UBS set to buy back its lost assets
The Swiss National Bank said on Friday that UBS had fully repaid a loan it received as part of a government bailout five years ago. The move clears the way for UBS to buy back a portfolio of distressed assets that were moved off its books during the financial crisis.
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.