UBS to sell $8 bn loans to Apollo in revised SPG deal

UBS WILL BOOK A NET GAIN OF ABOUT $300 MN IN THE FIRST QUARTER RELATED TO THE MATTER

UBS Group AG finalized a deal with Apollo Global Management Inc. for the carve-out of Credit Suisse’s securitized products group (SPG) after renegotiating key parts of the accord.

Apollo will purchase $8 billion in senior secured financing facilities from UBS, according to a statement on Wednesday. The two sides agreed to end an investment management agreement that was initially part of the transaction as well as a transition service agreement.

UBS will book a net gain of about $300 million in the first quarter related to the matter, while Credit Suisse is expected to recognize a net loss of $900 million. Apollo said the change had no economic impact on it.

UBS announced last year that it planned to renegotiate the terms of the deal, which Credit Suisse struck in an unsuccessful, last-ditch effort to win back investor confidence before its rescue. Under the original agreement, the Swiss bank was expected to provide financing for some of the assets and keep others that Apollo would manage for a fee.

The business, known as SPG, bought and sold securities backed by pools of mortgages and other assets, such as car loans and credit-card debt. It traced its roots back to Wall Street’s raucous mortgage-bond scene in the 1980s.

A large part of SPG’s assets and employees had been transferred already to an Apollo subsidiary called Atlas SP. New York-based trader Jay Kim, who led the business at Credit Suisse, joined Atlas as part of the deal.

“We are pleased to finalize the Atlas transition in partnership with UBS, in an economically neutral manner for our firm,” Apollo Chief Executive Officer Marc Rowan said in the statement. “This caps off a quarter marked by record origination and capital raising for Atlas.”

UBS CEO Sergio Ermotti said the deal allows his firm to free up capital from non-core businesses and reduce complexity.

Credit Suisse flagged in September that it expected about $600 million in losses in the third quarter from the decision to end management arrangements. The figures announced Wednesday reflect accounting adjustments and provisions made in the second and third quarter of last year, UBS said.