The Swiss government has struck a deal with UBS to cover up to 9 billion Swiss francs ($10 billion) in losses that the global lender could incur as it liquidates the assets of rival Credit Suisse.
The government had brokered UBS’ emergency takeover of Credit Suisse for CHF3 billion earlier in March to prevent a Swiss banking and economic crisis. At the time, the federal government confirmed that it was prepared to bear a portion of any losses incurred from the sale of the distressed lender’s assets.
On Friday, the government agreed with UBS to cover losses of more than 5 billion Swiss francs and up to 9 billion Swiss francs. The move is believed to be the last major hurdle facing UBS’ takeover of Credit Suisse.
The guarantee covers only loans, derivatives, legacy assets and structured product portfolio from Credit Suisse’s non-core unit. However, the portfolio, worth around CHF44 billion, makes up only about 3% of the combined assets of the two banking giants.
The Swiss government indicated in a statement that the transaction will become effective once UBS’ acquisition of Credit Suisse is completed. The acquisition is expected to be completed next Monday, turning UBS into a financial powerhouse worth twice the Swiss economy.
However, the loss protection agreement comes with several conditions, including UBS creating an appropriate organizational structure in the form of a separate organizational unit and maintaining its headquarters in Switzerland. In addition, UBS, in order to exercise the guarantee fund, has to pay several fees, including the initial incorporation fee of 40 million Swiss francs.
The Swiss government indicated that “the priority for the Federal Government and UBS is to minimize potential losses and risks so that recourse to the Federal guarantee is avoided as far as possible.”
Meanwhile, the Swiss Federal Council recently raised the end date for its consultation on planned public liquidity support for systemically important banks. The decision was taken in light of the Credit Suisse fiasco.
Credit Suisse, an already struggling Swiss banking giant, collapsed in March after its shares plunged to an all-time low in the wake of the latest banking crisis in the United States. However, Swiss authorities offered a bailout package to the lender in a rushed deal, which bypassed the legislature and angered Swiss lawmakers.
The Swiss government has struck a deal with UBS to cover up to 9 billion Swiss francs ($10 billion) in losses that the global lender could incur as it liquidates the assets of rival Credit Suisse.
The government had brokered UBS’ emergency takeover of Credit Suisse for CHF3 billion earlier in March to prevent a Swiss banking and economic crisis. At the time, the federal government confirmed that it was prepared to bear a portion of any losses incurred from the sale of the distressed lender’s assets.
On Friday, the government agreed with UBS to cover losses of more than 5 billion Swiss francs and up to 9 billion Swiss francs. The move is believed to be the last major hurdle facing UBS’ takeover of Credit Suisse.
The guarantee covers only loans, derivatives, legacy assets and structured product portfolio from Credit Suisse’s non-core unit. However, the portfolio, worth around CHF44 billion, makes up only about 3% of the combined assets of the two banking giants.
The Swiss government indicated in a statement that the transaction will become effective once UBS’ acquisition of Credit Suisse is completed. The acquisition is expected to be completed next Monday, turning UBS into a financial powerhouse worth twice the Swiss economy.
However, the loss protection agreement comes with several conditions, including UBS creating an appropriate organizational structure in the form of a separate organizational unit and maintaining its headquarters in Switzerland. In addition, UBS, in order to exercise the guarantee fund, has to pay several fees, including the initial incorporation fee of 40 million Swiss francs.
The Swiss government indicated that “the priority for the Federal Government and UBS is to minimize potential losses and risks so that recourse to the Federal guarantee is avoided as far as possible.”
Meanwhile, the Swiss Federal Council recently raised the end date for its consultation on planned public liquidity support for systemically important banks. The decision was taken in light of the Credit Suisse fiasco.
Credit Suisse, an already struggling Swiss banking giant, collapsed in March after its shares plunged to an all-time low in the wake of the latest banking crisis in the United States. However, Swiss authorities offered a bailout package to the lender in a rushed deal, which bypassed the legislature and angered Swiss lawmakers.
