UBS, Swiss government seal $10 billion loss guarantee deal

Zurich: UBS Group sealed an agreement with the Swiss government to cover 9 billion francs ($9.9 billion) of losses it could incur from the rescue of Credit Suisse Group, clearing the last major hurdle to closing the historic takeover.

The accord was signed on June 9 and will cover a specific portfolio of Credit Suisse assets, corresponding to about 3 per cent of the merged banks’ combined assets, the government said in a statement on Friday. That represents about 44 billion francs.

The deal removes one of the final blockages to the $3.3 billion takeover, which was brokered by the government in March as Credit Suisse hurtled toward bankruptcy. UBS had pushed for protection from hard-to-predict losses from a set of its former rival’s assets it plans to wind down or sell. With the government accord now in place, the merger may close as soon as Monday, creating a financial titan twice the size of the Swiss economy.

Under the terms, UBS will assume the first 5 billion francs of losses, with the government stepping up to take on the next 9 billion. The portfolio of assets to be covered includes primarily loans, derivatives, legacy assets and structured products from Credit Suisse’s non-core unit.

A net approach will be taken when calculating losses, meaning any profits from the portfolio will also be taken into account. The government said it and the bank’s “priority” is to minimize losses and avoid using the loss backstop as much as possible. UBS CEO Sergio Ermotti also said recently that losses for the state in the deal are “exceptionally unlikely.”