UBS and Credit Suisse Get Urgent Bailout Funds As the financial crisis continued to roll through world markets despite massive bailouts, the two leading Swiss banks said Thursday they had secured emergency support totalling some $14.1 billion, either from the Swiss authorities or from outside investors including the Qatar Investment Authority.
At the same time, the Swiss National Bank said it had set up a fund to absorb toxic assets from the country’s biggest bank, UBS. The measures offered a sharp contrast to Switzerland’s previous appearance of aloofness from Europe’s government-sponsored rescue operations.
Jean-Pierre Roth, the president of the Swiss National Bank, said it was “preferable that we go ahead with this operation now, in an orderly fashion — despite the fact that the markets have regained a certain degree of optimism in the past few days — rather than at a later point under potentially more adverse conditions.”
He called the rescue “unprecedented with regards to the reasons for it.”
UBS said it would receive a direct injection of government money in the form of mandatory convertible notes worth some $5.3 billion while Credit Suisse, the second largest Swiss bank, said it had raised $8.8 billion from “a small group of major global investors” including the Qatari authorities, which already hold a significant stake. The government injection of funds into UBS could represent a 9percent stake in the bank, whose $44 billion writedowns related to toxic assets have been Europe’s worst.
Credit Suisse also reported a net third quarter loss of $1.3 billion after further writedowns. UBS reported third-quarter net income of $261 million.
The Swiss National Bank said it had created a fund that would enable UBS to transfer $60 billion worth of toxic assets from its balance sheet. UBS said the fund would be capitalized with $6 billion of equity capital provided by UBS and $54 billion from the Swiss National Bank.
UBS said in a statement: “With this transaction, UBS caps future potential losses from these assets, secures their long-term funding, reduces its risk-weighted assets and materially de-risks and reduces its balance sheet.”
The assets transferred into the new fund included $31 billion related to the United States sub-prime and other markets that included mortgage-based securities and securities backed by student loans.
“At completion of the transaction, UBS’s next exposure in these categories will be reduced to nearly zero,” the UBS statement said.
The UBS chief executive, Max Rohner, called the bailout a “definitive move” to accelerate risk reduction in “the extremely difficult market environment.”
For its part, the Swiss government said in separate statement that it was “confident that this package of measures will contribute to the lasting strengthening of the Swiss financial system.”
“The resulting stabilization is beneficial for overall economic development in Switzerland and is in the interests of the country as a whole,” the statement said.
Previously the Swiss authorities had seemed to be standing apart from the wave of bailouts among European countries who have pledged around $1.8 trillion to free up credit markets and support the continent’s banking system. But such is the size of the Swiss banking industry in relation to the overall economy that the Swiss might not have had the resources to bail out UBS and Credit Suisse if they ran into deep trouble.
Jean-Pierre Roth, the president of the Swiss National Bank, said it was “preferable that we go ahead with this operation now, in an orderly fashion — despite the fact that the markets have regained a certain degree of optimism in the past few days — rather than at a later point under potentially more adverse conditions.”
He called the rescue “unprecedented with regards to the reasons for it.”
UBS said it would receive a direct injection of government money in the form of mandatory convertible notes worth some $5.3 billion while Credit Suisse, the second largest Swiss bank, said it had raised $8.8 billion from “a small group of major global investors” including the Qatari authorities, which already hold a significant stake. The government injection of funds into UBS could represent a 9percent stake in the bank, whose $44 billion writedowns related to toxic assets have been Europe’s worst.
Credit Suisse also reported a net third quarter loss of $1.3 billion after further writedowns. UBS reported third-quarter net income of $261 million.
The Swiss National Bank said it had created a fund that would enable UBS to transfer $60 billion worth of toxic assets from its balance sheet. UBS said the fund would be capitalized with $6 billion of equity capital provided by UBS and $54 billion from the Swiss National Bank.
UBS said in a statement: “With this transaction, UBS caps future potential losses from these assets, secures their long-term funding, reduces its risk-weighted assets and materially de-risks and reduces its balance sheet.”
The assets transferred into the new fund included $31 billion related to the United States sub-prime and other markets that included mortgage-based securities and securities backed by student loans.
“At completion of the transaction, UBS’s next exposure in these categories will be reduced to nearly zero,” the UBS statement said.
The UBS chief executive, Max Rohner, called the bailout a “definitive move” to accelerate risk reduction in “the extremely difficult market environment.”
For its part, the Swiss government said in separate statement that it was “confident that this package of measures will contribute to the lasting strengthening of the Swiss financial system.”
“The resulting stabilization is beneficial for overall economic development in Switzerland and is in the interests of the country as a whole,” the statement said.
Previously the Swiss authorities had seemed to be standing apart from the wave of bailouts among European countries who have pledged around $1.8 trillion to free up credit markets and support the continent’s banking system. But such is the size of the Swiss banking industry in relation to the overall economy that the Swiss might not have had the resources to bail out UBS and Credit Suisse if they ran into deep trouble.
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Switzerland gave UBS AG, the European bank with the biggest losses from the credit crisis, a $59.2 billion bailout and pushed Credit Suisse Group AG to raise funds, joining authorities around the world in shoring up banks.
UBS will get 6 billion Swiss francs ($5.2 billion) from the government and put as much as $60 billion of risky assets into a fund backed by the central bank, the Zurich-based company said. Credit Suisse Group AG raised 10 billion francs from investors including Qatar and Tel Aviv-based Koor Industries Ltd.
Switzerland is the last of the world's financial centers to pour cash into ailing financial institutions after losses on bad debts reached $647 billion globally and credit markets froze. The Swiss government plans to raise deposit guarantees and is ready to back the short- and medium-term interbank loans of the nation's banks, after countries across Europe took similar measures.
``At last the Swiss are doing something,'' said Peter Thorne, an analyst at Helvea in London. ``They risked getting left behind their European rivals and paying the price for slowness.''
UBS rose 40 centimes, or 2 percent, to 20.48 francs by 11:09 a.m. in Swiss trading after falling as much as 10 percent. The stock has declined 56 percent this year, compared with a 52 percent drop in the 69-company Bloomberg Europe Banks and Financial Services Index. Credit Suisse, which reported a third- quarter loss, rose 3.28 francs, or 7.2 percent, to 49.18 francs.
Government Stake
UBS will sell 6 billion francs in mandatory convertible notes to the government. After conversion, the Swiss government would own 9.3 percent in the bank, UBS said.
The Swiss National Bank, the country's central bank, will support the fund holding the risky assets with as much as $54 billion in loans, the government said. The SNB will receive interest on the loans and is entitled to a share in any profits.
UBS posted $44.2 billion of credit losses and writedowns on mortgage-related assets since the start of last year, the most by any bank in Europe, following a wrong-way bet on the U.S. housing market. The Swiss bank had already raised about $27 billion from investors this year to replenish capital.
The measures announced today will help the banks meet tighter capital rules that the Swiss Federal Banking Commission is planning to introduce, the regulator said, and reduce risky assets on UBS's balance sheet.
``This package of measures will contribute to the lasting strengthening of the Swiss financial system,'' the government said. ``The resulting stabilization is beneficial for overall economic development in Switzerland and is in the interests of the country as a whole.''
Losing Rich Clients
UBS will transfer about $31 billion in U.S. assets, including subprime and Alt-A securities, as well as about $18 billion in non-U.S. debt investments to the central bank fund in the fourth or first quarters. The bank also can transfer as much as $9 billion of additional holdings later, including up to $5 billion of auction-rate securities that UBS may buy back from clients.
The transactions will leave UBS with ``essentially zero'' risk related to U.S. subprime, Alt-A, prime, commercial real estate and mortgage-backed securities, as well as student loan- backed securities and reference-linked notes, Chief Executive Officer Marcel Rohner said on a conference call. The bank will still have $4.3 billion in risk related to bond insurers and $4.7 billion in loans pledged for leveraged buyouts, he said.
UBS, which reported third-quarter net income of 296 million francs today, is seeking to stem client defections at the world's largest private bank. Wealth management and business banking clients withdrew a net 49.3 billion francs in the third quarter, with all regions showing outflows.
Credit Suisse Loss
UBS will take a charge of about 4 billion francs in the fourth quarter from the transactions announced today, which will probably result in a net loss, Rohner said. He reiterated that UBS expects a profitable 2009.
Credit Suisse Chief Executive Officer Brady Dougan said the bank decided to raise money now to satisfy new capital rules for 2013 and avoid investors questioning its financial strength.
``Our view is that in these markets being in a position of unquestioned capital strength will be paramount,'' he said.
Credit Suisse reported a loss of 1.3 billion francs in the three months ending Sept. 30 after a pretax loss of 3.2 billion francs from its investment banking division. It had writedowns of 2.4 billion francs in leveraged finance and structured products.
Existing shareholders Qatar Holding LLC, Koor Industries Ltd. and Olayan Investments Company Establishment took part in the capital increase, Dougan said, declining to elaborate on the stakes each investor acquired.
The bank is selling 93 million treasury shares for about 3.2 billion francs, a bond that will convert into about 50 million new shares for about 1.7 billion francs, and a hybrid tier 1 bond for 5.5 billion francs.
The measures raise Credit Suisse's proforma Tier 1 capital ratio to about 13.7 percent as of Sept. 30, from the reported 10.4 percent. That means the bank exceeds Swiss regulator's increased capital requirements for 2013.
UBS will get 6 billion Swiss francs ($5.2 billion) from the government and put as much as $60 billion of risky assets into a fund backed by the central bank, the Zurich-based company said. Credit Suisse Group AG raised 10 billion francs from investors including Qatar and Tel Aviv-based Koor Industries Ltd.
Switzerland is the last of the world's financial centers to pour cash into ailing financial institutions after losses on bad debts reached $647 billion globally and credit markets froze. The Swiss government plans to raise deposit guarantees and is ready to back the short- and medium-term interbank loans of the nation's banks, after countries across Europe took similar measures.
``At last the Swiss are doing something,'' said Peter Thorne, an analyst at Helvea in London. ``They risked getting left behind their European rivals and paying the price for slowness.''
UBS rose 40 centimes, or 2 percent, to 20.48 francs by 11:09 a.m. in Swiss trading after falling as much as 10 percent. The stock has declined 56 percent this year, compared with a 52 percent drop in the 69-company Bloomberg Europe Banks and Financial Services Index. Credit Suisse, which reported a third- quarter loss, rose 3.28 francs, or 7.2 percent, to 49.18 francs.
Government Stake
UBS will sell 6 billion francs in mandatory convertible notes to the government. After conversion, the Swiss government would own 9.3 percent in the bank, UBS said.
The Swiss National Bank, the country's central bank, will support the fund holding the risky assets with as much as $54 billion in loans, the government said. The SNB will receive interest on the loans and is entitled to a share in any profits.
UBS posted $44.2 billion of credit losses and writedowns on mortgage-related assets since the start of last year, the most by any bank in Europe, following a wrong-way bet on the U.S. housing market. The Swiss bank had already raised about $27 billion from investors this year to replenish capital.
The measures announced today will help the banks meet tighter capital rules that the Swiss Federal Banking Commission is planning to introduce, the regulator said, and reduce risky assets on UBS's balance sheet.
``This package of measures will contribute to the lasting strengthening of the Swiss financial system,'' the government said. ``The resulting stabilization is beneficial for overall economic development in Switzerland and is in the interests of the country as a whole.''
Losing Rich Clients
UBS will transfer about $31 billion in U.S. assets, including subprime and Alt-A securities, as well as about $18 billion in non-U.S. debt investments to the central bank fund in the fourth or first quarters. The bank also can transfer as much as $9 billion of additional holdings later, including up to $5 billion of auction-rate securities that UBS may buy back from clients.
The transactions will leave UBS with ``essentially zero'' risk related to U.S. subprime, Alt-A, prime, commercial real estate and mortgage-backed securities, as well as student loan- backed securities and reference-linked notes, Chief Executive Officer Marcel Rohner said on a conference call. The bank will still have $4.3 billion in risk related to bond insurers and $4.7 billion in loans pledged for leveraged buyouts, he said.
UBS, which reported third-quarter net income of 296 million francs today, is seeking to stem client defections at the world's largest private bank. Wealth management and business banking clients withdrew a net 49.3 billion francs in the third quarter, with all regions showing outflows.
Credit Suisse Loss
UBS will take a charge of about 4 billion francs in the fourth quarter from the transactions announced today, which will probably result in a net loss, Rohner said. He reiterated that UBS expects a profitable 2009.
Credit Suisse Chief Executive Officer Brady Dougan said the bank decided to raise money now to satisfy new capital rules for 2013 and avoid investors questioning its financial strength.
``Our view is that in these markets being in a position of unquestioned capital strength will be paramount,'' he said.
Credit Suisse reported a loss of 1.3 billion francs in the three months ending Sept. 30 after a pretax loss of 3.2 billion francs from its investment banking division. It had writedowns of 2.4 billion francs in leveraged finance and structured products.
Existing shareholders Qatar Holding LLC, Koor Industries Ltd. and Olayan Investments Company Establishment took part in the capital increase, Dougan said, declining to elaborate on the stakes each investor acquired.
The bank is selling 93 million treasury shares for about 3.2 billion francs, a bond that will convert into about 50 million new shares for about 1.7 billion francs, and a hybrid tier 1 bond for 5.5 billion francs.
The measures raise Credit Suisse's proforma Tier 1 capital ratio to about 13.7 percent as of Sept. 30, from the reported 10.4 percent. That means the bank exceeds Swiss regulator's increased capital requirements for 2013.
Shares in both banking giants fell sharply after the series of announcement by the banks and the authorities, matching early declines across Europe’s stock markets following the huge tumbles on Wall Street on Wednesday and in Asia on Thursday. But the Swiss banking shares recovered slightly and UBS shares posted a modest gain by mid-morning.
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