UBS Gets Capital Injection From Switzerland

Updated from 2:35 a.m. EDT

UBS(UBS) and the Swiss National Bank reached an agreement for UBS to transfer up to $60 billion of currently illiquid securities and other assets from its balance sheet to a separate fund, and the bank will get a capital injection of 6 billion Swiss francs ($5.3 billion) from the government in the form of mandatory convertible notes.

UBS said Thursday the transaction "caps future potential losses from these assets, secures their long-term funding, reduces its risk-weighted assets, and materially de-risks and reduces its balance sheet."

The fund will be capitalized with up to $6 billion of equity from UBS and a non-recourse loan of a maximum $54 billion from the Swiss National Bank. The fund will be controlled by the Swiss National Bank.

UBS will sell its equity interests to Swiss National Bank for $1 and will have an option to repurchase the equity once the loan is fully repaid for $1 billion plus half of the equity value exceeding $1 billion.

"In these turbulent times we want to ensure that we do everything possible to safeguard the solidity of our bank. We are taking practical steps to eliminate legacy risks," said Chairman Peter Kurer.

UBS's extra capital, if converted into shares at a price of 20 francs, would give the Swiss government a 9% stake in the bank. The plan doesn't make the government a co-owner and leaves it an option to withdraw during the loan, according to Bloomberg.

Meanwhile, Credit Suisse (CS) said it raised 10 billion Swiss francs from private investors, including the Qatar Investment Authority. The bank sold treasury shares and bonds, and said it raised its Tier 1 capital ratio to 13.7%. As of the end of the third quarter, the Tier 1 ratio was about 10.4%, the bank said.

The bank said it declined to participate in the Swiss government's measures. The bank said "with regard to the longer-term financing structure and the associated capital investment, given the relatively low level of affected assets in its portfolio and its good access to capital markets, Credit Suisse has decided not to participate at this time."

>To order reprints of this article, click here: Reprints