Switzerland gave UBS AG, the European bank with the biggest losses from the credit crisis, a $59.2 billion rescue 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 30 centimes, or 1 5 per cent, to 20.38 francs by 1:49 pm in Swiss trading after falling as much as 10 per cent. The stock has declined 56 per cent this year, compared with a 52 per cent drop in the 69-company Bloomberg Europe Banks and Financial Services Index. Credit Suisse, which reported a third- quarter loss, rose 2.60 francs, or 5.7 percent, to 48.50 francs.
Government Stake: UBS, the world’s biggest money manager for the wealthy, is seeking to stem client defections after wrong-way bets at the investment banking unit led to $44.2 billion of credit losses and writedowns since the start of last year, the most by any bank in Europe. Wealth management and business banking clients removed a net 49.3 billion francs in the third quarter, with all regions showing outflows, the bank said today.
UBS spokeswoman Larissa Alghisi objected to descriptions of the government assistance as a bailout. “UBS is and was by no means in financial distress,” she said in an e-mailed statement.
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“What has been agreed with the SNB and the government is a commercial solution at economic terms.”
UBS will sell 6 billion francs in mandatory convertible notes to the government, with a coupon of 12.5 per cent. The state will have a 9.3 per cent stake in UBS after the securities are converted into stock. The Swiss bank already turned to private investors for $27 billion this year to boost capital.
“The Swiss banks were already well capitalised and this puts them in a stronger position,” wrote Merrill Lynch analyst Derek De Vries in a note to investors. Still, UBS reported “very bad news on net new money,” he wrote.
Capital Rules: 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 of 2.5 percentage points above the one-month London Interbank Offered Rate and is entitled to a share in any profits. Credit Suisse declined to participate in the fund.
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.
“A better functioning of the financial markets is essential,” said SNB President Jean-Pierre Roth at a briefing in Bern. It’s “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.”
Global Bailouts: Governments from Washington to London to Berlin have been rushing to shore up banks, unlock lending and avert a financial catastrophe since credit markets froze up following the September 15 bankruptcy of Lehman Brothers Holdings Inc.
In the US, Treasury Secretary Henry Paulson plans to spend $250 billion of a $700 billion financial rescue package on buying non-voting preferred equity stakes in banks. Britain, France and Germany have also announced plans to make funds available to buy stakes in banks.
UBS will transfer about $31 billion in US assets, including subprime and Alt-A securities, as well as about $18 billion in non-US debt investments to the central bank fund in the fourth or first quarters. The bank can also 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.
‘Zero’ Sub-prime Risk: The transactions will leave UBS with “essentially zero” risk related to US 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 posted third-quarter net income of 296 million francs today. The bank will take a charge of about 4 billion francs in the fourth quarter from the transactions announced, 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 Loss: 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 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 per cent as of September 30, from the reported 10.4 per cent. That means the bank exceeds Swiss regulator’s increased capital requirements for 2013, it said.