Government confident despite banking woes

No reason to doubt the solid capital basis of Swiss banks, ministers say Keystone

Finance Minister Hans-Rudolf Merz says Switzerland's large banks remain well financed and a bankruptcy is unimaginable.

The leading UBS bank says it is considering a request for a fresh capital injection of SFr10 billion ($9.9 billion) as analysts expect additional massive writedowns.

Merz told the SonntagsBlick newspaper that a bank’s capital resources must have a certain ratio to its loaned out money.

“That is the case with our banks. There is no reason for me to consider another scenario.”

He again dismissed calls on the government to intervene in the financial crisis. Last week Merz told parliament that the country’s top banks have a solid capital base despite the writedowns of assets.

In a separate interview with the SonntagsZeitung newspaper, Economics Minister Doris Leuthard echoed his statements, saying state intervention to prop up banks in Switzerland or in Europe was not on the cards.

“UBS has a solid capital basis. It is in a very good position, by international comparisons,” she said.

She was responding to calls by the chairman of Deutsche Bank, Josef Ackermann. He is reported to have described the measures taken by the United States government to shore up the financial markets as insufficient.

Cooperation

Leuthard and Merz also came out in favour of increasing international cooperation to oversee financial markets.

“Steps are necessary on an international level. But Switzerland will introduce a new financial market supervisory body next year,” Leuthard said.

Leuthard says she expects the fallout of the subprime crisis in the US to have limited impact on the European economy if consumer confidence remains intact in Switzerland.

For his part, Merz has ruled out public investment programmes saying they take too much time to implement.

Last week Switzerland’s second largest bank, Credit Suisse, announced it was no longer sure it would post a profit in the first quarter of 2008 after several traders were accused of deliberately overpricing assets.

Earlier this year, rival UBS shocked markets when it became Europe’s hardest-hit victim of the credit crisis after writing down more than $18 billion in subprime assets.

Capital injection

UBS shareholders will reportedly consider a proposal for a fresh capital injection of SFr10 billion next month.

The head of a Swiss pension fund is quoted as saying that UBS agreed to put such a proposal on the agenda at the bank’s next general meeting on April 23.

A UBS spokesman confirmed the bank was considering all requests for the agenda, but declined to give further details.

Analysts expect the bank to write down nearly SFr20 billion this year in addition to the SFr20 billion from 2007.

UBS has already raised SFr13 billion from investors in Singapore and Saudi Arabia as part of an emergency funding package.

swissinfo with agencies

Banking woes

The financial sector has been severely hit by the collapse of the US subprime mortgage market – that gives mortgage loans to people with poor credit ratings.

These debts were then bought in bulk by the financial enterprises and traded on the markets.

Several banks and other financial institutions around the world were then caught out by sudden and unexpectedly high levels of default, leaving their investments worthless.

Switzerland’s largest bank, UBS, was worst hit by the crisis – writing off more than SFr20 billion last year. It was forced to turn to foreign investors to bail it out with a SFr13 billion emergency funding package.

Credit Suisse took a more conservative approach and had far less exposure in the risky market.

Last month it reported write-offs of just SFr3.1 billion, but its reputation has been shaken by the news of intentional misconduct by traders.