Swiss banking giant UBS has said it plans to buy back the remainder of the Swiss National Bank’s (SNB) bailout fund into which the troubled bank offloaded high-risk assets during the 2008 financial crisis.
UBS says it expects to exercise an option to buy the so-called StabFund in the fourth quarter, a move which will bolster its capital.
When the SNB set up the stabilisation fund, a type of bad bank, in October 2008, it purchased $35.1 billion in «toxic» UBS securities which risked destroying the bank at the time.
Since then the market for these previously untouchable assets has recovered and the SNB has been gradually able to reduce its holdings. The net worth of the fund at the end of June was just over CHF7.5 billion.
The Swiss government also took a nine per cent stake in UBS as part of the bailout, in return for a CHF6 billion lifeline to the bank. Switzerland sold the stake less than a year later at a CHF1.2 billion profit.
UBS will buy the bailout fund back from Switzerland’s central bank later this year. It can purchase it for $1 billion plus 50 per cent of its gains. The move will add up to 90 basis points to UBS’s capital ratios, by taking on the cash and securities remaining after the loan is repaid.
Crisis legacy
For UBS the transaction will draw a line under assets connected to the financial crisis.
Tuesday’s announcement came as UBS released its second-quarter earnings report, confirming that it earned CHF690 million, up from CHF524 million a year earlier. Earnings at its investment bank leapt.
In another overhang from the crisis, it was announced last week that UBS will pay $885 million to settle United States government claims that it violated securities laws in its sales of mortgage-backed bonds between 2004 and 2007 to two federally-controlled mortgage finance companies.
The Federal Housing Finance Agency (FHFA), which oversees the two companies known as Fannie Mae and Freddie Mac, announced the settlement on July 25.
The agency had sued UBS and 17 other major banks over their sales to Fannie and Freddie of about $196 billion in mortgage securities that soured when the housing market collapsed in 2007.