UBS Group has announced the termination of its agreement with the Swiss government to cover potential losses from its acquisition of Credit Suisse, as well as the liquidity backstop from the central bank. This decision comes as UBS progresses with the integration of its former rival.
The Swiss banking giant revealed on Friday that it has voluntarily ended a CHF 9 billion ($10.27 billion) loss-protection agreement, along with a CHF 100 billion public-liquidity backstop that was guaranteed by the Swiss government.
According to UBS, the decision to terminate these agreements follows a careful evaluation of Credit Suisse’s noncore assets, which were covered by the agreement, as well as an assessment of the funding situation at Credit Suisse entities and within the group as a whole.
In addition to this development, Credit Suisse has announced that it has repaid an emergency liquidity assistance loan of CHF 50 billion to the Swiss National Bank as of Thursday, including a risk premium of CHF 476 million, according to UBS.
Swiss Government Ends Federal Guarantees for UBS Takeover of Credit Suisse
The termination of federal guarantees in relation to the takeover of Credit Suisse by UBS is a significant development, as confirmed by the Swiss government. This decision not only relieves taxpayers of any potential financial risks arising from the agreement but also marks the end of an era in terms of preserving financial stability.
Under an emergency law, these measures were implemented to address the crisis of confidence at Credit Suisse. However, with the termination of the agreement, the emergency law has become obsolete, according to the government.
Additionally, the Swiss National Bank has honored UBS’s request to terminate the credit line it had extended to Credit Suisse earlier this year. The targeted measures taken by the federal government, along with Swiss financial regulator Finma and the SNB, were crucial in supporting the acquisition of Credit Suisse by UBS in March 2023.
After conducting a thorough review of Credit Suisse’s portfolio, UBS has concluded that the loss-protection agreement is no longer necessary. As a gesture of goodwill, UBS will pay CHF40 million to compensate the Swiss Confederation for the establishment of this mechanism.
Overall, this marked decision not only ensures the elimination of potential future losses but also highlights the government’s commitment to financial stability in Switzerland.
Public-Liquidity Backstop Loans Repaid by Credit Suisse
All loans provided by the Swiss National Bank (SNB) through the public-liquidity backstop, which was established on March 19, have been fully repaid by Credit Suisse. This facility granted the SNB the ability to offer liquidity to the bank with government support. UBS reported that as of the end of May, all loans under this initiative had been successfully repaid.
