UBS Terminates Government and Central Bank Safeguards for Credit Suisse
UBS has terminated a 9 billion Swiss franc ($10.27 billion) loss protection agreement (LPA) and a 100 billion Swiss franc public liquidity backstop (PLB) put in place by the Swiss government following its takeover of Credit Suisse in March. This move comes after thoroughly assessing non-core assets covered by the liquidity support measures. The intervention of UBS, along with these measures, was pivotal in stabilizing Credit Suisse and maintaining global financial stability. The LPA was intended to insure UBS against losses exceeding 5 billion Swiss francs after the takeover. With a review of the assets covered by the LPA and necessary fair value adjustments, UBS has deemed the LPA unnecessary. UBS has issued a voluntary termination notice effective August 11, 2023, compensating the Swiss Confederation with CHF 40 million for establishing the LPA.
Furthermore, Credit Suisse has repaid a 50 billion Swiss franc emergency liquidity assistance plus (ELA+) loan obtained from the Swiss National Bank (SNB) following its struggle with plummeting investor and shareholder confidence. All loans drawn under the PLB were fully repaid by Credit Suisse by the end of May, leading UBS to conclude that the PLB agreement is no longer needed. Through July 31, 2023, Credit Suisse incurred expenses of CHF 214 million, including CHF 61 million to the SNB and CHF 153 million to the Swiss Confederation in commitment fees and risk premiums. The Swiss government intends to introduce a public liquidity backstop (PLB) under ordinary law, as well as initiate a comprehensive review of the too-big-to-fail regulatory framework. The UBS-Credit Suisse deal saw UBS acquire Credit Suisse at a discounted price of 3 billion Swiss francs, creating a financial giant with a balance sheet totaling $1.6 trillion. Terminating these measures means that the Confederation and taxpayers will no longer bear any risks associated with these guarantees.