On 11 August 2023, UBS announced it had ended the contract it had with Switzerland’s federal government that guaranteed CHF 9 billion of potential losses. The contract also required the Swiss National Bank (SNB) to provide liquidity assistance loans of up to CHF 100 billion. All loans from the SNB have now been repaid.
The ending of the contract means Swiss taxpayers are no longer on the hook for any potential losses associated with the rushed merger of Credit Suisse and UBS.
The federal government made CHF 200 million from the arrangement while the SNB made a further CHF 537 million, reported SRF.
Federal Councillor Karin Keller-Sutter said that as of today the federal government and taxpayers no longer bear any risk in relation to the guarantee. UBS made the decision on its own, but the termination is undoubtedly in the interest of the Confederation, she said.
However, many Credit Suisse additional tier 1 (AT1) bondholders were furious after hearing the announcement, arguing that if UBS Group AG doesn’t need state support for the rescue deal, then their notes should have been spared, reported Bloomberg – AT1 bonds were completely wiped out as part of the rushed takeover of Credit Suisse.
They say that if the government’s backstop was unnecessary, then so too was the historic write down of about $17 billion of Credit Suisse’s AT1 notes, according to several investors who asked not to be identified because some of them are involved in ongoing litigation against Swiss authorities, reported Bloomberg.
Many former Credit Suisse shareholders will be unhappy too. Although they fared better than AT1 bondholders and received some value from the merger, they, as owners of the company, had their right to vote on the deal stripped from them, forcing them to swallow a significant loss. UBS’s cancellation of government guarantees adds fuel to the argument that shares were transferred to UBS at a fire sale price while bypassing the basic rights of shareholders to vote on the decision.
And Swiss taxpayers are not completely off the hook. UBS, a bank deemed too big to fail, is now even bigger. The total assets of UBS are now roughly equivalent to 200% of Swiss GDP. Given the limits of Switzerland’s deposit guarantee scheme, if a large bank wobbled significantly, Swiss taxpayers could potentially be on the hook for a large portion of the money lent to it in the form of client deposits.
SRF article (in German)