WORLD> Europe
|
WORLD> Europe
|
|
Switzerland sets bailout for UBS
(Agencies)
Updated: 2008-10-17 09:06 PARIS — Switzerland extended urgent help Thursday to its storied banking industry as the government acknowledged that even the world's biggest wealth needed protection from the tumult gripping the global financial system. Less than a week after Europe and the United States coordinated moves to ease the crisis, the Swiss government said it would take a 9 percent stake in UBS, the financial giant that has been among the hardest hit by losses from American subprime mortgage debt, and provide it with 6 billion Swiss francs ($5.36 billion) in capital.
Rebuking UBS for failing to maintain adequate risk controls, regulators also set up a $60 billion fund to absorb troubled assets lingering on its books, a move intended to strengthen its financial and competitive position. Credit Suisse, the country's other banking powerhouse, rebuffed an offer of direct government help and said it would raise $8.75 billion on its own from the Qatar Investment Authority and other private backers to shore up its capital base. Although neither bank is in danger of collapse, the Swiss National Bank, Switzerland's central bank, moved quickly as it became evident that confidence in UBS's core wealth management business was eroding. “We have time,” Jean-Pierre Roth, president of the national bank, said, underscoring both the depth of UBS's difficulties, as well as the traditional long-term view Swiss bankers are known for. “UBS does not have time.” For the Swiss, whose usually prudent and discreet banks are as much of an international symbol of the nation as its neutrality, the Matterhorn or Swiss Army knives, the idea of the government having to shore up the financial system is a humiliating comedown. “This operation is highly unusual, both with regard to its scope and the reasons for it,” Mr. Roth said. “In carrying it out, we are making a contribution to an essential element of the Swiss financial system at a time when financial markets have been in turmoil for some months now.” The knowledge that the losses at UBS stem from such un-Swiss habits as reckless borrowing and betting on shaky American mortgages is doubly painful. Many individual Swiss shareholders believe their banks should have stuck to the private wealth business they have long dominated, rather than getting caught up in what they consider the casino-like world of Wall Street. “It's not nice that UBS is getting partly nationalized, and we are not happy that the Swiss government has to take a 9 percent stake,” Roby Tschopp, managing director of Actares, a Swiss organization that represents shareholders, said. “But we know this is happening worldwide, and $60 billion is a lot less than the $700 billion Paulson plan in the U.S.,” he said, referring to financial rescue efforts shaped by the United States Treasury secretary, Henry M. Paulson Jr. Mr. Roth emphasized that the move was critical to helping Switzerland “weather the economic difficulties resulting from the anticipated global economic slowdown in the months ahead.” The Swiss government also plans to increase protection for depositors from a current guarantee of 30,000 Swiss francs ($22,400), after similar steps were taken elsewhere in Europe. The reputation of UBS as one of the world's most conservative banks was left in tatters after it made an astonishingly large bet on risky mortgage securities that one point reached $80 billion. UBS, which has seen several top executives step down in the last 18 months, has already been forced to write down more than any other bank in the world on that financial roll of the dice. This year, UBS conceded it had fundamentally misread the market for mortgage securities as it took advantage of cheap leverage in Switzerland to load up on what appeared to be low-risk, high-yield mortgage-backed securities flowing from America. It has also acknowledged that its vaunted risk-management system had broken down, a problem the Swiss Banking Commission was quick to note on Thursday. The hangover from risky bets became more apparent as both UBS and Credit Suisse previewed poor third-quarter results on Thursday. UBS earned a slight profit of 296 million francs ($261 million) but disclosed that private depositors had withdrawn 49.3 billion francs ($43.4 billion), much of it during the last turbulent weeks of the quarter. In coming quarters, UBS will be under pressure to stanch that outflow since its private wealth management business has long been considered the company's crown jewel and a profit engine. Credit Suisse announced a third-quarter loss of $1.12 billion ($986 million) as a result of heavy write-downs in its investment bank, mostly stemming from problems in the hard-hit structured products and leveraged finance units. Mr. Roth, of the Swiss central bank, said it would work with the Federal Reserve on the rescue effort for UBS, securing dollars through a swap agreement for francs, underscoring the global nature of the efforts now under way to stem the crisis. The $40 billion in write-downs taken by the bank since last summer stunned a country closely identified with conservative bankers and prompted the retirement of Marcel Ospel, UBS's longtime chairman, this year. On Thursday, his successor, Peter Kurer, thanked the Swiss authorities “for their willingness to develop a commercial solution under economic terms that will support both the stability of the Swiss financial system and UBS.” UBS acquired its huge portfolio of toxic mortgage debt in an effort to capture higher yields, assuming wrongly that its high credit ratings would protect it from losses if the American housing marked soured. At the same time, UBS managers were caught off guard by the speed with which liquidity in the market for mortgage-backed securities evaporated, making them impossible to unload. Under the terms of Thursday's agreement, $31 billion worth of American assets will be taken over by the Swiss central bank, much of it in the form of debt linked to subprime and Alt-A mortgages, and securities linked to commercial real estate and student loans. The government will take UBS bonds convertible into a nonvoting stake for the capital injection. “It was difficult for the Swiss banks to raise more capital, so it's a good deal,” said Alex Koagne, an analyst with Natixis Securities in Paris.
|
