at how we could develop them as well. So that's truly where it helps. And they have some capabilities also in the Wealth business that we don't have as developed. So with those capabilities and those experiences, we can then also use that for the rest of our Wealth franchise. So that's that one.

So the headaches, if you want to call that, let's call it, challenges. Clearly, the real challenge here is the rundown of the investment banking activities, right? So it was already for them. And they will also be for us. And that's also why we looked at getting to protection in that area. But our team is very committed to working on it. We'll also kind of reach out to them as soon as possible there.

So that is one that it's an important factor of creating value by making sure that we refocus that investment bank in a way the way we have our -- refocus our investment bank in terms of having the capabilities and developing the capabilities also to the Wealth franchise. So -- and that is -- that will be quite some work. You, Sarah, next question?

Sarah Youngwood

On the deferred tax assets, we looked at the full tax situation and due diligence, and it's probably worth saying just in the context of due diligence that we did have several days. It was an extended weekend that was excluding million tons that they were are -- many people are involved and just tons of work that was done. And so it is actually a lot of information that was shared and that gives us the ability to answer your questions. So on deferred tax, we did see that on the -- there were also some liabilities. So taxes was rather neutral in our analysis.

Operator

Your next question is from Stefan Stalmann from Autonomous Research.

Stefan Stalmann

I have a couple of questions on the numbers, please. On the cost reduction, the $8 billion cost reduction that you're planning, is the starting base we reported cost base of CS? Or is it the adjustment, the adjusted cost base of CS or anything else?

The second question is you will have to translate the U.S. GAAP accounts of CS into your IFRS accounts. How confident are you actually that there won't be any surprises from that translation? The next question regards the fair value of Credit Suisse's long-term debt, the one that's actually held at cost in the Credit Suisse accounts. The fair value of that was already $5 billion below the accrued value at the year-end, and that has probably dropped a lot further given what credit spreads have done. So if there's no recovery, you would probably look at a very material discount on these liabilities when you actually integrate them into your balance sheet. Is that plausible? Have you considered that? And what will it do to your earnings going forward when you have to actually amortize that discount into your earnings? Those would be the 3 questions.

Sarah Youngwood

So in terms of like the $8 billion, it's the -- so you take a plus then minus the reduction equals the total. And so that $8 billion is what comes out. But it's really on their expense that we are going to be doing it. And in terms of the GAAP to IFRS, we are doing -- we did like a whole like purchase price analysis. We did not share it because obviously, this is something that we will do with our auditors before the closing, but that will be -- that we have, of course, considered at a fairly granular level already all of the adjustments that we would need to do. And of course, we have separated in our analysis, what would be temporary versus MACS.

And so mark that we reflect a different opinion of value as opposed to something which is a different type of recognition and after what affects the CET1 versus what doesn't. So I would say we feel that -- and the debt was, of course, considered. So we didn't, of course, just do the assets we did the liabilities as we look through all of it. And so when we think about on the total, it is in that context that we gave you the comfort that the amount of excess capital that it served to us is putting us in a very good position to absorb that and be very, very well positioned. So in terms of the debt to, of course, the fact that there is the access to the liquidity and the very significant liquidity that was provided by the Swiss authorities is also very helpful.

Stefan Stalmann

Pardon me, I could just follow up the $8 billion. That is based on your stated cost, not on your adjusted cost. Is that correct?

Sarah Youngwood

I'm sorry, I don't understand the question.

Stefan Stalmann

Well, are you starting with the reported cost base of CS? Or will the adjusted cost base of CS and of your cost base as well?

Sarah Youngwood

I'm sorry, sorry. With their stand-alone cost, so it will be the effective reported costs, except that it's not reported since it's the forecast that we obtain and are really built on our own.

Stefan Stalmann

But if you want to reduce cost by $8 billion, you have to have a starting position, isn't it? What is the starting position to be have the adjusted numbers?

Sarah Youngwood

Sorry. We start with -- we built a projection for stand alone CS and that expense base was then reduced by $8 billion.

Ralph Hamers

Okay. But that one is...

Stefan Stalmann

Reducing a projected number?

Sarah Youngwood

Projected. That number of $8 billion is as of 2027 because -- and that's a run rate number. So it's the run rate reduction applied to 2027.

Operator

Your next question is from Amit Goel from Barclays.

Amit Goel

Just a few follow-ups. Just to get a sense of on that $8 billion of cost reduction, how much restructuring charge are you kind of envisaging? Is it close to $8 billion you think it could be materially less? That's the first question.

The second question just relates to the protection that you've got from the Swiss authorities. I just wanted to check, obviously, it's been a huge amount. There's not been a lot of time to do all the due diligence, but I was wondering, in terms of the noncore assets, is that now kind of set? Or as you continue to spend some time to go further through portfolios, are you still able to determine which assets go into noncore and are eligible for the protection? And then lastly, the benefit from RWA relief related to the protection, I was just curious how meaningful is that?

Ralph Hamers

So the first one, yes, the parameter is still certainly the noncore unit they have, but also contracts that we think should go there. So that parameter is still being worked on.

Sarah Youngwood

Yes. So we do have the opportunity as Ralph said to continue to define more precisely the perimeter. So we have a broad universe, and it is beyond what is currently and what they call the noncore unit. It's a fairly broad approach.

Ralph Hamers

Including our part of what we want to run that.

Sarah Youngwood

Yes. And -- so in terms of the RWA release that come from the protection, yes, you're exactly right because the exposure is disfinished through protections. And so as we do on the adjustments, we will reflect that impact, but that is very helpful. And then in terms of like the kind of core...

Amit Goel

Cost to achieve?

Ralph Hamers

Cost to achieve. And the cost reduction.

Sarah Youngwood

Yes, cost reduction cost to achieve on -- I think it's always a fairly traditional ratios in terms of like a lot of it is the personnel, a lot of it is -- a little bit of it is the IT. And therefore, on the IT there is just the reduction and that's a onetime. But on the personnel, you have some costs to achieve that or commence rate if you think about it about -- in terms of like what could be -- but it can be less also. And so we have built that into our models. And then the last piece of the restructuring costs that you have to think about is the MACS that will come over time as it relates to the portfolio and that's where the protection is coming.

Operator

Your next question is from Andrew Lim from Societe Generale.

Sarah Youngwood

Just to add, it's 1.2% to 1.5% depending on what -- where it is but there are some cases where it is also...

Ralph Hamers

Yes. So that's the average on the cost of...

Sarah Youngwood

It's actually -- we have different -- different by divisions.

Ralph Hamers

I know you're trying to make a calculation. So that's where we better give you kind of an average multiple that we have assumed on the personnel aspect of the $8 billion. So you can do some work. Thank you, next.

Operator

The next question is from Nicolas Payen from Kepler Cheuvreux.

Nicolas Payen

I have 2 questions, please. The first one is on the protection and of the noncore assets, the $9 billion. Once you go above $9 billion, did I get that right that you will share 50%, 50% of losses with the Swiss authorities. And the second question is on -- I know it's really early stages, but any idea of the kind of return you could achieve on a run rate basis. Would it be, you think, significantly higher than 15% to 18% return on CET1?

Ralph Hamers

So first, I want to answer the questions around the cost savings. We're giving you the answers as we are going through stuff that we have -- we've been working on. So the $8 billion again. So it's about $6 billion on the FTE side, on the staff side, that has a cost to achieve of $1.2 billion, $1.25 billion. This is $2 billion on the more IT system side, okay, where there is no particular 1 multiple. So then on your 50-50. So basically, the way we have constructed the guarantees, we take this $5 billion first loss. The second loss tranche of $9 billion. And thereafter, and that is also still that we have to further document it's a 50-50 sharing agreement. So that's with the -- so then the other question was the return.

Sarah Youngwood

Run rate, right. So in terms of like -- by the time we get to the run rate, just think of it as being consistent with our run rate on the mix of businesses being consistent.

Operator

Next question is from Piers Brown from HSBC.

Piers Brown

I've just got 2. One is on the liquidity support. I wonder if you could just elaborate on whether you anticipate drawing on that liquidity support and what the drivers for needing to draw on that support would be?

And then the second question is just around some of the asset disposal plans. Is that completely within your choice? Or could there potentially be competition requirements, which might need due to dispose of particular assets, I'm thinking specifically in the Swiss market. Obviously, you're going to have quite a dominant position in part of the retail sector there?

Ralph Hamers

So on the last one, so to begin with that, no, that is clear. It's an important element for us. Clearly, we were not seeking this. So that's why we needed to be clear for us as well. So that's where we got the clearance. On the framework of support, so to say, from the SMB, these are all standard facilities basically. So it's a normal ELA facility, and there's an ELA plus facility where there's an extended definition of the eligible assets that you can -- liquid assets that you can offer and then it's the public backstop on top of that.

So a standard -- do we have discipline drawing? Yes, preferably not, but let's see how the markets develop. I mean we didn't need them. This week on the contrary. So it's -- yes, we'll see. The important thing is that it's there as a signal to the market that what we're doing here is the full support of the authorities here and the Central Bank here as well. So that both creditors who also just opens the more, right, and ourselves that the market sees the full support. And all of that is also known by the other regulators as well in the world. So -- okay. And the next?

Operator

Next question is from Anke Reingen from Royal Bank of Canada.

Anke Reingen

Sorry, first is just some number questions. On the day 1 core Tier 1 ratio, is it basically as simple as adding the CHF 56 billion of badwill, which would lead to an 18% core Tier 1 ratio? And then if I try to square it with a tangible book value on the 74% increase. Is it basically just the same CHF 56 billion and an additional CHF 170 million of shares?

And then sorry about coming back to the cost reduction, is it fair to say the $8 billion are on top of the cost savings that Credit Suisse already had in its plan? And will the restructuring costs, they announced be similar to what we should basically be assuming? And then probably just largely is in terms of -- I mean, this -- there must be disruptive to your strategy? And how do you assure that the people in your operation are disruptors and continue with your growth in U.S. and so on?

Ralph Hamers

Thank you. So the last two, so the $8 billion is on top of that, right, because these are synergies, right? These are things that we actually think are created by this deal. So I think that's an important one. And I think you have a very good question as to how do we focus the existing team also on our existing strategy. Clearly, a part of our existing strategy is filled in by this inorganic move, right? So as we have indicated that Asia Pacific was an important area for us to grow.

And a large part of that growth we have now been able to fill in through this acquisition in terms of the scale improvement in, for example, Asset Management that we have been just about next to the fact that we wanted -- that we are working on making our Asset Management for a specialized player. And that is also filled in by this as well. So there is quite some gaps or objectives that we had in our strategy, organic strategy that we are accelerating through this.

Also in the U.S., where we want to grow as a wealth manager, you would probably find the strength that I'm saying is, but part of the growth in the U.S. that we want to do as a wealth manager is in the global family and Institutional Wealth space for which our plan was and is to develop banking -- investment banking activities. And there are capabilities in specific sectors that we were focused on and where we were even hiring and plan to hire.

Actually, quite some gaps there are filled both on the research side as well as on the banking side with this acquisition and through which we can actually accelerate part of our growth that we were planning for in the U.S. as well. So there's quite some elements in this inorganic move that help us to support the original plans that you all know so well.

Now for us, it is important that the way we start organizing ourselves going forward, is that we truly focus on those areas where we can easily integrate to do that. But some of the integrations will come with quite some restructuring plans as well, right, so to be developed. But the complementary side, so for example, in Asia, LatAm, the U.S. banking activities, et cetera, et cetera, et cetera, that's pretty easy. I mean you just make sure that they work together. And clearly, we'll have to reach out to our new colleagues where we are basically merging and then start executing those plans that we had already on the inorganic side as well. So there was one more question, I think that...

Sarah Youngwood

Yes, on the day 1, core Tier 1. You have the right starting points, but then you do need to do the purchase price MACS, both on the change from the U.S. GAAP to the IFRS as well as just the purchase accounting as well as any views on MACS. Ralph mentioned litigation, for example, and that is what you would take. And then they will be part of the restructuring costs that will be immediate and some will come over different phases. And so it's that way that you end up starting with the initial number.

Operator

Your next question is from Jackie Ineke from Morgan Stanley.

Jackie Ineke

I have 2 questions. First of all, could you confirm that all the debt instruments of Credit Suisse at Holdco and Opco will move to the UBS Holdco and Opcos? And second question, and you know we'll return back to same on this. But Credit Suisse as a Tier 2 Holdco or the Opco, which appears to have the same write-down language as it's AT1s that are clearly getting written down? Can you confirm that, that Tier 2 Holdco will not be 0 at the AT1 have been?

Ralph Hamers

So the first one is, yes. The second one, we'll have to come back to you.

Jackie Ineke

Okay, thanks.

Operator

The next question is from Benjamin Goy from Deutsche Bank.

Benjamin Goy

On the $8 billion and the glass part of the cost savings, so you mentioned the $6 billion is coming out of FTEs and you operate in countries that only flex the labor law. So I was wondering how much you will realize maybe over the next 2 to 3 years already? And how is $8 billion and how you get there?

Sarah Youngwood

So it does grow over time. That's why we get into 2027 number. For 2 reasons, some of it is because of the time line. Some of it is because there are some people which are going to be needed. There are some systems, for example, where we will need to operate on those systems for a period of time and then transition to our systems. And so it is a phased exercise, which we will be organizing.

Operator

The next question is a follow-up question from Andrew Lim from Societe Generale.

Andrew Lim

So first of all, just streaming through the headlines today. It seems like you are increasing the offer of CS equity on $2 billion to $3 billion. I'm just wondering how you think that $3 billion number, it seems got generous and the fact that at the AT1? So any time that would be very full. And then secondly, can you be a bit clear on where you expect your new management CET1 ratio fall to be, I guess, north of 13%? And then...

Ralph Hamers

So on the first question. Well, so this is -- so I'm not going to give you insight in the negotiations. But we don't just give things away, right? So that's the only insight I would go to tell you there on that one. But this is what we feel is an active deal. You should all realize that this is a deal that we have to make in the circumstances that are not necessarily the best. And therefore, you look at all the elements that this transaction provides the different support that we are receiving as well and the opportunity the acquisition brings as well, right? So we can talk about it that we're not basically focusing on it, which is we weren't.

But then if asked to take it seriously, clearly, you start working on it. And we feel, as I said, does accelerate quite some elements of organic -- of our organic strategy. And then you make it work. And then basically, as you start making calculation as to what is it worth to us as well. In terms of accelerating some of our organic strategy. So that's how you come to these things. So your second question was...

Sarah Youngwood

Yes. So basically, just think of it as our target in terms of CET1 remains same.

Ralph Hamers

Exactly, exactly. Okay.

Andrew Lim

You anticipate it being the same at 13%. I think there was some kind of illusion that the CET1 ratio LCR requirement to be higher given your largest sitting now?

Sarah Youngwood

The transition period is extensive. So think of it...

Ralph Hamers

Yes, that's it. So that's -- clearly, as I sort elements, there's different elements that you work with in a transaction, right? And this is one of those elements.

So thank you for being here tonight. I know that there must be still questions that we have not been able to answer. And I understand that I even want to apologize for it, but this is how far we got in the couple of days that we had in order to work on this.

Now clearly, we would like to take you along on this journey, which basically means that when we are clear, when we are closer to the transaction where we are continuing our due diligence where we can further kind of -- where we can get more information, where we have more experience, et cetera, et cetera, et cetera. We can be more precise. The whole team here is working hard to make sure that the questions that you have also tomorrow and also on Tuesday that we at least collect them and make sure that one way or the other, we come back to you in a moment where we feel equipped to give you those answers. So that's my promise.

It's an important way to go in this trajectory together. You knew it very well, you will be following us. And we will change, but we will not change that much. We will still be Swiss. We will be an even bigger wealth manager in the world. we will have an even bigger platform for investing where we want to bring leading wealth clients and institutional investors together. So from that perspective, we're making a giant step in terms of our strategy to grow to what we once indicated to you as the aspiration to be a $6 trillion network for private money. And this is a big step into that direction. So from many different perspectives, this helps us strategically as well.

So with that, again, thank you very much for being on the phone. Again, we will be ready to work with you on your questions and come back with answers. And yes, I wish you for the ones that are still in the time zone where it's Sunday, a great Sunday and otherwise go to bed quickly, and then we'll open tomorrow morning. Thank you very much.

Sarah Youngwood

Thank you. Goodbye.

Operator

Your conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.