UBS ditches €9.3bn state backstop for Credit Suisse deal

UBS has said it no longer needs a 9 billion Swiss francs (€9.3 billion) backstop from the Swiss government that was designed to shield the bank from losses following its rescue of rival Credit Suisse.

As part of the takeover, the Swiss government agreed to protect UBS from up to SFr9 billion in any losses from the deal, as long as the bank bore SFr5 billion.

UBS has also terminated a SFr100 billion liquidity lifeline offered by the Swiss National Bank at the height of the turmoil that swept the banking sector in the spring and culminated in the Credit Suisse takeover.

Since authorities orchestrated the rescue over a weekend in late March, UBS executives have grown far more confident that losses from winding down large parts of Credit Suisse’s investment bank will be kept below SFr5 billion.

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UBS on Friday said that after reviewing all the Credit Suisse assets covered by the backstop, it concluded the agreement was no longer necessary.

Last month, the Financial Times reported that senior figures at UBS were planning to make clear they would not need to rely on state support for the deal after the threat that the March turmoil would deepen into a financial crisis receded.

The potential support required from Swiss taxpayers for the shotgun marriage of the country’s two biggest banks has proved politically explosive and continues to draw criticism in the run-up to national elections in October.

The backstop was necessary at the time “to protect UBS against potential tail risks as there had been very limited time to review respective assets over the rescue weekend”, the bank said on Friday.

Shares in UBS climbed 2 per cent following the news.

Andrew Coombs, an analyst at Citi, said that while the decision to terminate the loss protection agreement and liquidity measures would save UBS maintenance fees, the move also provided reassurance to the market about the deal.

“The early voluntary repayment could potentially also help in other matters, such as negotiating the retention of the Credit Suisse Swiss business,” he added.

Vontobel analyst Andreas Venditti said the decision to terminate the agreement was designed “to calm down the political debate around the potential ‘danger’ of new UBS for Switzerland”.

The tie-up between UBS and Credit Suisse has proved controversial within Switzerland, with public concern over the potential for large-scale job cuts and branch closures within the country.

UBS is expected to announce its decision over whether it will retain or spin off Credit Suisse’s domestic business at its second-quarter results on August 31st.

UBS has already begun the process of killing off Credit Suisse’s international brand – replacing signage at the stricken bank’s New York headquarters – although similar moves in Switzerland will be determined by whether it keeps the domestic business. – Copyright The Financial Times Limited 2023