17 Oct 2008

Bail-out for Swiss bank UBS

6:35 am on 17 October 2008

Switzerland is taking steps to strengthen its largest bank, UBS, becoming the latest European government to unveil a banking rescue plan.

UBS is raising 6 billion Swiss francs ($US5.3 billion) from the government.

It will also be able to transfer up to $US60 billion of distressed assets to a fund supported by the Swiss central bank.

Credit Suisse was also offered government assistance but was able to raise 10 billion Swiss francs from major global investors.

The Swiss National Bank said the moves would help to stabilise the financial system and was favourable for the development of the Swiss economy.

The government also said it would moderately increase the guarantee on bank deposits, echoing steps taken by other European countries.

Sub-prime crisis

UBS has been one of the heaviest losers from the sub-prime crisis. It will transfer its exposure to the US mortgage market and other assets to a fund controlled by the central bank.

The fund will be financed by $US6 billion from UBS and a $US54 billion loan from the central bank.

SNB will receive interest on the loans and is entitled to a share in any profits the fund makes.

The additional $US6 billion capital injection means the Swiss government will emerge with a temporary 9.3% stake in UBS.

UBS also announced that it made a small net profit of 296 million Swiss francs in third quarter, mainly due to its wealth management business. Its investment arm made a loss of 2.8 billion francs.

Credit Suisse said it expected to make a loss of 1.3 billion Swiss francs in the three months to September.