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The Swiss government has struck an agreement with UBS to compensate the global financial institution for up to 9 billion Swiss francs ($10 billion) in possible losses from liquidating the assets of rival Credit Suisse.
The government brokered UBS’s emergency takeover of Credit Suisse for CHF3 billion in early March to prevent a banking and economic crisis in Switzerland. At the time, the federal government assured that it was prepared to cover some of the losses resulting from the asset sales of troubled financial institutions.
On Friday, the government agreed to compensate UBS for losses of CHF5 billion to CHF9 billion. The move is believed to be the last major hurdle UBS faces in buying Credit Suisse.
This guarantee only covers loans, derivatives, legacy assets and structured product portfolios from Credit Suisse’s non-core divisions. But the portfolio is worth about CHF 44 billion, or about 3% of the combined assets of the two big banks.
The Swiss government said in a statement that the deal would become effective once the Credit Suisse takeover is complete. The deal, which is expected to close next Monday, will transform UBS into a financial powerhouse worth twice as much as the Swiss economy.
However, the indemnification agreement comes with a number of conditions, including that UBS establishes a suitable organizational structure in the form of a separate organizational unit and that it maintains its headquarters in Switzerland. In addition, UBS will have to pay several fees, including an initial setup fee of CHF 40 million, to exercise the guarantee fund.
“The priority of the Federal Government and UBS is to minimize potential losses and risks in order to avoid reliance on federal guarantees as much as possible,” the Swiss government said.
Meanwhile, the Swiss parliament has brought forward the end date of talks on a planned public liquidity backstop for systemically important banks. The decision was made in the wake of the Credit Suisse debacle.
Swiss banking giant Credit Suisse was already in trouble, with its shares falling to record lows in the wake of the recent U.S. banking crisis, which led to bankruptcy in March. But Swiss authorities have ignited the ire of Swiss lawmakers by ignoring the legislature and offering bailouts to financiers in a hasty deal.
The Swiss government has struck an agreement with UBS to compensate the global financial institution for up to 9 billion Swiss francs ($10 billion) in possible losses from liquidating the assets of rival Credit Suisse.
The government brokered UBS’s emergency takeover of Credit Suisse for CHF3 billion in early March to prevent a banking and economic crisis in Switzerland. At the time, the federal government assured that it was prepared to cover some of the losses resulting from the asset sales of troubled financial institutions.
On Friday, the government agreed to compensate UBS for losses of CHF5 billion to CHF9 billion. The move is believed to be the last major hurdle UBS faces in buying Credit Suisse.
This guarantee only covers loans, derivatives, legacy assets and structured product portfolios from Credit Suisse’s non-core divisions. But the portfolio is worth about CHF 44 billion, or about 3% of the combined assets of the two big banks.
The Swiss government said in a statement that the deal would become effective once the Credit Suisse takeover is complete. The deal, which is expected to close next Monday, will transform UBS into a financial powerhouse worth twice as much as the Swiss economy.
However, the indemnification agreement comes with a number of conditions, including that UBS establishes a suitable organizational structure in the form of a separate organizational unit and that it maintains its headquarters in Switzerland. In addition, UBS will have to pay several fees, including an initial setup fee of CHF 40 million, to exercise the guarantee fund.
“The priority of the Federal Government and UBS is to minimize potential losses and risks in order to avoid reliance on federal guarantees as much as possible,” the Swiss government said.
Meanwhile, the Swiss parliament has brought forward the end date of talks on a planned public liquidity backstop for systemically important banks. The decision was made in the wake of the Credit Suisse debacle.
Swiss banking giant Credit Suisse was already in trouble, with its shares falling to record lows in the wake of the recent U.S. banking crisis, which led to bankruptcy in March. But Swiss authorities have ignited the ire of Swiss lawmakers by ignoring the legislature and offering bailouts to financiers in a hasty deal.
