UBS on Friday took the choice to sever the backstop the Swiss authorities gave to soak up Credit Suisse, a wager there aren’t any hidden skeletons that can emerge that can harm the financial institution in the best way Countrywide’s acquisition dragged down Bank of America.
UBS mentioned it’s terminating a 9 billion franc loss ($10 billion) safety settlement with the Swiss authorities, and terminating its 100 billion franc public liquidity backstop with the Swiss National Bank, that went into impact the day its acquisition of Credit Suisse closed.
“At the time, this was deemed necessary to protect UBS against potential tail risks as there had been very limited time to review respective assets over the rescue weekend. After reviewing all assets covered by the [loss protection agreement] since the closing in June and taking the appropriate fair value adjustments, UBS has concluded that the LPA is no longer required,” mentioned UBS.
UBS mentioned it’s paying 40 million francs to the Swiss authorities for the loss safety settlement. Credit Suisse expensed a dedication payment and a threat premium of 214 million francs on the general public liquidity backstop and paid a threat premium of 476 million francs on 50 billion franc emergency liquidity help plus mortgage that’ s been repaid.
UBS shares
UBSG,
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climbed 5% in Zurich commerce, extending this yr’s good points to 19%.
Andrew Coombs, an analyst at Citi, factors out UBS will save on charges it needed to pay for the backstop, however sends a much bigger message to markets with the transfer.
“More important is the reassurance this provides on the health of the Credit Suisse non-core portfolio. This chimes with the previous work we have done. The early voluntary repayment could potentially also help in other matters, such as negotiating the retention of the Credit Suisse Swiss business, in our view,” he mentioned.
Credit Suisse had been engulfed in issues and authorized woes within the run-up to its close to collapse, starting from losses on loans to Archegos Capital Management to the collapse of Greensill supply-chain funds. UBS was fined almost $400 million final month by U.S. and U.Ok. regulators over Credit Suisse’s “unsafe and unsound” counterparty credit score threat administration practices on Archegos.
The upcoming UBS outcomes shall be advanced as a result of it is going to solely embody Credit Suisse outcomes for June, and former intervals won’t be restated.
Source web site: www.marketwatch.com
