The Swiss government signed a deal with UBS on Friday indemnifying the bank giant for losses of up to $10 billion arising from its takeover of its troubled rival Credit Suisse in March. File Photo by Hugo Philpott/UPI |
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June 9 (UPI) -- The Swiss government made good on its pledge to indemnify banking giant UBS for losses from its $3.2 billion takeover of rival Credit Suisse on Friday, three days before the deal becomes final.
The Federal Department of Finance and UBS signed a loss protection agreement guaranteeing potential losses from winding down Credit Suisse's assets -- but the guarantee applies only if UBS' losses exceed $5.55 billion and is limited to $9.98 billion total, the Federal Council said in a news release.
The announcement came 72 hours before UBS is set to complete the controversial takeover Monday, three months after an emergency deal to rescue the too-big-to-fail bank was struck on a Sunday afternoon as a global banking crisis loomed.
"The priority for the federal government and UBS is to minimize potential losses and risks so that recourse to the federal guarantee is avoided to the greatest extent possible."
The protection agreement was an acknowledgment that by taking over Credit Suisse, UBS was also taking over a portfolio of assets "that are considered non-core to UBS and do not fit its business and risk profile," the statement said.
The government's pledge to shoulder a portion of losses from realizing Credit Suisse's assets was instrumental in convincing UBS to agree to an emergency takeover of its struggling rival in March.
The guarantee would be on a net basis meaning if UBS makes any profits from the realization of Credit Suisse's portfolio they will also be taken into account, the council said.
The terms also restrict the protection to a specific portfolio of assets -- equal to around 3% of the combined assets of the merged bank -- primarily loans, derivatives, legacy assets and structured products from Credit Suisse's Non-Core Unit.
UBS is required to pay the government a one-off guarantee fee of $44.3 million plus an annual maintenance fee of 0.4% of the total guarantee limit to cover the government's advisory costs and an annual risk premium that tracks payouts on a sliding scale of 0%-4% of the $9.98 billion limit.
The agreement will remain in place until UBS completes the unwinding of the guaranteed portfolio. UBS can terminate the loss protection agreement at any time, but would no longer benefit from the federal loss protection.
The takeover deal, hastily cobbled together by the government, the central bank and the Financial Market Supervisory Authority to staunch a $69 billion run on Credit Suisse to "safeguard financial stability and avert damage to the Swiss economy" came as markets were being roiled following a slew of bank collapses.
But the sale of Credit Suisse, which at the end of 2022 had assets of $1.4 trillion, for just $3.2 billion sparked fury among investors who were "bailed in" to the tune of billions of dollars. Credit Suisse shareholders received one UBS share for every 22.48 Credit Suisse shares they held while $17 billion worth of bonds were written down to zero.
In May, UBS acknowledged a one-time $34.8 billion "negative goodwill" gain from the acquisition of Credit Suisse assets at low cost more than offset the $17 billion hit it expected from liabilities and write-downs of its former rival's assets.
