UBS Gains 4.35% after Terminating Support Agreements with Swiss Government for Credit Suisse Acquisition

(AOF) – Financial services company, UBS gains 4.35% to 20.25 Swiss francs in Zurich after the announcement of its termination of the support agreements of the State in order to facilitate the acquisition of the banking establishment Credit Swiss. It was a protection agreement concluded with the Swiss government against losses of 9 billion Swiss francs (Loss Protection Agreement, LPA). In addition, after reviewing the funding situation of Credit Suisse and UBS, UBS has also decided to terminate the Public Liquidity Backstop (PLB) with the Swiss National Bank (SNB).

The Public Liquidity Backstop (PLB) is a liquidity loan from the SNB. As part of the rescue operation of Credit Suisse by UBS, the PLB was set up on March 19, 2023 by the Swiss government for a maximum amount of 100 billion Swiss francs.

It enabled the SNB to provide sufficient liquidity to Credit Suisse, relying on a default guarantee from the Swiss Confederation. All loans granted under the PLB were fully repaid by Credit Suisse at the end of May 2023.

In addition, Credit Suisse fully repaid the Emergency Liquidity Assistance Plus (ELA+) loan. These measures, together with the intervention of UBS, have contributed to the stabilization of Credit Suisse and to financial stability in Switzerland and around the world.

As part of this rescue operation, the Swiss government had entered into an interest rate guarantee agreement (LPA) with UBS which became effective at the close on June 12, 2023.

The LPA was supposed to cover losses of up to 9 billion Swiss francs (and was only to be used after UBS had covered the first 5 billion Swiss francs of losses). The LPA would have covered a designated portfolio of non-core Credit Suisse assets.

At that time, “this measure was deemed necessary to protect UBS against possible residual risks, given that there had been very little time to examine the respective assets during the rescue weekend”, explains the Swiss wealth management bank.

After reviewing all assets covered by the LPA since the June close and making appropriate fair value adjustments, UBS has concluded that the LPA is no longer required.

Accordingly, UBS has given “a notice of voluntary termination effective August 11, 2023”. This financial services company will pay a total of 40 million Swiss francs to compensate the Swiss Confederation for establishing the LPA.

The acquisition of Credit Suisse for 3 billion Swiss francs was announced on Sunday March 19, 2023.