UBS Group AG has made a significant decision to terminate an agreement with the Swiss government regarding potential losses stemming from the rescue of Credit Suisse, underscoring the progress of their massive integration effort. The move suggests that the troubled bank’s assets may be less problematic than initially feared. This decision has implications for both institutions and the broader Swiss banking landscape.
In an indicative shift, UBS, initially seeking safeguarding against uncertain losses from certain assets of Credit Suisse, has opted to handle the financial implications of the integration on its own. The development comes as the mammoth integration effort between the two banking giants appears to be on track. UBS shares experienced a notable 4.35% rise at 8:23 a.m. in Zurich upon the announcement of this decision.
Analysts from Citigroup have interpreted the early termination of the agreement as a positive sign of the health of Credit Suisse’s non-core portfolio. This development could potentially influence decisions regarding the future positioning of the Swiss bank within the combined Swiss business framework. By ending the various agreements, UBS will be relieved of associated fees, having previously paid 40 million Swiss francs to the Swiss government for establishing the loan protection agreement.
The agreement, which centered around a portfolio of assets including loans, derivatives, legacy assets, and structured products from Credit Suisse’s non-core unit, stipulated that UBS would absorb the initial 5 billion francs of losses, with the government assuming the subsequent 9 billion. Notably, the Swiss government has clarified that taxpayer funds were not utilized in the rescue effort. Furthermore, Credit Suisse has fulfilled its obligations by repaying a 50 billion franc emergency liquidity assistance loan to the Swiss National Bank.
The termination of the agreement is expected to contribute to a sense of reassurance for both the Swiss government and UBS, affirming the progression of their integration plans. UBS is set to reveal detailed strategies for the integration during its upcoming second-quarter earnings announcement on August 31st, shedding further light on the path forward.
Overall, the early termination of the agreement between UBS and the Swiss government holds promising implications for the trajectory of the Swiss banking sector. This development, combined with the repayment of the loan to the Swiss National Bank, bolsters optimism for the substantial integration between the two banking powerhouses. The termination also provides increased flexibility for potential future endeavors.
Source: Bloomberg
