ZURICH: UBS and the Swiss government signed on Friday (Jun 9) an agreement to cover up to 9 billion Swiss francs (US$10.00 billion) in losses from its emergency takeover of Credit Suisse, the country’s largest bank and the government said.
The deal comes with various conditions, including a requirement that UBS keeps its headquarters in Switzerland, the government said in a statement.
The loss protection agreement (LPA) will become effective with the completion of Credit Suisse takeover, expected as early as Jun 12, UBS said in a separate statement.
The guarantees will kick in if UBS incurs losses from the sale of Credit Suisse assets beyond 5 billion francs that the lender is due to cover itself.
The state money will also not come for free however, with UBS having to pay various set up and maintenance fees, as well as premiums on any money drawn.
The money was made available by the government to ease the emergency takeover of Credit Suisse, whose collapse risked triggering a global financial crisis.
“To make the takeover possible, the government granted UBS a guarantee for any losses incurred in the liquidation of Credit Suisse assets,” the government said in a statement.
“The guarantee will only come into effect if the losses from the liquidation of these assets exceed 5 billion Swiss francs and is limited to a total of 9 billion francs,” it added.
The agreement will cover a portfolio of Credit Suisse assets that were difficult to assess in the few days the banks had to hash out a deal and which are not needed as part of the future core business of UBS.
The government said the guarantee covered assets with a volume of around 44 billion Swiss francs, an equivalent of about 3 per cent of the combined assets of the merged group, mainly made of derivatives, loans, legacy assets and structured products. Valuations of the losses are expected to be made available during the third quarter of 2023, the government said, while their scale is “highly dependent on the actual wind-down of the assets concerned and market developments” it said.
“Consequently, it is not yet possible to estimate the probability of the guarantee being drawn and the amount involved,” the government said.
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