Swiss authorities brokered the controversial emergency rescue of Credit Suisse by UBS for 3 billion Swiss francs ($3.37 billion) over the course of a weekend in March.
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UBS and the Swiss government announced Friday that they had signed a loss protection agreement, which will come into effect once the takeover of Credit Suisse is completed.
The provisions will see the Swiss government cover losses of up to 9 billion Swiss francs ($10 billion) following UBS’ acquisition of its former rival. This is guaranteed on a “designated portfolio of Credit Suisse non-core assets,” once UBS incurs the first 5 billion Swiss francs in losses.
“The priority for the federal government and UBS is to minimise potential losses and risks so that recourse to the federal guarantee is avoided to the greatest extent possible,” the Swiss government said in a statement.
The administration added that it had facilitated the deal to “safeguard financial stability and thus avert damage to the Swiss economy,” but had always agreed to guarantee a portion of losses due to UBS taking over a portfolio of assets that “do not fit its business and risk profile.”
In return, the agreement states that, after the takeover, UBS must support the development of Switzerland’s status as a financial centre. The bank has confirmed intentions to keep the headquarters of the merged group in Switzerland for the duration of the loss protection provisions.
“UBS will manage these assets in a prudent and diligent manner and intends to minimize any losses and maximize value realization on these assets,” UBS said.
UBS Group shares were down 0.2% at 10:00 a.m. London time.
‘Shotgun wedding’
Last month, the bank disclosed it anticipated a financial hit of around $17 billion as a result of acquiring its rival, in what has been described in some quarters as a “shotgun wedding” to stabilize the Swiss financial system.
The Swiss banking rivals agreed a $3.2 billion takeover deal at the start of spring, at a time of broader volatility in the banking sector that led to the collapse of three U.S. banks. Credit Suisse shares cratered through early March, with years of scandals, losses and alleged mismanagement coming to a head when its largest shareholder, the Saudi National Bank, said it was not able to provide any more cash to the bank because of regulatory restrictions.
The merger of the two banking juggernauts has been greeted with some controversy, enraging Credit Suisse shareholders and bondholders as well as raising competition concerns.
The bank expects the Credit Suisse acquisition to complete as early as June 12.
