UBS’s state aid is a disaster insurance policy

Credit Suisse AG

09/06/2023 13:44

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are their own.)
       LONDON, June 9 (Reuters Breakingviews) - Sergio Ermotti
has a taxpayer safety net, but it only kicks in if things get
really bad. On Friday, the UBS  UBSG.S  boss was finally able to
release the details of a government backstop that was initially
floated back in March to smooth the bank’s rescue of Credit
Suisse  CSGN.S . The state will eat 9 billion Swiss francs ($10
billion) of losses on certain assets once UBS has swallowed an
initial 5 billion Swiss francs. The actual contract, despite
being 94 pages long, is missing the most important number: how
many assets are covered by the agreement. For that, investors
have to turn to a document on the Finance Ministry’s site, which
says that the portfolios in question have a face value of around
44 billion Swiss francs, mostly comprised of derivatives,
structured products and loans that Credit Suisse was already
trying to ditch. 
    It seems unlikely that Ermotti would tap the scheme. UBS in
mid-May said it would write down the value of Credit Suisse’s
assets by $10 billion. To breach its initial loss threshold, the
assets would have to fall 11% below their already discounted
value. Admittedly, if anyone’s balance sheet has the capacity to
crumble, it’s Credit Suisse’s. UBS shareholders should probably
think of the government scheme as a kind of deeply
out-of-the-money option against that possibility. But, facing
such losses, UBS might be better off just hanging on to the
assets until prices recover rather than realising a giant
markdown. Swiss taxpayers can probably rest easy. (By Liam
Proud)

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 (Editing by George Hay and Oliver Taslic)
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