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UBS Earns $29 Billion From Badwill Tied to Credit Suisse Deal

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2 years ago

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When UBS agreed to buy its archrival, Credit Suisse, for a little over $3 billion this spring at the Swiss government’s behest, analysts and investors said that price represented a steep discount. UBS’s latest financial results reflect just how much of a steal it was.

Today, the bank reported a $29 billion profit — yes, you read that right — for the second quarter, the biggest quarterly profit in banking history. But that paper gain belies the challenges that UBS faces as it moves to complete the largest takeover of a bank since the 2008 financial crisis.

UBS’s huge profit arises from “badwill,” an accounting phenomenon where a company buys an asset for less than it’s worth, leading to a noncash gain that essentially recognizes the actual value of the asset. (It’s also known as “negative goodwill.”) UBS reported that its underlying profit for the quarter was just $1.1 billion.

A wave of bank rescue deals this year has led to pumped-up profits for acquirers. Second-quarter profits at JPMorgan Chase jumped 67 percent in large part because of its takeover of First Republic, while First Citizens enjoyed a 3,500 percent gain in first-quarter profit after buying Silicon Valley Bank at a steep discount.

But UBS has more work to do, with the bank estimating that the Credit Suisse acquisition will be largely completed by 2026. Among its biggest tasks is consolidating its former rival’s domestic bank with its own, despite concerns that the move will undercut competition in Swiss retail banking.

Uniting the two will lead to some 3,000 job losses in the country, fulfilling fears among politicians and voters. But UBS defended its decision today, saying, “Our analysis clearly shows that full integration is the best outcome for UBS, our stakeholders and the Swiss economy.”

Meanwhile, Credit Suisse’s own results — including a pretax loss of 4.3 billion Swiss Francs ($4.9 billion) in the quarter, tied to customer withdrawals and struggles in investment banking — suggest that UBS still has big hurdles to overcome in absorbing the business.

For now, UBS shareholders appear happy, especially with the badwill gain showing just how much the bank benefited from rescuing its rival. (UBS manages about $5 trillion in client assets following the deal.) Shares in the bank were up over 5 percent today, at 23.42 Swiss francs ($26.57), and now trade at their highest level since the summer of 2008.

Senator Mitch McConnell freezes again in a public appearance. During a Q.&A. session with reporters in Kentucky yesterday, the top Senate Republican stopped speaking mid-answer for about 30 seconds. It was the second such incident in two months, and it renewed questions about the health of McConnell, 81, and his ability to continue serving out his term.

Donald Trump is accused of vastly overinflating his properties’ values. Attorney General Letitia James of New York said in a court filing that the former president fraudulently pumped up the value of his holdings for years, boosting his net worth by up to $2.2 billion. Lawyers for Trump said the case, one of many he faces in federal and state courts, should be dismissed.

Microsoft moves to unbundle its Teams app in Europe. The tech giant hopes that offering lower-cost versions of its productivity software packages that don’t include the communications program will assuage E.U. regulators who opened an antitrust investigation into the matter last month. Whether that will be enough is unclear: A spokeswoman for the European Commission declined to comment on whether the move satisfied regulators’ concerns.

Regulators reportedly look into benefits that Tesla gave Elon Musk. Federal prosecutors in Manhattan and officials at the S.E.C. are examining perks including a spacious glass house in Texas described within the company as a house for its C.E.O., according to The Wall Street Journal. The inquiries, which appear to center on whether company-provided benefits were properly disclosed to investors, are the latest legal headache for Tesla.

The S&P 500 is riding a four-day winning streak on hopes that the Fed is done raising interest rates. That optimistic view will be tested tomorrow morning when the Labor Department releases its nonfarm payrolls report for August.

Economists polled by Reuters estimate that employers added 170,000 jobs in August, which would be the smallest monthly increase since December 2020. But investors would likely greet a modest slowdown — along with evidence that wages are moderating — favorably.

For much of the year, markets have reacted positively to any piece of data showing that the Fed’s policy of raising its prime lending rate was cooling the red-hot labor market and, in turn, helping to lower inflation.

The labor data already released this week has cheered investors. Yesterday’s ADP private payroll report for August showed the slowest job growth in five months. That followed a Labor Department data release on Tuesday that revealed a steep drop in job openings. “The labor market is cooling and is taking pressure off policymakers concerned with a second wave of inflation,” Jeffrey Roach, chief economist for LPL Financial, a research firm, wrote in a note yesterday, pointing to the ADP data.

The Fed is widely expected to hold rates steady at its meeting next month. And the futures market yesterday was pricing in a 44 percent chance of the Fed raising rates at its November policy meeting — a stark drop from the 67 percent odds traders were placing at the beginning of the week. Jay Powell, the Fed chair, warned last week that central bankers do not consider their inflation fight to be over yet, making Friday’s jobs numbers pivotal.

  • In other labor news, the Biden administration yesterday proposed an increase in the cutoff for salaried workers who can receive overtime, making millions more workers eligible for time-and-a-half pay if they work more than 40 hours a week.

— Steve Schwarzman, the co-founder of Blackstone, speaking to Puck about the possibility of a Biden-Trump rematch in 2024 despite both candidates polling poorly among voters. Schwarzman, a major Republican donor who has turned his back on Trump, said another candidate could yet claim the G.O.P. nomination.

Hurricane Idalia has been downgraded to a tropical storm and is moving north after battering Florida, leaving residents counting the costs of the devastation and the insurance industry predicting billions of dollars in claims. But the storm’s impact also shines a light on the complicated relationship between Gov. Ron DeSantis, a Republican presidential contender, and the federal government, which typically spends big to help in such cleanups.

The Biden administration has pledged support. The Federal Emergency Management Agency has about $3.4 billion in its disaster relief fund to deal with the fallout of the Maui wildfires and Idalia. Deanne Criswell, head of the agency, told reporters yesterday that DeSantis had “no unmet needs,” before heading to Florida. President Biden said that he had called DeSantis to say he had approved an emergency declaration that the governor requested, adding, “I think he trusts my judgment and my desire to help.”

But DeSantis hasn’t always backed the spending of federal funds for disaster relief. When he was a congressman in 2013, he rejected assistance for victims of Hurricane Sandy in New York. As governor of Florida, however, he has sought aid, and during Hurricane Ian last year he paused his political feuding with Biden. DeSantis also condemned F.E.M.A. for denying a request for funds to rebuild homes after Ian.

DeSantis is already rejecting federal funds in other ways. Florida is eligible for about $350 million in green incentives under the Inflation Reduction Act, but the governor has refused the money. Republican governors in South Dakota and Iowa, along with Kentucky’s Democratic governor, are turning down smaller sums.

But DeSantis’s broader rejection suggests that taking a stance on I.R.A. money could become a talking point in the race to decide the Republican presidential candidate. And that could ultimately undermine President Biden’s efforts to promote his environmental policies on the 2024 campaign trail while climate change makes emergencies like Idalia increasingly common.

Deals

  • Reid Hoffman, the LinkedIn co-founder, will reduce his role in finding new investments at Greylock Ventures to focus more time on artificial intelligence efforts. (WSJ)

  • Dan Och, a co-founder of the hedge fund Sculptor, is fighting back against its planned sale to Rithm Capital, widening a messy dispute over the fate of the once-giant fund. (FT)

  • The billionaire Thomas Tull is reportedly seeking to increase his stake in the N.F.L.’s Pittsburgh Steelers. (Bloomberg)

Policy

  • The Fed reportedly raised risk and compliance concerns about a Goldman Sachs division’s work with fintech companies. (FT)

  • “How Jeffrey Epstein Tried to Tap Into Trump’s Circle” (WSJ)

  • A federal judge rejected a bid by Trevor Milton, the founder of the electric vehicle maker Nikola, for a new trial on fraud charges, dismissing claims that a juror was secretly biased against the rich. (Reuters)

Best of the rest

  • New documents purport to show how associates of the Adani family used opaque funds to secretly amass holdings in the multibillion-dollar Adani conglomerate. (FT)

  • Laszlo Birinyi, the financier who made a fortune with an investing approach centered on market “psychology,” died on Aug. 21. He was 79. (NYT)

  • How billionaires including Sumner Redstone, Sam Zell and founders of Carlyle were reportedly defrauded of millions by a man who was already behind bars. (New Yorker)

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Accounting

Global ESG Reporting Standards and Double Materiality Compliance

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5 days ago

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August 9, 2026

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Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

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Accounting

Modernizing Internal Controls: Machine Learning and Continuous Monitoring in Auditing

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1 week ago

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August 5, 2026

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Internal audit departments and corporate risk managers are modernizing internal control frameworks by shifting from periodic sampling techniques to continuous monitoring and machine learning analytics. As operational data volumes increase across enterprise organizations, automated control testing ensures financial integrity, prevents corporate fraud, and streamlines annual audit engagements.

The Limitation of Periodic Audit Sampling
Historically, internal and external auditors evaluated internal controls by reviewing random samples of financial transactions—often analyzing less than five percent of total ledger entries. In complex enterprise environments, periodic sampling methods carry inherent risks of overlooking localized financial misstatements, unauthorized disbursements, or operational control breakdowns.

In 2026, progressive internal audit functions are utilizing automated continuous monitoring platforms that evaluate one hundred percent of financial transactions in real time. Continuous control auditing systems continuously monitor general ledger entries, procurement approvals, and expense reimbursements across all operating subsidiaries.

AI-Powered Fraud Detection and Anomaly Identification
Machine learning models trained on historical corporate financial data excel at identifying subtle transactional anomalies that indicate potential fraud or operational error. Automated systems instantly flag duplicate invoice payments, unapproved vendor creation, unusual journal entry timing, and unauthorized override of authority thresholds.

When an anomaly is detected, the automated auditing platform generates an instant risk alert, allowing internal audit teams to investigate root causes immediately. Early detection prevents minor operational errors from escalating into material weaknesses in financial reporting.

Streamlining External Audit Preparation
Continuous internal control monitoring delivers significant benefits during annual external financial audits. External audit firms can review continuous audit logs and automated control testing documentation, reducing the time required for manual field testing.

This integrated approach lowers overall audit compliance fees, reduces administrative burdens on corporate accounting staff, and provides senior management and audit committees with real-time visibility into the organization’s overall risk profile.

Core Implementation Guidelines
1. Transition to 100% Data Testing: Replace legacy sampling methods with automated continuous audit monitoring systems.
2. Deploy Anomaly Detection Algorithms: Implement machine learning models to identify unauthorized transactions and operational control overrides.
3. Align Internal and External Audit Workflows: Coordinate continuous control testing protocols with external auditors to optimize annual compliance cycles.

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Accounting

Automated Tax Compliance and Global Regulatory Harmonization in 2026

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1 week ago

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August 5, 2026

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Corporate tax accounting departments are navigating an era of unprecedented regulatory complexity as global tax harmonization frameworks take full effect alongside real-time digital tax reporting mandates. Tax directors and accounting teams are adopting cloud-based tax compliance automation tools to manage multi-jurisdictional tax liabilities and satisfy stringent reporting rules across international jurisdictions.

Implementation of Global Minimum Tax Provisions
The implementation of international tax reform agreements—notably the Pillar Two global minimum tax framework—has reshaped multinational corporate tax planning. Multinational enterprises with consolidated revenues exceeding established thresholds must ensure an effective tax rate of at least 15% across every jurisdiction in which they operate.

Accounting teams are implementing specialized tax calculation modules integrated directly into enterprise resource planning (ERP) platforms. These automated tools calculate effective tax rates per country, identify top-up tax liabilities, and generate standardized compliance documentation required by national tax authorities.

Real-Time Digital Invoicing and E-Reporting Mandates
Tax authorities across Europe, Latin America, and Asia-Pacific have enacted mandatory electronic invoicing (e-invoicing) and continuous transaction controls (CTC). Under these systems, corporate transaction data must be submitted electronically to government portals in real time at the point of sale or invoice issuance.

This shift toward continuous digital tax reporting eliminates traditional annual tax audits in favor of ongoing automated compliance monitoring. Accounting departments are upgrading invoicing software to ensure seamless XML data formatting, digital signature authentication, and real-time validation against tax authority databases.

Automation and Data Analytics in Corporate Tax Strategy
To keep pace with dynamic tax legislation, tax departments are transitioning from reactive compliance teams to proactive strategic advisors. Machine learning algorithms analyze corporate transactional data to identify tax credits, research and development (R&D) incentives, and cross-border transfer pricing adjustments.

By automating routine tax return filings and calculations, corporate tax directors can focus on long-term capital structuring, evaluating the tax implications of corporate mergers, and optimizing international supply chain networks.

Strategic Priorities for Tax Executives
1. ERP System Upgrades: Ensure enterprise software is capable of generating real-time, granular tax data required for global minimum tax compliance.
2. E-Invoicing Integration: Implement scalable e-invoicing platforms to satisfy regional continuous transaction control regulations.
3. Strategic Tax Analytics: Utilize predictive tax modeling tools to evaluate structural changes in corporate operations and cross-border trade.

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