UBS Group AG, Switzerland’s largest bank, is set to make a decisive statement next month, clarifying that its rescue of Credit Suisse will not involve funding from Swiss taxpayers, according to a report by the Financial Times on Sunday. However, the bank intends to alleviate the mounting political pressure surrounding the deal, particularly with national elections looming later this year.
As part of the acquisition agreement, the Swiss government had committed to shielding UBS from potential losses of up to SFr9 billion ($10 billion) on the condition that the bank covers the initial SFr5 billion itself. The magnitude of potential state support for the merger of the country’s two largest banks has been a contentious issue, drawing significant criticism in the lead-up to the October elections.
UBS’s strategy to avoid taxpayer support
According to the report by the Financial Times, insiders familiar with the matter revealed that UBS executives hope to make an official announcement during the release of the bank’s second-quarter results on August 31.
However, the decision not to utilize taxpayers’ money is still pending finalization and will be based on the merits of the business case rather than political considerations, according to sources knowledgeable about the situation.
Since the acquisition was sealed over a weekend in late March, UBS executives have grown increasingly confident that they can keep losses resulting from the wind-down of Credit Suisse’s investment bank below SFr5 billion.
The threat of the banking industry’s turmoil escalating into a more severe financial crisis has diminished, with markets recovering. In addition to unveiling their decision regarding the retention of Credit Suisse’s domestic bank, another politically sensitive matter, UBS is expected to discuss the matter further during the second-quarter results announcement. UBS CEO Sergio Ermotti recently informed staff that retaining the business remains the “base case scenario.”
UBS executives have been actively demonstrating to investors their commitment to limiting dependence on state support and avoiding the use of the loss protection facility.
Ermotti has continuously emphasized that it is “exceptionally unlikely” for Swiss taxpayers to suffer losses from the takeover. The deal also included a SFr100 billion liquidity lifeline from the Swiss National Bank.
The agreement UBS reached with the Swiss government in June outlined that the government would guarantee up to SFr9 billion ($9.98 billion) of potential losses UBS may incur from the divestment of Credit Suisse’s assets beyond the initial SFr5 billion that the bank is obliged to cover.
The Swiss government stated that both UBS and the government are committed to minimizing potential losses and risks to the greatest extent possible, aiming to avoid recourse to the federal guarantee. The valuations of the losses are also expected to be disclosed in the third quarter of 2023. UBS CEO Sergio Ermotti has reiterated his pledge that the bank’s leadership will spare Swiss taxpayers from bearing the costs associated with the takeover.
