UBS has voluntarily terminated the CHF9bn ($10.2bn) loss protection deal agreed with the Swiss government as part of the state-sponsored takeover of Credit Suisse.
In a stock exchange notice today (11 August), the bank also said it no longer needs the public liquidity backstop - a liquidity assistance loan of up to CHF100bn from the Swiss National Bank, backed by the Swiss government, reports Investment Week
In a separate statement, the Swiss government said: "These measures, which were created under emergency law to preserve financial stability, will thus cease to exist, and the confederation and taxpayers will no longer bear any risks arising from these guarantees."
UBS said Credit Suisse has fully repaid the Emergency Liquidity Assistance Plus (ELA+) loan of CHF50bn to the Swiss National Bank.
The loss protection deal marked the final step in UBS' takeover of Credit Suisse. It was agreed on 9 June in an effort to protect the bank against losses accrued during the acquisition of its struggling rival.
The $10.2bn assistance would have been triggered once UBS had covered the first CHF5bn of losses. The guarantee covered the CHF44bn portfolio of Credit Suisse assets that UBS plans to wind down, equivalent to 3% of the combined group's total assets.
"At the time, this was deemed necessary to protect UBS against potential tail risks as there had been very limited time to review respective assets over the rescue weekend," the bank said.
"After reviewing all assets covered by the loss protection agreement since the closing in June and taking the appropriate fair value adjustments, UBS has concluded that the LPA is no longer required."
The voluntary termination of the loss protection agreement and public liquidity backstop is effective from today, it said. UBS will pay a total of CHF40m to compensate the Swiss Confederation for the establishment of the loss protection agreement.
This article was first published by Investment Week.
