Swiss Government to Bail Out UBS

The image of Switzerland includes rock solid banks and numbered accounts socked full of loot. That image took a bodyblow this week. The Swiss government says it will be bailing out UBS AG. The bank will get 6 billion Swiss francs in exchange for mandatory convertible notes to the government, with a coupon of 12.5 percent.

Bloomberg reports, “UBS the world's biggest money manager for the wealthy, is seeking to stem client defections after wrong-way bets at its investment-banking unit led to $44.2 billion of credit losses and writedowns since the start of last year, the most by any bank in Europe. Wealth management and business banking clients removed a net 49.3 billion francs in the third quarter.”

To do that, it gets the 6 billion francs but it also gets to move 60 billion francs worth of bad securities into a fund the government is setting up. At the same time, the government will guarantee interbank loans and increase deposit insurance. This makes Switzerland the latest economy to adopt Gordon Brown's solution.

The hotshots at UBS aren't accepting that they were partially nationalized even though the government owns almost 10% of it. UBS spokeswoman Larisa Alghisi said, “UBS is and was by no means in financial distress. What has been agreed with the SNB and the government is a commercial solution at economic terms.”

Rival bank Credit Suisse won't be participating in the toxic asset fund. A spokesman for Credit Suisse said his bank didn't have much to put into such a fund. The good news for Switzerland and wealthy chocolate lovers is Credit Suisse got an infusion of money from Qatari private investors – 10 billion francs.

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