Today, the Swiss National Bank (SNB), as part of its effort to “strengthen the Swiss financial system,” announced it has reached an agreement with UBS for long-term financing and orderly liquidation of illiquid securities and other troubled assets in the amount of no more than $60 billion.
As part of the agreement, UBS will sell the securities to a SNB-controlled special purpose vehicle (“SPV”). The SPV will be capitalized with up to $6 billion of equity capital provided by UBS, which will serve as a first protection against losses, and an additional non-recourse loan in the maximum amount of $54 billion provided to the fund by the SNB. The amount of any such non-recourse loan granted by SNB will be priced at LIBOR plus 250 basis points, mature in eight years (but may be extended up to 12 years to permit an orderly liquidation of the assets), and secured by a security interest perfected in all of the SPV’s assets. As part of this transaction, UBS has been granted the option to buy back the equity of the entity, once the loan is fully repaid, by paying the SNB $1 billion plus 50% of the amount by which the equity value at the time of exercise exceeds that amount. Therefore, the SNB participates in profits generated by the SPV with $1 billion up front and with 50% of potentially remaining equity value. The SNB extended a similar offer to Credit Suisse, who declined to participate at this time.
According to UBS, the “solution significantly reduces the uncertainty for UBS shareholders and clients and contributes to the stability of the financial system by ensuring an orderly sale of these assets.” Based on the SNB’s statutory mandate to contribute to the stability of the financial system, the SNB is “convinced” the stabilization plan “will result in a sustainable reduction of strains in the Swiss financial system…[which] will be favorable for the development of the Swiss economy as a whole and is in the interest of the country.”
Though it declined SNB’s long-term financing offer, Credit Suisse announced today that it has raised approximately CHF 10 billion in Tier 1 capital from a group of private investors through the sale of Credit Suisse Group treasury shares and by issuing new Credit Suisse Group shares through mandatory convertible bonds and by issuing non-dilutive hybrid Tier 1 capital. The largest participant is Qatar Holding LLC, a wholly-owned subsidiary of the Qatar Investment Authority.