ZURICH — UBS announced on Friday the conclusion of a substantial financial arrangement, involving a 9 billion Swiss franc ($10.27 billion) loss protection agreement and a 100 billion Swiss franc public liquidity backstop.
These measures were initially instituted by the Swiss government during its acquisition of rival institution Credit Suisse in March.
The decision, according to UBS, stems from a comprehensive evaluation of Credit Suisse’s non-core assets, which were encompassed by the liquidity support measures. Additionally, Credit Suisse has successfully repaid a significant emergency liquidity assistance plus (ELA+) loan of 50 billion Swiss francs, obtained from the Swiss National Bank in March. This action was undertaken in response to a substantial decline in shareholder and investor confidence, as the bank faced critical circumstances.
Furthermore, the Swiss Federal Council is taking measures to present a legislative proposal in parliament, introducing a public liquidity backstop (PLB) within the framework of ordinary law. Simultaneously, efforts are ongoing to conduct an exhaustive review of the regulatory framework pertaining to entities deemed “too-big-to-fail.”
The 9 billion Swiss franc loss protection agreement was designed to mitigate UBS’s losses beyond the 5 billion Swiss franc threshold subsequent to the takeover. The acquisition, completed over an intense weekend in March, involved discussions with the Swiss government, the Swiss National Bank, and the Swiss Financial Market Supervisory Authority. UBS, during this transaction, acquired Credit Suisse at a reduced value of 3 billion Swiss francs, resulting in the establishment of a commanding Swiss banking and wealth management entity, reflecting a balance sheet amounting to $1.6 trillion.
Following a comprehensive review of assets covered by the loss protection agreement since the conclusion of the acquisition in June, UBS has ascertained that the agreement has become redundant due to appropriate fair value adjustments. Consequently, UBS has formally issued a voluntary termination notice, set to be effective from 11 August 2023. As part of this conclusion, UBS will provide a total compensation of CHF 40 million to the Swiss Confederation for the initiation of the loss protection agreement.
Furthermore, the 100 billion Swiss franc public liquidity backstop, established on March 19 under the auspices of the Swiss government, facilitated the provision of liquidity support to Credit Suisse by the Swiss National Bank, backed by a federal default guarantee. UBS has confirmed the complete repayment of all loans drawn under the public liquidity backstop by Credit Suisse by the conclusion of May. Subsequent to an exhaustive assessment of its funding situation, the group has formally terminated the public liquidity backstop agreement.
As of July 31, 2023, Credit Suisse has incurred an expense amounting to CHF 214 million, comprising commitment fees and a risk premium. Of this sum, approximately CHF 61 million has been directed towards the Swiss National Bank, with CHF 153 million allocated to the Swiss Confederation, as stated by UBS.
