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Wednesday, February 28, 2024

UBS ends taxpayer backstop granted for Credit Suisse rescue

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UBS, Switzerland’s largest bank, made a pivotal move this Friday by deciding against the use of the 9 billion francs ($10.3 billion) state guarantees, originally provided as a safety net for the acquisition of its once-ailing counterpart, Credit Suisse. This significant decision ensures Swiss taxpayers are now free from any financial obligations associated with the Credit Suisse takeover. So, UBS ends taxpayer backstop granted for Credit Suisse rescue.

The protective measures, which were implemented under emergency law to uphold financial stability during precarious times, will no longer be applicable. Consequently, both the Swiss Confederation and taxpayers will remain shielded from any future risks emanating from these guarantees. The Swiss government expressed its relief and reassured citizens about the situation’s stability.

This development is anticipated to pacify the ongoing political discourse concerning the Swiss taxpayers’ financial exposure to UBS. Reflecting the positive sentiment, UBS’s share prices observed a commendable 5% hike by 1000 GMT.

Delving into the backstory, UBS had reached an agreement on March 19 to purchase Credit Suisse at a discounted rate of 3 billion francs. The deal also involved UBS assuming up to 5 billion francs in losses. Credit Suisse, which was on the edge of bankruptcy, was given a lifeline by this takeover. Which was planned and carried out by Swiss officials.

Furthermore, both banking behemoths, Credit Suisse and UBS, secured 168 billion. Francs from the Swiss National Bank (SNB) through various emergency liquidity arrangements to facilitate the acquisition smoothly. This strategic move transformed the financial landscape, resulting in the birth of a Swiss banking and wealth management colossus boasting an impressive balance sheet of $1.6 trillion. This event marked the most significant banking transaction since the 2008 financial meltdown.

In another development, UBS recently announced that Credit Suisse had settled an Emergency Liquidity Assistance Plus (ELA+) loan of 50 billion francs to the SNB. However, UBS decided to maintain the agreement that granted them access to these funds, ensuring they have the option to tap into this liquidity reserve in potential future requirements.

By lessening its dependency on Swiss government intervention. UBS is paving its way for greater autonomy, especially concerning significant and politically charged resolutions. UBS’s recent actions could bolster its position in future negotiations, like determining the fate of Credit Suisse’s domestic operations. Which has been a topic of intense speculation. By the end of the summer, the bank is anticipated to provide a statement on the subject.

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