According to "Swissinfo.ch" the Swiss National Bank (SNB) and the Swiss Federal Banking Commission has announced a rescue package for the country's financial system that will inject cash into its biggest bank, UBS. UBS has a reputation of being the bank for the world's wealthiest.
The Swiss National Bank has agreed to put SFr6 billion ($5.23 billion) into UBS, in a move that aims to strengthen the bank's capital base and reduce its balance sheet. Based on the agreement with the SNB, UBS will transfer up to $60 billion of assets to a newly created fund entity and will capitalize the fund with equity of up to $6 billion. The SNB will finance the fund with a loan of up to $54 billion, secured on the assets of the fund, taking over control and ownership of the entity.
A joint statement from the banks said every Monday beginning October 20, the ECB and the SNB will conduct euro and franc foreign exchange swaps, providing Swiss francs against euros with a term of seven days at a fixed price - especially to euro zone banks that wouldn't otherwise have access to liquidity from the SNB. The arrangement will go on as long as needed and at least until January 2009. The two banks said the fixed price and the maximum amounts allotted by the ECB and the SNB will be announced before the operation.
In the swap, the euro system and the SNB will buy euros against francs at the start of the transaction, and simultaneously sell euros against francs in the far leg. The price will be calculated by using the rate in the main refinancing operation of the ECB, currently 3.75 percent, and the SNB one week repo rate plus 25 basis points.
UBS CEO Marcel Rogner said: "This transaction gives us comfort." Rogner continued with, "The extremely difficult market environment led us to accelerate our risk reduction with a definite move. Our aim is to protect our clients form the impact of crisis to the fullest extent possible and to provide our shareholders an opportunity to renew confidence in the bank."
Teodoro Cocca, a professor of asset management at the Johannes Kepler Institute in Linz, Austria, and formerly of Zurich University's Swiss Banking Institute, says conservative practices have kept the country's banks out of deep trouble.
Swiss banks relied less heavily on intra-bank loans than their international competitors and were less susceptible to credit drying up when banks stop lending to each other, according to Cocca. "This funding is less volatile than any other financial source. If there is mistrust between banks it does not affect credit supply as sharply in Switzerland as in other European or US markets," he said.
With the exception of UBS, Switzerland's largest bank, most institutions have lost comparably little. But even UBS, which was forced to write down tens of billions on bad subprime contracts, extricated itself well enough and sought the shelter of rich backers. "UBS acted quickly and decisively enough to get itself out of the mess. US banks in particular tried to hide their problems and bluff their way out of trouble," Cocca explained. "UBS was more transparent about the depth of its difficulty and raised enough money quickly enough from Singapore, the Middle East and by distributing more shares."
On the announcement of UBS advising selling the stock on concerns about a weak won and slower sales growth, Kia Motors Corp, South Korea's second-largest carmaker, saw its stock plunge. The stock fell as much as 13 percent.