UBS ends Credit Suisse’s reliance on the SNB loan

UBS said on Friday it had terminated a 9 billion Swiss franc ($10.27 billion) loss protection agreement and a 100 billion Swiss franc general liquidity support agreement that the Swiss government put in place when it acquired rival Credit Suisse in March.

UBS said the decision came after a “thorough assessment” of Credit Suisse’s non-core assets that were covered by the liquidity support measures.

“These measures, together with UBS’s intervention, have contributed to the stability of Credit Suisse and the financial stability of Switzerland and the world,” UBS said in a statement.

Credit Suisse also confirmed that it had fully repaid the CHF50 billion emergency liquidity assistance loan to the Swiss National Bank in March, as Credit Suisse faltered after shareholder and investor confidence collapsed.

“These measures, which were put in place under emergency law to maintain financial stability, will therefore expire, and the Union and taxpayers will no longer bear any risks arising from these guarantees,” the Swiss government said in a statement on Friday.

Moreover, the federation received revenues of 200 million Swiss francs on the guarantees.

The Swiss Federal Council intends to introduce a bill to parliament to introduce a public liquidity support system (PLB) under ordinary law, while work continues on a “comprehensive review of the too-big-to-fail regulatory framework.”

The CHF9 billion LPA was intended to insure UBS on losses of more than CHF5 billion following the takeover, which was brokered during a tumultuous March weekend amid talks with the Swiss government, the Swiss National Bank and the Swiss financial market supervisor.

The emergency bailout saw UBS acquire Credit Suisse at a cut-price of CHF3 billion, creating a massive Swiss bank and wealth manager with a balance sheet of $1.6 trillion.

“After reviewing all assets covered by the LPA since closing in June and making appropriate fair value adjustments, UBS has concluded that LPA is no longer required,” UBS said.

“UBS has therefore filed a notice of voluntary termination with effect from August 11, 2023. UBS pays a total of 40 million Swiss francs to compensate the Swiss Confederation for the establishment of the LPA.”

The Swiss government established the CHF 100 billion public liability pillar on March 19 and allowed the Swiss National Bank to provide liquidity support to Credit Suisse if needed, secured by a federal guarantee of default.

UBS confirmed on Friday that all loans drawn under the PLB had been paid in full by Credit Suisse by the end of May, and that the group had terminated the PLB agreement after reviewing its financing position.

UBS added: “As of July 31, 2023, Credit Suisse has charged a commitment fee and risk premium totaling CHF 214 million, including approximately CHF 61 million to the Swiss National Bank and CHF 153 million to the Swiss Confederation.”