UBS voluntarily terminates guarantee agreement with Swiss government

On Friday UBS voluntarily terminated the loss guarantee agreement with the Swiss government and the Swiss National Bank (SNB). © Keystone / Michael Buholzer

The Swiss government and taxpayers will no longer bear any risks from guarantees made to preserve financial stability after the collapse of Credit Suisse.

On Friday UBS voluntarily terminated the loss guarantee agreement with the Swiss government and the Swiss National Bank (SNB).

The agreement will terminate with immediate effect, as UBS says it no longer need the CHF9 billion ($10.2 billion) guarantee. But the government said that it still intended to submit a bill to parliament to introduce a public liquidity backstop under ordinary law and is still conducting a comprehensive review of too-big-to-fail regulatory framework.

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The contract was officially signed on June 9, when the Swiss government earmarked CHF9 billion of taxpayer funds to plug potential losses arising from the UBS takeover of Credit Suisse.

These measures were created under an emergency law, to facilitate the takeover brokered by the government in March as Credit Suisse hurtled toward bankruptcy. Under the terms, UBS was to assume the first CHF5 billion of losses, with the government stepping up to take on the next CHF9 billion.

But, “all extraordinary liquidity assistance based on the emergency law of March 19 has been repaid”, UBS said in a statement. Credit Suisse has also fully repaid the loans of CHF50 billion to the SNB as of August 10, the bank continues.

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The finance ministry added that the guarantees have not resulted in any losses for the government, but rather brought around CHF200 million in revenues.

In total, UBS paid some CHF730 million in commitment fees and risk premiums to Swiss authorities, made up of CHF200 million to the government and CHF530 million to the SNB. 

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Political reaction

Swiss Finance Minister Karin Keller-Sutter said she was pleased with UBS’s decision, as she wanted “to get rid of this guarantee quickly”. 

After emphasising that the government “had not spent a single franc”, she praised UBS as a “strong partner”.

However, she had a harsher judgement for the Credit Suisse management. “We’ve been up all night because a bank didn’t take responsibility for itself, for its employees, for its clients, but also for Switzerland. We got into this situation because a bank had obviously made the wrong decisions over the years.”

Keller-Sutter explained that had UBS not rescued the Swiss bank, individuals as well as companies would have been damaged. “We would have produced major distortions in Switzerland.”

‘Swift and decisive’

Most political parties reacted with relief to the news, but while the Radical-Liberals and the Liberal Greens praised the stabilisation of the banking system, the Swiss People’s Party and the Green Party questioned the procedure chosen last March. 

The Radical-Liberals praised the “swift and decisive action of the Federal Council” and criticised the Swiss People’s Party’s “irresponsible political theatre”. Similarly, the Liberal Greens added that the politics of indignation from “the left and right” was “exaggerated and short-sighted. Now the new UBS has been stabilised and taxpayers will not be burdened”.

The People’s Party defended its rejection of the loan in parliament. “As suspected, the financial situation of Credit Suisse was obviously far better in March 2023 than it had been presented.” It regretted that “overtaxed [financial watchdog] FINMA and a despondent Federal Council did not ensure that Switzerland would retain two big banks”.

Finally, the Greens said there were still “massive financial risks for taxpayers”, which should be minimised within the framework of the revision of the “Too Big To Fail” regulation.