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UBS and Swiss Gov's Accord on Credit Suisse Acquisition Risk Mitigation

Lanon Wee


UBS and the Swiss government declared on Friday that they had put in place a loss protection agreement, which will come into action when the acquisition of Credit Suisse has been finalized. This agreement entails the Swiss government protecting losses of up to 9 billion Swiss francs ($10 billion) sustained by UBS resulting from the purchase of Credit Suisse's non-core assets, once the first 5 billion Swiss francs in losses have been incurred.The Swiss government declared that their priority was to "minimise potential losses and risks to the extent that [they] can, so as to avert the need to draw upon the federal guarantee." They highlighted that, through facilitating the deal, they are aiming to "preserve financial stability and prevent any damage to the Swiss economy". In return for the protection, UBS must contribute to strengthening Switzerland's status as a financial centre and, following the takeover, maintain the headquarters for the merged entity within Switzerland during the duration of the loss protection provisions.UBS confirmed its intention to "manage these assets carefully and strive to minimise any losses and realise the maximum possible value" from them. UBS Group's shares were down 0.2% at 10:00 a.m. London time. In March, the bank disclosed it expected to take a $17 billion hit after agreeing to a $3.2 billion takeover of its rival. Described by some as a "shotgun wedding", this was prompted by volatility in the banking sector, the collapse of three U.S. banks, and its largest shareholder - the Saudi National Bank - being unable to provide further cash due to regulation.Although the union of these two banking giants has been met with some dissent from Credit Suisse shareholders and bondholders, the merger is expected to be completed as early as June 12.

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