Swiss Government Props Up UBS with $60 billion

Swiss banking giant UBS and the Swiss National Bank Thursday forged an agreement to isolate $60 billion dollars of UBS’s illiquid securities and other assets into a separate fund entity set up by the government. Switzerland will take a 9.3 percent stake in UBS.

Assets transferred to the fund include nearly $31 billion of primary securities in U.S. subprime, Alt-A,  prime, and commercial real estate mortgage-backed securities, U.S. student loan auction rate certificates and other securities backed by student loans and U.S. reference-linked note programs.

The Swiss National Bank will loan up to $54 billion to the fund and UBS will contribute $6 billion. The national bank will also give UBS a direct cash infusion of about $5 billion.

UBS is one of Europe’s banks hit hardest by the global credit crisis as the company’s wealth management arm has billions of dollars tied up in U.S. financial investments.

The Swiss government conceded that there had been a loss of confidence in the financial market in the country, which until the crisis had a pristine reputation for being the safest place for investors to park their assets.

"Confidence is the foundation for re-establishing the stability of the international financial markets and thus also of the Swiss financial market," said the government in a statement. “We are committed to tackling the causes of this loss of confidence.”

Meanwhile, Credit Suisse — the second-largest Swiss bank behind UBS — decided not to accept assistance from the Swiss government. Credit Suisse instead raised 10 billion francs ($8.8 billion) through major global investors, the bulk of which came from a sovereign investment fund in Qatar.

Credit Suisse said in a statement that the cash infusion’s long term financing structure and the associated capital investment with a small portion of affected assets, along with its good access to capital markets was reason enough for the bank not to accept the government’s help.

Brady Dougan, chief executive officer of Credit Suisse, told Bloomberg that the bank decided to raise the money to satisfy new capital rules for 2013 and to also bypass investors who questioned the banks financial strength.