UBS cancels £8bn backstop agreed to help soothe merger with Credit Suisse
UBS has voluntarily ended the CHF9bn (£8bn) loss protection deal agreed with the Swiss government following its emergency acquisition of Credit Suisse.
The decision followed “a comprehensive assessment of the designated portfolio of Credit Suisse non-core assets, including severe stress loss scenarios,” the bank said.
UBS has also terminated the CHF100bn liquidity backstop from the Swiss National Bank, which was guaranteed by the Swiss government.
UBS agreed the loss protection agreement with the government as a condition of its acquisition. It would have covered a portion of Credit Suisse’s non-core assets, most of which were concentrated in its investment banking arm.
The deal was designed to cover losses of up to CHF9bn, only after UBS had taken on the first CHF5bn of losses.
“At the time, this was deemed necessary 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.
However, after reviewing the assets covered by the deal, UBS has concluded that the backstop is “no longer required”.
“UBS continues to focus on the successful execution of the integration of Credit Suisse,” it said.
UBS’s takeover of Credit Suisse, engineered by Swiss authorities in March to prevent a broader financial meltdown, is the largest banking merger since 2008. It will create a banking behemoth with over $5trn in assets, twice the size of Swiss GDP.
All in all, UBS estimates that it will take a $17bn hit from the takeover of Credit Suisse, resulting from a $13bn hit from fair value adjustments and $4bn in potential litigation and regulatory costs.