UBS negotiating with Swiss authorities on Credit Suisse deal loss protections

Government agreed in March to shoulder up to $10.12bn in potential losses from the takeover

UBS has said it expects to complete the acquisition of Credit Suisse by early June. Reuters

UBS Group has said it was in negotiations with Swiss authorities over loss protections related to its takeover of Credit Suisse Group and its regulatory capital requirements.

This disclosure underlines how some aspects of the tie-up between the two banks – arranged hastily over a weekend in mid-March by the Swiss government to stave off a broader banking crisis – have yet to be ironed out.

The Swiss government agreed at the time to shoulder up to 9 billion Swiss francs ($9.9 billion) in potential losses from the deal and offered liquidity assistance of up to 100 billion Swiss francs.

However a definitive loss protection agreement remains under negotiation, UBS said in a US regulatory filing on Tuesday.

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UBS said in the filing that it expected the main terms of the loss protection agreement to be agreed before the acquisition of Credit Suisse being completed.

The bank said it was also in talks with the Swiss regulator Finma about “certain prudential capital requirements, risk weighted assets measures, and other capital and liquidity requirements for the combined firm”, but did not expect those to be finalised before the deal closes.

UBS has said it expects to complete the acquisition of Credit Suisse, which came to the brink of collapse in March following a string of financial scandals and mismanagement, by early June.

Meanwhile, the Swiss Finance Ministry issued an order on Tuesday stating that Credit Suisse senior managers will have their outstanding bonus payments for 2022 either cancelled or reduced.

The order affects the top three levels of Credit Suisse management.

Governments rarely impose a complete halt to bonus payouts, but in Switzerland there has been public backlash against Credit Suisse employees receiving them.

The bank's rescue was backed by roughly 260 billion Swiss francs of state funding and guarantees.

This ruling will affect around 1,000 employees, who will be deprived of payments totalling approximately 50 million Swiss francs to 60 million Swiss francs accrued up to the end of 2022.

Executive board members will have their outstanding bonus payments up to the end of 2022 cancelled, while managers one level below will have their the payments cut by 50 per cent.

Managers two levels below will see their outstanding variable payments reduced by 25 per cent, the ministry said.

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“This takes account of the most senior managers' responsibility for the situation at Credit Suisse in a differentiated manner,” the ministry said.

“Moreover, variable remuneration for these management levels due in 2023 will be cancelled or reduced on a pro-rata basis until the takeover is completed.”

The ministry also said Credit Suisse should look into potentially recovering remuneration already paid out to members of group management since 2019.

This order follows temporary measures on suspending variable payments from the Swiss government in March, shortly after the emergency takeover by UBS was agreed.

The Finance Ministry also said on Tuesday it had ordered UBS to design a pay scheme to incentivise staff responsible for selling off Credit Suisse assets to make the smallest possible losses on the sales.

“This is intended to provide an incentive to achieve the lowest possible losses, in order to avoid, wherever possible, the utilisation of the federal guarantee,” the ministry said.

Updated: May 24, 2023, 9:02 AM