On 9 June 2023, UBS closed a deal with the Swiss government to cover 9 billion francs of potential losses it could incur from its takeover of Credit Suisse Group, reported Bloomberg.
The guarantee relates to a specific portfolio of Credit Suisse’s assets currently valued at CHF 44 billion, equivalent to roughly 3% of the banks total assets.
Under pressure from the Swiss government, the management of UBS Group broadly agreed to a deal to acquire Credit Suisse late one weekend in March 2023 after a bank run had started at the bank. Since then the parties have been working through deal specifics and formally agreeing various aspects of the transaction.
The rushed merger has been controversial. Shareholders of Credit Suisse were bypassed, never given a chance to vote and largely wiped out. While Credit Suisse CoCo bond holders were completely wiped out. In addition, Swiss taxpayers were exposed to losses on the deal via a federal government guarantee.
Under the terms of the guarantee UBS will be on the hook for the first CHF 5 billion of losses, with the government covering anything beyond that up to a maximum of CHF 9 billion should they arise.
Sergio Ermotti, UBS’s new CEO said recently that losses for the state in the deal are “exceptionally unlikely”, reported Bloomberg.
The federal government guarantee is a key hurdle for closing the acquisition and may allow the deal to be formally concluded next week. Switzerland will then formally only have one international bank, albeit one with a balance sheet twice the size of the nation’s GDP.
Bloomberg article (in English)