UBS set to buy back its lost assets
UBS AG said in July that it planned to buy back a fund set up by the Swiss central bank to include illiquid or high-risk assets as part of the bailout. Repaying its loan to the central bank was a condition for the purchase of the fund. "This is an important step which will close this chapter in the firm's history with a positive outcome," UBS said.
Like some of its rivals, UBS needed government help when the financial markets froze in the aftermath of the collapse of Lehman Brothers and losses mounted. The bank spun off $US38.7 billion of troubled assets into a fund backed by the government and the central bank. As part of the rescue deal, UBS acquired an option to buy back the fund's equity.
Under the agreement, UBS would pay $US1 billion to the Swiss National Bank for the fund and the remaining equity value of the fund would be split between the central bank and UBS. The fund reported a profit of $US830 million for the first half of this year, according to the Swiss National Bank. Switzerland's central bank said the fund would now be valued and the repurchase would take about three months.
Buying back the fund would help UBS chief executive Sergio Ermotti speed the bank's transformation to a profitable bank with a sufficient capital cushion and a focus on wealth management from an unprofitable institution with a troubled investment banking strategy. UBS reported last month that its earnings rose 32 per cent in the three months ending June 30 to $US740 million.
Investors welcomed UBS' plan to buy back the fund. UBS shares rose after an announcement in July that the purchase of the fund would increase UBS' capital ratios, which are already higher than many of its competitors'.
UBS said in July that the fund's equity would increase the bank's common equity ratio under new accounting rules called Basel III by 70 basis points to 90 basis points.
Frequently Asked Questions about this Article…
UBS fully repaid a loan it received from the Swiss National Bank as part of a government bailout five years ago. That repayment clears the way for the bank to move forward with buying back a portfolio of distressed assets that had been moved off its books.
UBS plans to buy back the fund to regain ownership of illiquid or high‑risk assets that were spun off during the financial crisis. Management says the repurchase will help speed the bank’s transformation into a more profitable institution with a stronger capital cushion and a greater focus on wealth management.
The fund originally contained about US$38.7 billion of troubled assets. Under the repurchase agreement, UBS would pay US$1 billion to the Swiss National Bank for the fund, with the remaining equity value split between the central bank and UBS.
The Swiss National Bank said the fund will now be valued and the repurchase is expected to take about three months.
The fund reported a profit of US$830 million for the first half of this year. Separately, UBS reported that its earnings rose 32% in the three months ending June 30 to US$740 million.
UBS said the fund’s equity would increase the bank’s common equity ratio under the Basel III accounting rules by 70 basis points, to 90 basis points, which investors saw as a capital-strengthening move.
Investors welcomed the plan and UBS shares rose after the July announcement, partly because the purchase was expected to increase the bank’s capital ratios, already higher than many competitors'.
UBS chief executive Sergio Ermotti is overseeing the bank’s transformation and the buyback is part of his strategy to turn UBS into a more profitable, better‑capitalised bank focused on wealth management. For everyday investors, that shift can mean a healthier balance sheet, clearer strategy and potentially more stable shareholder returns over time.
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