CS recovery could be a bombshell job for the federal government

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The bailout of Credit Suisse entails enormous financial risks for the federal government and therefore for taxpayers. But it’s also a nice chance for a prize. That’s because the federal government charges a premium on CHF default guarantees, even if the bank never takes out the loan.

About what?

The federal government and the Swiss National Bank provided a total of CHF 250 billion liquidity assistance for the rescue of CS. 50 billion is an interest-free loan that SNB made to CS shortly before the takeover of UBS. SNB provides an additional 100 billion SNB at its own risk, and the federal government guarantees an additional 100 billion SNB with tax money.

But it’s not free. The federal government receives a 0.25% annual premium from UBS for providing this 100 billion. So that’s 250 million, or 21 million a month. UBS has to pay the money whether it uses the loan or not. This was confirmed to SRF by Philipp Rohr, Head of Communications for the Federal Financial Administration.

The premium must be paid by UBS as long as the warranty is requested. The federal government could make money for months before CS is definitely merged with UBS. So even the federal government will do well if the CS recovery is successful.

That’s what happened with the Corona emergency loan for Switzerland – they repaid the loan in full, including interest.

The Bund is confident

If all goes wrong, these liquidity loans are designed with a federal bankruptcy privilege. In the event that Super-UBS goes bankrupt, the federal government will be notified from the bankruptcy office in the presence of other creditors.

In addition to the liquidity support, the federal government also pledged CHF 9 billion loss reduction to UBS. But that only comes into play when UBS has already made a loss of five billion, and it’s about selling toxic CS assets.

Source :Blick