UBS ends taxpayer backstop granted for Credit Suisse rescue

[August 11, 2023]  By Noele Illien

ZURICH (Reuters) - Swiss taxpayers are no longer on the hook over the rescue of Credit Suisse after UBS said on Friday it would not need the 9 billion francs ($10.3 billion) of state guarantees provided to smooth the takeover of its failing rival.

UBS also said it no longer needed a public liquidity backstop or a liquidity assistance loan of up to 100 billion francs from the Swiss National Bank (SNB) and backed by a federal guarantee, freeing it of taxpayer-backed funding.

"These measures, which were created under emergency law to preserve financial stability, will thus cease to exist, and the Confederation and taxpayers will no longer bear any risks arising from these guarantees," the Swiss government said.

Vontobel analyst Andreas Venditti said the news should calm the political debate around Swiss taxpayers' exposure to UBS.

Shares in Switzerland's biggest bank were up 5% at 1000 GMT.

UBS agreed on March 19 to buy Credit Suisse for a knockdown price of 3 billion francs and up to 5 billion francs in assumed losses in a rescue orchestrated by Swiss authorities with Switzerland's second-largest bank on the edge of collapse.

Credit Suisse and UBS also borrowed 168 billion francs from the SNB in various emergency liquidity schemes to ease the deal.
 

The rescue created a Swiss banking and wealth management giant with a $1.6 trillion balance sheet and was the biggest banking deal since the 2008 financial crisis.

UBS also said on Friday that Credit Suisse had fully repaid an Emergency Liquidity Assistance Plus (ELA+) loan of 50 billion francs to the SNB.

But it decided against ending the agreement giving it access to these funds as a precautionary measure, making it possible for the bank to re-access the liquidity lifeline in the future if needed.

A worker climbs on a ladder under the logo of Swiss bank UBS at the company's headquarters in Zurich May 26, 2011.REUTERS/Arnd Wiegmann/File Photo

By reducing the involvement of Switzerland's authorities, UBS could hope for greater autonomy in some major and politically fraught decisions it has to make.

"The early voluntary repayment could potentially also help in other matters, such as negotiating the retention of the Credit Suisse Swiss business, in our view," Citi analyst Andrew Coombs said.

UBS has been weighing whether to keep Credit Suisse's domestic business. Freeing itself of taxpayer support could make it easier for UBS to cut costs, with potentially thousands of jobs at stake. UBS has previously said it expects to give an update by the end of the summer.

As of July, a 43 billion franc emergency liquidity assistance loan with the central bank remained outstanding, a person familiar with the matter said.

The government's guarantee of up to 9 billion francs related to losses UBS might incur from the sale of Credit Suisse assets, beyond 5 billion francs that UBS agreed to cover itself.

UBS's chief executive and chairman on Friday told staff in a memo seen by Reuters that it would provide information on further milestones it had reached in the merger with Credit Suisse alongside its second-quarter results on Aug. 31.

UBS also said that, together with Credit Suisse, it had paid over 700 million francs in fees and risk premiums for the guarantees and emergency liquidity facilities.

($1 = 0.8760 Swiss francs)

(Reporting by Noele Illien Editing by Jacqueline Wong and Mark Potter)

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