UBS $60 B Bailout, Credit Suisse Raises $10 B

123jump.com Staff
16 Oct, 2008
New York City

The Swiss government offered a bailout package to UBS after it failed to raise capital from private investors. Credit Suisse plans to raise nearly $10 billion from Qatar and other investors. UBS will transfer up to $49 billion of risky loans including $31 billion loans linked to U.S. mortgages.

[R]11:00AM New York – UBS has agreed to a bailout package of $60 billion from the Swiss National Bank. Credit Suisse will raise SFR 10.4 billion in new capital.[/R]

Switzerland acted today to provide capital and takeover risky bonds from UBS. This week the central bank in coordination with the Fed agreed to provide unlimited dollar liquidity to local institutions, in preparation of the current bailout. UBS will transfer nearly $60 billion of illiquid, subprime-linked mortgage securities to a fund controlled by the Swiss National Bank.

The SNB will loan $54 to the new fund that will hold the assets and will receive a share in profit on the sale of securities and interest rate of 2.5% above the one-month London Interbank Offered Rate.

The fund will be capitalized with up to $6 billion of equity capital provided by UBS and a non-recourse loan of as much as $54 billion provided to the fund by the SNB.

The entity will be controlled by the SNB at the time of loan transfer and UBS will sell its equity interests to SNB for $1 and will have an option to repurchase the equity once the loan is fully repaid for a purchase price of $1 billion plus half of the equity value exceeding $1 billion.

The loan will be for eight years but can be extended to 10 to 12 years.

The securities values will be based on September 30 prices and will include $31 billion worth of U.S. subprime, prime and alt-A loans, commercial real estate loans, student loans and U.S. reference-linked note program. UBS will have a right transfer $9 billion of additional loans at a later date including $5 billion of student loans and $3.5 billion of credit protection contracts as they are commuted.

UBS will also transfer additional $18 billion of non-U.S. debt instruments covered by a wide variety of asset classes. The transfer of $49 billion of assets will occur in the fourth quarter of 2008 and or first quarter of 2009.

If fund equity values decline in future, the SNB will have right to buy up to 100 million with terms “as defined later.”

UBS AG will place Sfr 6 billion in mandatory convertible notes with 12.5% interest rates which will convert to 9.3% stake in the private banking group to Swiss Confederation. The government will have the right to reduce its holding or transfer the entire holding to third party investors. The interest on the note will accrue after the 30 days of issuance and the conversion price will not exceed 117% of the reference price.

Marcel Rohner, chief executive in a presentation to investors said that after the transfer the bank will hold $4.7 billion of loans to leveraged buyouts and $4.3 billion contracts linked to bond insurance.

The bank will have Tier-1 capital ratio of 11.5% at the end of the year but before the fourth quarter results.

Credit Suisse Raises Capital

Credit Suisse reported a loss of Sfr 1.3 billion for the quarter ending in September on a loan loss of Sfr 2.4 billion in leveraged loans. The banker plans to sell Sfr 3.2 billion in shares, Sfr 1.7 billion in bonds and Sfr 5.5 billion in hybrid bond that is part of its reserve capital. In all the investment banker will raise from the existing shareholders a total of Sfr 10.4 billion.