Sergio Ermotti has a taxpayer safety net, but it only kicks in if things get really bad. On Friday, the UBS boss was finally able to release the details of a government backstop that was initially floated back in March to smooth the bank’s rescue of Credit Suisse . The state will eat 9 billion Swiss francs ($10 billion) of losses on certain assets once UBS has swallowed an initial 5 billion Swiss francs. The actual contract, despite being 94 pages long, is missing the most important number: how many assets are covered by the agreement. For that, investors have to turn to a document on the Finance Ministry’s site, which says that the portfolios in question have a face value of around 44 billion Swiss francs, mostly comprised of derivatives, structured products and loans that Credit Suisse was already trying to ditch.
on the Finance Ministry’s site, which says that the portfolios in question have a face value of around 44 billion Swiss francs, mostly comprised of derivatives, structured products and loans that Credit Suisse was already trying to ditch.it would write down the value of Credit Suisse’s assets by $10 billion.
To breach its initial loss threshold, the assets would have to fall 11% below their already discounted value. Admittedly, if anyone’s balance sheet has the capacity to crumble, it’s Credit Suisse’s. UBS shareholders should probably think of the government scheme as a kind of deeply out-of-the-money option against that possibility. But, facing such losses, UBS might be better off just hanging on to the assets until prices recover rather than realising a giant markdown.
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