UBS: cloudbusting Colm waives state aid as sop for Swiss bank absorption

August 11, 2023

Unlike southern European neighbours, Switzerland has had a rainy summer. This week, the sun appeared and cagoules were stashed away. On Friday, Swiss wealth manager UBS said it would dispense with the state’s protective umbrella against potential losses from its hurried takeover of struggling Credit Suisse.

UBS has terminated a $10.3bn loss-protection agreement and a public liquidity backstop of up to $114bn. It has paid back emergency loans.

Bond markets are still shaky. So why the rush? Politics, perhaps?

Taxpayers should be pleased. Regulator Finma and the Swiss National Bank touted the merger as a “private solution” despite a wipeout of AT1 bonds to lessen liabilities. The public backstop meanwhile transferred wealth from the state to private owners, says Pascal Böni at University of Basel.

Benefits totalling about $5bn have already accrued to UBS shareholders and another $23bn to Credit Suisse bondholders.

UBS’s shares have nevertheless trailed the Stoxx Europe banks index. Its valuation has slipped, unlike rival Julius Baer’s. UBS trades at 0.85 times 2024 tangible book according to Jefferies.

The stock jumped 4 per cent on Friday. Shedding state protection saves money. The scheme’s estimated cost to UBS to the end of September is $834mn. The annual running cost after that would have been at least $41mn a year.