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Switzerland places UBS in intensive care

Latest update : 2008-10-16

The Swiss state will inject 60 billion Swiss francs (3.9 billion euros) in UBS in return for a temporary 9.3% stake in the beleaguered bank. The country's largest lender, UBS is also one of Europe's worst hit by the US subprime crisis.

Switzerland announced emergency measures to prop up its vital banking sector on Thursday, pouring almost 60 billion dollars into the biggest bank UBS, one of heaviest losers from the US subprime crisis.

The crisis help for UBS will result in the Swiss federal state obtaining a temporary stake of 9.3 percent in UBS, and highlights the shock of the financial crisis on renowned Swiss banking.

The country's second-biggest bank Credit Suisse, said it did not need state help.

But it revealed that it had turned to a group of investors, with the largest participant being a Qatari sovereign wealth funds, for 10 billion francs (8.79 billion dollars, 6.54 billion euros) in new capital.

Banking is a driving force of the Swiss economy and UBS, which has announced staggering figures for the damage done by its exposure to the US home-loan market, is one of the main pistons in the Swiss financial system.

"Confidence is the foundation for re-establishing the stability of the international financial markets and thus also of the Swiss financial market," the government said in a statement.

The Federal Council, the Swiss National Bank (SNB) and the Swiss Federal Banking Commission (SFBC) are "committed to tackling the causes of this loss of confidence," said the government in a statement, as it outlined measures to stabilise the situation.

Among them is an injection of 6.0 billion francs in new capital to UBS, and a loan of 54 billion dollars to the bank to transfer its non-liquid assets into a separate fund.

The fresh capital, equivalent to 3.9 billion euros or 5.2 billion dollars, would give the Swiss government a 9.3-percent stake in UBS.

The state will sell this holding to private investors as soon as possible, and its involvement could not last for any any substantial period, the statement said.

The move also marks the state's first direct intervention since the crisis, even though UBS had earlier been forced to write down over 42.5 billion dollars worth of assets as well as report consecutive quarters of losses due to the financial crisis.

UBS had previously already raised billions in capital from Singapore sovereign wealth fund GIC, an unnamed investor in the Middle East as well as from its shareholders, but it was also facing massive money outflows as clients withdraw assets.

Not only was the government now injecting funds in UBS, the central bank was giving a massive loan to help the bank transfer up to 60 billion dollars' worth of non-liquid assets into a separate fund.

Under the agreement, the Swiss National Bank lends the bulk of the money needed, with the remaining six billion dollars to come from UBS itself.

When the loan is fully repaid, UBS can redeem the fund from the central bank.

"This transaction gives comfort in UBS's future. The extremely difficult market environment led us to accelerate our risk reduction with a definitive move," group CEO Marcel Rohner said.

According to the Swiss government, the recapitalisation by UBS and Credit Suisse was "a significant step towards the renewed strengthening of capital requirements."

Credit Suisse said it did not need help from the state at the moment, even though it reported a net loss of about 1.3 billion Swiss francs for the third quarter.

Its investment bank also piled up another 2.4 billion francs in writedowns, adding to 10 billion francs worth written down since the crisis began.

It turned, however, to investors for new capital of 10 billion francs, with the largest participant being Qatar Holding LLC, a wholly-owned subsidiary of Qatar Investment Authority.

The move raises it tier 1 capital ratio -- a measure of the bank's capital adequacy -- to 13.7 percent from 10.4 at the end of the third quarter.

Credit Suisse said the capitalisation was part of an agreement reached with the Swiss banking regulator on "future capital targets and leverage requirements".

At 10:20 am (0820 GMT), UBS was up 1.49 percent at 20.38 Swiss francs, while Credit Suisse was up 0.35 percent at 46.06. Both bucked the negative trend of the overall market, which slumped 1.68 percent.

Date created : 2008-10-16