Switzerland's top two banks took emergency measures to shore up their finances on Thursday, with the state taking a near 10 percent stake in UBS while Credit Suisse raised new funds from private investors. UBS AG is getting 6 billion Swiss francs ($5.3 billion) from the state in return for a 9.3 percent stake, while Credit Suisse Group AG said it would raise 10 billion francs from investors including Qatar. UBS, the biggest Swiss bank, will also unload $60 billion of toxic assets into a new fund controlled by the central bank. Shares in both banks recovered from sharp early falls, outperforming European banks as a whole as investors welcomed the latest example of the dramatic measures being taken around the world to prop up banks squeezed by the credit crunch. “All European governments intervened and this left the Swiss banks at a competitive disadvantage,” said analyst Dirk Becker at brokerage Kepler. “The Swiss have recapitalised their banks and made them the best capitalised banks in the world.” UBS, which has been worse hit than Credit Suisse in the current crisis, said its foremost need was to cut exposure to illiquid assets and the creation of the new fund had laid the foundation for a return to its normal operating business. It said it made a net profit of 296 million francs in the third quarter - helped by gains on its own credit and tax gains - but admitted client withdrawals had accelerated, particularly as the market turmoil escalated in September. While Credit Suisse saw strong inflows in the quarter, it made a net loss of about 1.3 billion Swiss francs ($1.2 billion) after fresh writedowns. The Swiss government said it did not want to hold the UBS stake for years and would sell it to private investors as soon as possible. In return for the capital, it will make demands on corporate governance and risk controls. The government said it also planned to boost depositor protection - from a current 30,000 franc guarantee - using steps taken elsewhere in Europe as a benchmark. The banking regulator said other banks in the country were generally sound. “The government has decided to tackle the systemic crisis with these ... measures to restore confidence in the financial centre,” Switzerland's acting Finance Minister Eveline Widmer-Schlumpf told a news conference. Keen to support a financial sector which accounts for nearly 15 percent of Swiss output, the government said if refinancing problems emerged it would guarantee banks' new short- and medium-term interbank liabilities and money market transactions. Credit Suisse welcomed the government action but said it had declined to participate “at this time” given its ability to raise private funds on capital markets and the fact it did not have significant troubled assets. Credit Suisse raised about 10 billion francs – or about 12 percent of its outstanding equity - from investors including the Qatar Investment Authority, already a big shareholder. Koor Industries had said on Monday it agreed to invest 1.2 billion francs in CS in exchange for a 3 percent stake in the bank. Saudi conglomerate Olayan also took a stake, the bank said. The injection means Credit Suisse can immediately meet strict new Swiss capital rules set for 2013, while UBS said it will need more time and is still talking to the regulator. “In contrast to UBS, it did not have to be shored up by the state ... which is a sign of certain strength in the current environment,” analysts at ZKB said in a note. Shares in CS were up 4.6 percent at 48 francs by 1248 GMT, having initially tumbled more than 9 percent. UBS shares recovered from a similar early setback to be up 3.8 percent at 20.84 francs, while European banks fell 2 percent. “We applaud this move as it should relieve fears about further writedowns and eventually stem money outflows in its core wealth management franchise,” analyst Pangiotis Spilopoulos at banking group Vontobel said. UBS said the steps should help reverse the outflow of client assets. It said its wealth management business had continued to see big withdrawals in the third quarter, with net outflows of 49.3 billion francs, while its global asset management division also saw net outflows of 34.4 billion francs. The troubled UBS investment management business made new writedowns and losses of $4.4 billion in the third quarter. UBS had already made a total of $42 billion of writedowns on toxic assets due to the credit crisis, more than any other European bank, and is slashing thousands of jobs, but it also raised $30 billion of capital before the turmoil mounted. Credit Suisse said it had attracted third-quarter net new assets of approximately 14 billion francs. But citing “exceptionally adverse trading conditions in September”, it made a pretax loss of around 3.2 billion francs from investment banking and writedowns of about 2.4 billion on risky assets.
