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Sam Bennett

Sam Bennett

10 Jun 2023

3 DK READ

32 Read.

Swiss Government Guarantees $10B UBS Losses in Credit Suisse Deal

The Swiss government has followed through on its promise to underwrite potential losses for UBS in its $3.2 billion acquisition of Credit Suisse.

A loss protection agreement has signed between the Federal Department of Finance and UBS. Ensuring that the government will guarantee losses if they surpass $5.55 billion, up to a maximum of $9.98 billion.

The loss protection agreement acknowledges that UBS has take over a portfolio of assets from Suisse that are consider non-core and not aligned with UBS’s business and risk profile.

It aims to minimize losses and risks associated with winding down Suisse’s assets, providing financial support to UBS in the process.

The guarantee provided by the Swiss government will be on a net basis. Taking into account any profits UBS may generate from realizing Credit Suisse portfolio.

The terms of the agreement limit the protection to a specific portfolio of assets, primarily comprising loans, derivatives, legacy assets, and also structured products from Credit Suisse’s Non-Core Unit.

This portfolio represents approximately 3% of the combined assets of the merged bank.

Credit Suisse Fees and Termination

Credit Suisse

UBS is obligate to pay a one off guarantee fee of $44.3 million. Along with an annual maintenance fee based on 0.4% of the total guarantee limit.

The agreement will remain in effect until UBS completes the unwinding of the guaranteed portfolio. And UBS has the option to terminate the loss protection agreement at any time.

The emergency takeover of Credit Suisse also by UBS orchestrated by the Swiss government. The central bank, and the Financial Market Supervisory Authority to stabilize the financial sector. And prevent damage to the Swiss economy.

The deal was prompted by a run on Credit Suisse amid market turmoil and bank collapses. However, the sale of Credit Suisse for a relatively low price of $3.2 billion caused anger among investors who experienced substantial losses.

UBS benefited from a one-time gain of $34.8 billion from the acquisition of Credit Suisse assets at a low cost, also offsetting the expected losses.

And also liabilities associated with the deal. This gain, known as “negative goodwill,” mitigated the impact of the $17 billion write-down of bonds. And liabilities from Credit Suisse.

The Swiss government has fulfilled its commitment to provide loss protection for UBS in its acquisition of Credit Suisse.

The agreement aims to minimize potential losses and risks for UBS. By guaranteeing financial support if losses exceed a certain threshold.

The deal underscores the government’s role in stabilizing the banking sector and maintaining financial stability in Switzerland.

Swiss Government Guarantees $10B UBS Losses in Credit Suisse Deal