By Jason Simpkins
Swiss banking giant UBS AG (ADR: UBS) succumbed to government intervention yesterday (Thursday) and the country's other banking powerhouse, Credit Suisse Group AG (ADR: CS) announced it would raise fresh capital from private shareholders after rebuffing central bank assistance.
The Swiss National Bank (SNB) will establish a fund to take on as much $60 billion of UBS' risky assets. The central bank will also provide UBS with a cash injection of $5.2 billion (6 billion Swiss francs). The bank already has secured $27 billion in capital from private investors this year.
The SNB will support the new fund with as much as $54 billion in loans that will yield interest of 2.5 percentage points above the one-month London Interbank Offered Rate (LIBOR). For its $5.2 billion cash infusion, the SNB will receive bonds convertible into a non-voting 9.3% equity stake.
"This operation is highly unusual, both with regard to its scope and the reasons for it," Jean-Pierre Roth, president of the Swiss National Bank, said in a statement. "In carrying it out, we are making a contribution to an essential element of the Swiss financial system at a time when financial markets have been in turmoil for some months now."
UBS has declared $44.2 billion in credit losses and write-downs since the start of last year, more than any other bank in Europe, according to Bloomberg News.
The government rescue will leave UBS with "essentially zero" risk related to subprime or other mortgage-backed securities.
In addition to the bailout, the SNB said it would increase protection for depositors from the current level of $22,400 (30,000 Swiss francs).
Credit Suisse, which declined government assistance, said it was raising $8.75 billion in fresh capital from Qatar Holding LLC, Koor Industries Ltd., and Olayan Investments Co. of Athens – all of which are already existing shareholders. The size of each stake was not made clear, but Chief Executive Officer Brady Dougan said his bank didn't solicit investment from "many more than these three."
"Our view is that in these markets being in a position of unquestioned capital strength will be paramount," Dougan said. "We didn't have to raise this capital. This is our view of how to manage the business conservatively."
Both UBS and Credit Suisse offered glimpses of their third-quarter results. UBS said it earned a profit of $261 million (296 million Swiss francs), but disclosed that private depositors withdrew $43.5 billion (49.3 billion Swiss francs). Credit Suisse posted a third-quarter loss of $1.12 billion (1.3 billion Swiss francs), largely the result of write-downs in its investment-banking unit.
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