Switzerland unveils UBS bail-out

UBS has been hard hit by sub-prime losses

Switzerland is taking steps to strengthen its largest bank, UBS, becoming the latest European government to unveil a banking rescue plan.

UBS is raising 6bn Swiss francs ($5.3bn; £3.1bn) from the government.

It will also be able to transfer up to $60bn of distressed assets to a fund supported by the Swiss central bank.

Credit Suisse was also offered government assistance but was instead able to raise 10bn Swiss francs from major global investors.

The Swiss National Bank (SNB) said its moves would help to stabilise the financial system and was favourable for the development of the Swiss economy.

In these turbulent times, we want to ensure that we do everything possible to safeguard the solidity of our bank Peter Kurer, UBS chairman

"The SNB is convinced that it will result in a sustainable reduction of the strains in the Swiss financial system," it said.

The government also said it would moderately increase the guarantee on bank deposits, echoing steps taken by other European countries.

Thankful

UBS has been one of the heaviest losers from the sub-prime crisis.

It will transfer its exposure to the US mortgage market and other assets to a fund controlled by the central bank.

The fund will be financed by $6bn from UBS and a $54bn loan from the central bank.

The SNB will receive interest on the loans and is entitled to a share in any profits the fund makes.

The Swiss National Bank said it was a "highly unusual" and "unprecedented" operation.

However, it said the risk of losses was limited because UBS had already made aggressive write-downs on its risky positions.

The additional $6bn capital injection means the Swiss government will emerge with a temporary 9.3% stake in UBS.

UBS thanked the Swiss government and central bank authorities for finding a "commercial solution".

"In these turbulent times, we want to ensure that we do everything possible to safeguard the solidity of our bank," said Peter Kurer, chairman at UBS.

"Their efforts and decisiveness to act swiftly demonstrates the professionalism of the Swiss financial centre."

Profit

UBS also announced that it made a small net profit of 296m Swiss francs in third quarter, mainly due to its wealth management business. Its investment banking arm made a loss of 2.8bn francs.

Credit Suisse said it expected to make a loss of 1.3bn Swiss francs in the three months to September.

The bank said that the Qatar Investment Authority was among the group of global investors that had helped the bank to shore up its finances.

Credit Suisse had been required by the SNB to strengthen its capital base.

"Over the past few months we have had a constructive and close dialogue with regulators about future capital requirements," said Brady W. Dougan, the bank's chief executive.