2023-06-09 17:09:21
In order to avert a global banking crisis, the Swiss government has engineered a forced merger of the two major banks UBS and Credit Suisse. Now she has agreed on the details of a loss guarantee.
Shortly before completing the takeover of its competitor Credit Suisse, the major Swiss bank UBS reached an agreement with the government on the details of a loss guarantee. The contract was signed on Friday with the Ministry of Finance (Federal Department of Finance). As announced in March, the guarantee is limited to nine billion Swiss francs (9.3 billion euros). The contract dealt with technical details. The federal government also obtained assurances that the bank would retain its headquarters in Switzerland. The CS acquisition is scheduled to close on Monday (June 12).
The new bank will have total assets of around $1.6 trillion, according to UBS CEO Sergio Ermotti. This should be reduced to 1.35 to 1.4 trillion dollars, said Ermotti on Friday at the Swiss Economic Forum in Interlaken. That would be around 35 percent more than UBS alone has. Ermotti reiterated that UBS wants to reduce risk in investment banking and increase profitability in asset management.
UBS will only have full access to all CS documents when the takeover is completed next Monday and can only then begin to correctly assess the risks. If losses are incurred in the processing of loans, derivatives and other structured products, according to the contract, UBS will bear the first five billion francs itself. If the losses are higher, the nine billion francs will be withdrawn from the state treasury. In the event of further losses, UBS has to step in on its own again.
Regular reports
According to the Treasury Department, UBS has committed to managing the assets in a way that minimizes losses and maximizes realization proceeds. It must report regularly on financial and legal risks. If UBS claims the guarantee, a risk premium will be due.
Credit Suisse was one of the world’s largest wealth managers and one of the 30 global systemically important banks whose failure could have shaken the international financial system. After scandals, several high quarterly losses and the massive withdrawal of customer funds, you were threatened with insolvency in March. In order to avert a global banking crisis, the Swiss government – also under pressure from abroad – engineered the forced merger of the two major banks. UBS is paying three billion francs for the competitor, although industry estimates say that the CS Switzerland business alone could bring in up to 15 billion francs in an IPO.
According to Ermotti, the bank wants to check by the summer whether CS’s Swiss business will be fully integrated or continued as an independent bank. (dpa)
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