LONDON - The Swiss National Bank said Friday that UBS repaid in full a loan it received as part of a government bailout five years ago. The move clears the way for UBS to repurchase a portfolio of toxic assets that were moved off the UBS books during the financial crisis.
UBS 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 UBS’s bailout. Repaying its loan in full 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 in a statement.
Like some of its rivals, UBS needed government help when financial markets froze in the aftermath of the collapse of Lehman Brothers and losses mounted. The bank spun off $38.7 billion of toxic 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 $1 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 $830 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 the UBS chief executive, Sergio P. Ermotti, speed up the bank’s transformation from an unprofitable institution with a troubled investment banking strategy to a profitable bank with a sufficient capital cushion and a focus on wealth management. UBS reported last month that its earnings rose 32 percent in the three months that ended June 30 to 690 million Swiss francs ($740 million).
Investors have been welcoming UBS’s plan to buy back the fund in the fourth quarter of this year. UBS shares rose after the announcement in July that the purchase of the fund would increase UBS’s 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 (One basis point equals 0.01 percentage point). UBS’s core Tier 1 capital ratio was 11.2 percent at the end of the second quarter.
