Switzerland to give its biggest bank $60 billion lifeline

October 17, 2008|By New York Times News Service

PARIS - Switzerland, a banking redoubt considered until recently to be literally and figuratively above the global financial tumult, succumbed yesterday and announced a bailout plan for its biggest bank, UBS.

Hit harder than any other European financial institution by losses stemming from bad investments in subprime American mortgage debt, UBS will receive a lifeline worth as much as $60 billion from the Swiss National Bank.

The country's other banking powerhouse, Credit Suisse, announced that it would raise $8.75 billion in fresh capital from private backers, including the Qatar Investment Authority, after turning down the offer of direct government help.

Jean-Pierre Roth, president of the Swiss National Bank, said: "This operation is highly unusual, both with regard to its scope and the reasons for it. In carrying it out, we are making a contribution to an essential element of the Swiss financial system at a time when financial markets have been in turmoil for some months now."

Roth emphasized that the move was crucial to helping Switzerland "weather the economic difficulties resulting from the anticipated global economic slowdown in the months ahead."

Even as the help for UBS was announced, Swiss regulators publicly blamed the bank for poor risk controls that worsened its losses on toxic American debt.

"The write-downs were mainly caused by organizational weaknesses, as well as by an insufficient assessment of the relevant risks in combination with the exceptional market environment," according to a report yesterday by the Swiss Banking Commission.

The Swiss government said it also planned to increase protection for depositors from a current guarantee of 30,000 Swiss francs, or about $22,400, after similar steps elsewhere in Europe.

Under the terms of the agreement announced yesterday, $31 billion in American assets will be taken over by the Swiss National Bank, much of it in the form of debt linked to subprime and Alt-A mortgages, in addition to securities linked to commercial real estate and student loans. An additional $18 billion worth of non-American assets will also be transferred.

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