UBS has finalised an agreement with the Swiss government that will provide the bank with up to SFr9bn ($10bn) to protect it from losses on the rescue of Credit Suisse.
The loss protection agreement is the final hurdle for UBS to cross before completing the takeover early next week.
In talks with Swiss authorities over rescuing its rival Credit Suisse in March, UBS convinced the government to contribute up to SFr9bn to cover losses the bank would make in winding down unwanted assets.
The government assistance would kick in after UBS covered the first SFr5bn of losses.
“UBS will manage these assets in a prudent and diligent manner and intends to minimise any losses and maximise value realisation on these assets,” the bank said on Friday.
“It also will cover the initial and ongoing external costs incurred by the Confederation and Finma for the [loss protection agreement].”
The rescue of Credit Suisse, which was engineered by Swiss authorities, is expected to be the most significant and complicated banking merger since the financial crisis.
The size of government support for the deal — which also includes a SFr100bn liquidity line — and the potential for job cuts and branch closures in Switzerland has led to criticism domestically.
A poll published shortly after the deal was announced showed that three-quarters of voters wanted the mega bank to be split up.
A month later, Swiss parliamentarians voted against the government’s SFr109bn financial package that underpins the deal in a symbolic protest.
Last month, the country’s left-leaning Social Democratic party said it had drawn up plans to halve the bank’s post-merger balance sheet, bringing it down from SFr1.5tn to closer to the country’s gross domestic product of SFr734bn.
UBS executives are at pains to show investors they will try to limit their dependence on the state and avoid using the government’s support. Recently returned chief executive Sergio Ermotti has insisted that Swiss taxpayers are “exceptionally unlikely” to suffer losses on the takeover.
As part of the agreement, UBS will pay SFr40mn to the Swiss government for setting up the guarantee, a SFr36mn annual maintenance fee while it is in place and interest on the money it uses, which ranges from 0.4 per cent to 4 per cent, depending on how much is drawn down.
On Wednesday UBS confirmed Financial Times reporting that it would push back its second-quarter results from July 25 to August 31 in recognition of the complicated task of bringing together two accounting frameworks.
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