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Credit crisis not over warns banking watchdog

Daniel Zuberbühler, head of the Swiss banking watchdog, says the effects of the subprime crisis could continue spreading


The United States subprime crisis could spread to other credit markets, making it important that banks have a strong capital base, a Swiss regulator has said.

The warning comes a week after Switzerland's largest bank, UBS, announced a further $10 billion (SFr11.3 billion) writedown due to the ongoing deterioration of the US mortgage market.

Daniel Zuberbühler, head of the Federal Banking Commission, said in an interview with the NZZ am Sonntag newspaper that the danger to financial institutions was far from over.

"The subprime crisis could spread to other credit markets, such as in the fields of credit cards, consumer credit, car financing, student loans or commercial credit," he said.

Zuberbühler also sits on the Basel Committee on Banking Supervision, which sets standards for internationally active banks and advises on how much capital they should set aside against risks.

"Nobody can make predictions about developments in complicated credit securitisation markets with certainty. That's why it is important that banks have a strong capital base," he said.

Zuberbühler and the banking watchdog have been in almost daily contact with UBS.

UBS writedown

Last week, the bank announced a $10 billion writedown and a massive injection of funds from Singapore and the Middle East, making it the biggest subprime crisis casualty to date among major European banks.

UBS said it was responding to the "continued deterioration in the US subprime mortgage securities market" but also taking into account worsening expectations of future developments.

The writedown followed a $3.7 billion hit UBS suffered at the end of October that was also related to US subprime mortgages - loans made to high-risk home buyers who face rising interest rates and are now defaulting on payments.

At the same time, the bank said it was raising SFr13 billion in new capital by selling stakes to investors in Singapore and the Middle East.

UBS commented that it wanted to maintain a very strong capital based "under all circumstances".

Credit Suisse

At Credit Suisse – UBS' main rival in Switzerland - management appears to "have had the better nose" for smelling trouble ahead and cut its exposure to risky credits before the crisis erupted, said Zuberbühler.

The risks that remain on Credit Suisse's books are "rather manageable", he said.

Bank CEO Brady Dougan said on Saturday that the group had cut its exposure in corporate finance since the end of September, when it held obligations worth SFr60 billion.

Credit Suisse's investment bank was hit by writedowns of more than SFr2.2 billion in November.

swissinfo with agencies

Fresh capital

UBS said last week it was raising SFr13 billion in new capital by selling stakes to the Government of Singapore Investment Corporation (SFr11 billion) and an undisclosed strategic investor in the Middle East (SFr2 billion).

The Singapore investment of SFr11 billion gives the island-state a nine per cent stake in UBS.

Both strategic investors are subscribing to a total issue of SFr13 billion of mandatory convertible notes.

The notes will pay a coupon of nine per cent until conversion into ordinary shares, which must take place on or before a date about two years after issuance.

UBS says the accords with strategic investors are subject to the approval of its shareholders at an extraordinary general meeting that will take place in mid-February.

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