UBS and the Swiss authorities signal loss safety agreements in reference to the acquisition of Credit score Suisse

Swiss authorities brokered UBS’s controversial emergency rescue of Credit Suisse for 3 billion Swiss francs ($3.37 billion) over a weekend in March.

Fabrice Coffrini | AFP | Getty Images

UBS and the Swiss government announced on Friday that they have signed a loss protection agreement that will come into effect after the acquisition Swiss credit completed.

The provisions will allow the Swiss government to cover losses of up to 9 billion Swiss francs ($10 billion) resulting from UBS’s takeover of the former competitor. This will be guaranteed for a “designated portfolio of non-core Credit Suisse assets” once UBS suffers the first CHF 5 billion in losses.

“For the federal government and UBS, the priority is to minimize potential losses and risks in order to avoid calling on the federal guarantee as far as possible,” says a statement from the Swiss government.

The government added that it facilitated the deal to “preserve financial stability and thus avert damage to the Swiss economy” but always agreed to guarantee part of the losses that would result from UBS entering into a portfolio of assets that “do not fit their business”. and risk profile.”

In return, the agreement provides that UBS must support the development of the Swiss financial center after the takeover. The bank has confirmed its intention to keep the combined group’s headquarters in Switzerland for the duration of the loss protection provisions.

“UBS will manage these assets prudently and diligently and intends to minimize any losses and maximize the value realization of these assets,” UBS said.

UBS Group shares were down 0.2% as of 10am London time.

‘must marriage’

Last month, the bank said it expected a financial loss of around $17 billion from the takeover of its competitor, in what some have dubbed a “shotgun marriage” to stabilize Switzerland’s financial system.

Swiss banking rivals agreed a $3.2 billion takeover deal earlier this spring, at a time of broader volatility in the banking sector that led to the collapse of three US banks. Credit Suisse shares tumbled into early March, and years of scandals, losses and alleged mismanagement came to a head when its largest shareholder, the Saudi National Bank, said it was unable to give the bank more cash due to regulatory restrictions to provide.

The merger of the two banking giants sparked some controversy, angered Credit Suisse shareholders and bondholders, and raised competition concerns.

The bank expects the Credit Suisse takeover to be completed as early as June 12.

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