UBS has signed a so-called loss protection agreement for taking over what it considers non-core assets from Credit Suisse that could potentially lead to losses.
The Switzerland Confederation will step in only if the losses from the acquisition of non-core assets exceed CHF5bn (€5bn), and reach a maximum of CHF9bn.
The agreement covers approximately 3% of the combined assets of the merged banks, including primarily loans, derivatives, legacy assets and structured products from Credit Suisse’s non-core unit, the Swiss government (Federal Council) said in a statement this morning.
UBS will have to set up a separate unit to manage the assets, appointing an oversight committee, or body (SOC), responsible for the management of the unit and the supervision of the management team, and a management team in charge of day-to-day operations of the unit, according to the agreement.
The lender will provide regular information on its new non-core unit as part of its quarterly reporting, it added. It will propose an initial valuation of each covered asset, or group of covered assets, within 120 days after the deal’s closing dates, according to the agreement.
UBS will have to “carefully, diligently and prudently” manage the assets, minimising losses, and preserving their value, it continued.
The bank will have to prepare an asset management framework for the assets, including credit risks, setting out procedures for regular review and internal reporting of the assets covered by the agreement, the statement added.
The bank will pay the federal government an initial set-up fee of CHF40m on the guarantees given by the government, an annual maintenance fee of 0.4% of CHF9bn (CHF36m per year).
The fee will cover among other things advisory costs, and an annual drawn portion fee (risk premium) of between 0% and 4% of CHF9bn, the government said.
The government also backed a liquidity backstops of up to CHF100bn default guarantee for liquidity assistance loans by the Swiss National Bank (SNB), that Credit Suisse has fully repaid. It backed a further liquid backstop for both UBS and Credit Suisse of up to CHF100bn.
Meanwhile, the National Council, the lower house of the Swiss parliament, has unanimously voted in favour of establishing a parliamentary inquiry commission to look into the takeover of Credit Suisse by UBS.
UBS expects to finalise the emergency takeover of Credit Suisse as early as 12 June, delisting Credit Suisse’s shares from the SIX Swiss Exchange and the New York Stock Exchange.
The latest digital edition of IPE’s magazine is now available
No comments yet